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SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

|            |  |                                                                                                    
|----------- |  | ---------------------------------------------------------------------------------------------------
|(CHECK BOX) |  | 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, 2001

OR

|      |  |                                                                                                           
|----- |  | ----------------------------------------------------------------------------------------------------------
|(BOX) |  | 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
incorporation or organization) |  | (IRS Employer
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:

|                                      |  |                                         
|------------------------------------- |  | ----------------------------------------
|Title of each class                   |  | Name of each exchangeon 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   (CHECK BOX) |  | NO   (BOX)

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. (CHECK BOX)

Based upon the closing price of the Class A Common Stock on February 28,
2002, 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
$18,291,026.

The number of shares of common stock issued and outstanding as of February
28, 2002 was 22,247,554. This amount includes 15,107,154 shares of Class A
Common Stock and 7,140,400 shares of Class B Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

Selected portions of the 2002 Proxy Statement of Rouge Industries, Inc. are
incorporated by reference into Part III of this Form 10-K to the extent
provided herein.



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|                                                                                              |  |  |  |  |  |  |  | 
|--------------------------------------------------------------------------------------------- |  |  |  |  |  |  |  | 
|PART I                                                                                       
|Item 1. Business                                                                             
|Item 2. Properties                                                                           
|Item 3. Legal Proceedings                                                                    
|Item 4. Submission of Matters to a Vote of Security Holders                                  
|PART II                                                                                      
|Item 5. Market for Registrants Common Stock and Related Stockholder Matters                 
|Item 6. Selected Financial Data                                                              
|Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|Item 7A. Qualitative and Quantitative Disclosures About Market Risk                          
|Item 8.Financial Statements and Supplementary Data                                           
|Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 
|PART III                                                                                     
|Item 10. Directors and Executive Officers of the Registrant                                  
|Item 11. Executive Compensation                                                              
|Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|Item 13. Certain Relationships and Related Transactions                                      
|PART IV                                                                                      
|Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K                    
|Exhibit Index                                                                                
|EX-10.29 Separation and Mutual Release Agreement                                             
|EX-21 List of Subsidiaries                                                                   
|EX-23 Consent of PricewaterhouseCoopers LLP                                                  



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ROUGE INDUSTRIES, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

TABLE OF CONTENTS

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|Item 9.  |  | Changes in and Disagreements With Accountants on Accounting
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|Item 10. |  | Directors and Executive Officers of the Registrant                                    |  | 64  
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|Item 11. |  | Executive Compensation                                                                |  | 64  
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|Item 14. |  | Exhibits, Financial Statement Schedules, and Reports on Form 8-K                      |  | 65  

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PART I




Item 1. Business.

General

Rouge Industries, Inc., a Delaware corporation (together with its
subsidiaries, Rouge Industries or the Company), was incorporated in 1996.
The Company is primarily engaged, through its wholly-owned subsidiary, Rouge
Steel Company (Rouge Steel), in the production 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. These customers 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 three Michigan-based joint ventures. Eveleth holds a
45% interest in Eveleth Mines LLC (EVTAC), a Minnesota-based iron ore mining
and pellet producing operation.

On February 1, 1999, an explosion and fire at the Rouge Complex Powerhouse
(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 93-day shutdown of Rouge Steels steel making facilities. During the
shutdown, the Company processed purchased slabs and coils, but the production
interruption had a significant impact on Rouge Steels shipments, sales, costs
and expenses and insurance recovery. Continuing business interruption and
Powerhouse property damage expenses in 2000 and 2001 along with a partial
settlement of the insurance claim in 2000 and the full settlement in 2001
affected the Companys results of operations in those years. Consequently,
comparisons between 2001 and 2000 and between 2000 and 1999 may be difficult to
discern.

The Company continues to face difficult market conditions. During 2000
and 2001, there was intense downward pressure on prices caused by high levels
of imports and a softening of demand for steel by the Companys customers. The
lower prices and the cash strain caused by the Powerhouse explosion and the
delay in the full startup of the new power plant have resulted in considerable
pressure on the Companys liquidity. The Company responded to the liquidity
stress by refinancing its long-term debt early in 2001 and procuring a
subordinated credit facility late in 2001. Additionally, the Company has
undertaken an aggressive cost reduction program and reduced capital
expenditures in order to help conserve cash.

The Companys liquidity is dependent on operating performance, which is
closely related to business conditions in the domestic steel industry, the
implementation of operating and capital cost reduction programs, the impact of
the governments response to the Section 201 filings, and sources of financing.
The Company depends on borrowings to fund operations. In the event that
market conditions fail to improve adequately, operating losses continue and the
Company is unable to secure additional financing sources to fund expected
operating losses, it may be required to seek bankruptcy protection or commence
liquidation or other administrative proceedings.

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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 can be differentially 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 to make the steel more corrosion resistant and
is sold to automotive and service center customers and other end users such as
commercial and residential door manufacturers.

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 1999 through 2001.

|                   |       |  |                         |       |      |  |      |       |   |  |      |       |  
|------------------ | ----- |  | ----------------------- | ----- | ---- |  | ---- | ----- | - |  | ---- | ----- | -
|                   |       |  | Years Ended December 31
|                   |       |  |                        
|                   |       |  | 2001                    |       | 2000 |  | 1999
|                   |       |  |                         |       |      |  |     
|Hot Rolled         |       |  | 39.9                    | %     |      |  | 37.5 | %     |   |  | 37.3 | %    
|                  
|                  
|                  
|                  
|Cold Rolled        |       |  | 21.2                    |       |      |  | 25.5 |       |   |  | 27.4 |      
|                  
|                  
|                  
|                  
|Electrogalvanized  |       |  | 19.1                    |       |      |  | 20.5 |       |   |  | 21.9 |      
|                  
|                  
|                  
|                  
|Hot Dip Galvanized |       |  | 19.8                    |       |      |  | 16.5 |       |   |  | 13.4 |      
|                   |       |  |                         |       |      |  |      |       |   |  |      |      
|                   | Total |  |                         | 100.0 | %    |  |      | 100.0 | % |  |      | 100.0 | %
|                   |       |  |                         |       |      |  |      |       |   |  |      |      

Approximately one-half of the Companys sales of hot rolled steel have
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 sold to automotive, construction
and service center customers for use in unexposed automotive parts, residential
and commercial doors, duct work, computer chassis, grain bins and access
flooring.

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



| | (i) |  | Double Eagle Steel Coating Company (Double Eagle), a 50% owned
joint venture with United States Steel Corporation (U.S. Steel),
which produces electrogalvanized steel sold primarily to the
automotive industry. The Double Eagle joint venture agreement was set
to expire in 2001, but the Company and U.S. Steel have extended the
agreement on a rolling two-year basis. On December 15, 2001, a major
fire at Double Eagle halted production at the plant. The Company and
U.S. Steel are
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |       |  | rebuilding Double Eagle and plan to return the facility to full
production by the fourth quarter of 2002;                                                                                                                                             
| | ----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (ii)  |  | Spartan Steel Coating, L.L.C. (Spartan Steel), a 48% owned
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), an 11% owned joint venture with
Worthington, Thyssen Inc., Bethlehem Blank Welding, Inc. and LTV Steel
Company, Inc. which produces laser welded blanks sold primarily for
automotive and other end use applications; and
|
| | (iv)  |  | Delaco Processing, L.L.C. (Delaco Steel Processing), a 49%
owned joint venture with Delaco Supreme Tool & Gear Co. which slits
steel coils to be sold to automotive customers and other end users.                                                  

During 2001, Rouge Industries transferred its interest in Shiloh of
Michigan, L.L.C. (Shiloh of Michigan) to an affiliate of Shiloh Industries,
Inc. (Shiloh), the Companys partner in the Shiloh of Michigan joint venture.
Shiloh of Michigan produced engineered steel blanks until it ceased operations
in late 2001. The Company has reallocated its blanking business to other
processors. The transfer of the Companys interest in Shiloh of Michigan
resulted in Rouge Industries recording a $1.8 million non-cash gain relating to
the reversal of previously recorded losses in excess of the Companys basis in
Shiloh of Michigan. The Company also was released from its guarantee of Shiloh
of Michigans debt.

In March 2002, Rouge Industries and Bing Management II, L.L.C. liquidated
their interests in Bing Blanking, L.L.C., a joint venture which produced first
operation blanks and roll formed parts primarily for the automotive industry.
Bing Blankings major customer no longer required its parts form Bing Blanking.
Consequently, the joint venture ceased operations in January, 2002. As a
result of financial difficulties experienced by Bing Blanking, its lender
called the Companys guarantee of Bing Blankings $2.5 million loan. The
Company also had a $3.0 million subordinated loan outstanding to Bing Blanking.
The Company recorded a reserve against its $3.0 million note receivable from
Bing Blanking. As a result of the liquidation proceedings, the Company fully
recovered the $2.5 million of bank debt that it paid pursuant to the guarantee.

The Company has invested approximately $52.1 million in Spartan Steel and
$6.5 million in TWB. In addition to a small capital contribution
(approximately $10,000), the Company guarantees a loan for Delaco Steel
Processing. The guaranteed amount at December 31, 2001 was $1.9 million. The
Company does not presently anticipate the need to fund the Delaco Steel
Processing guarantee.

The objective of the Companys joint ventures is to permit the Company to
process a larger portion of its steel into higher margin, value-added products
and, to a lesser extent, to provide it with an additional outlet for its hot
rolled and cold rolled steel. Rouge Industries participation in joint
ventures responds to the demand by its customers 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. Each of the Companys joint ventures
processes the Companys steel and passes charges along to Rouge Industries.
The Company records these charges as a component of costs of goods sold.

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Markets and Customers

Consistent with the Companys 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 the Companys responsiveness to customer needs in a continually
changing competitive environment.

Ford Motor Company (Ford), General Motors Corporation (GM) and
DaimlerChrysler AG (DaimlerChrysler), the Companys three largest customers,
accounted for approximately 36%, 10% and 10%, respectively, of total sales in
2001. Sales to Ford, GM and DaimlerChrysler were 38%, 9% and 9%, respectively,
of total sales in 2000 and were 40%, 6% and 10%, respectively, of total sales
in 1999. 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, GM or DaimlerChrysler, has
accounted for more than 10% of the Companys total sales over the past three
years. The Companys ten largest customers in the aggregate accounted for
approximately 73% of total sales in 2001 and approximately 74% of total sales
in 2000. For 2001, the Company estimates that its share of the domestic flat
rolled steel market, as measured by shipments, was approximately 4.6%.

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, 1999 through 2001.

|                |       |  |                         |       |      |  |      |       |   |  |      |       |  
|--------------- | ----- |  | ----------------------- | ----- | ---- |  | ---- | ----- | - |  | ---- | ----- | -
|                |       |  | Years Ended December 31
|                |       |  |                        
|                |       |  | 2001                    |       | 2000 |  | 1999
|                |       |  |                         |       |      |  |     
|Automotive      |       |  | 62.4                    | %     |      |  | 61.7 | %     |   |  | 63.0 | %    
|               
|               
|               
|               
|Converters      |       |  | 10.2                    |       |      |  | 9.3  |       |   |  | 7.5  |      
|               
|               
|               
|               
|Service Centers |       |  | 25.5                    |       |      |  | 28.2 |       |   |  | 27.2 |      
|               
|               
|               
|               
|Other End Users |       |  | 1.9                     |       |      |  | 0.8  |       |   |  | 2.3  |      
|                |       |  |                         |       |      |  |      |       |   |  |      |      
|                | Total |  |                         | 100.0 | %    |  |      | 100.0 | % |  |      | 100.0 | %
|                |       |  |                         |       |      |  |      |       |   |  |      |      

Automotive. The Company is a significant supplier of hot rolled, cold
rolled, electrogalvanized and hot dip galvanized 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 automotive market
comprised 62.4% of the Companys steel product revenues in 2001, up from 61.7%
in 2000.

Sales to Ford, the Companys largest customer, accounted for approximately
36% of total sales in 2001, 38% of total sales in 2000 and 40% of total sales
in 1999. In addition to its relationship with Ford, the Company has a
diversified automotive customer base. Sales to GM, the Companys second
largest customer, were approximately 10% of total sales in 2001, 9% of total
sales in 2000 and 6% of total sales in 1999. Sales to DaimlerChrysler, the
Companys third largest customer, were approximately 10% of
total sales in 2001; 9% of total sales in 2000 and 10% of total sales
in 1999.

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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.

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. Steel service centers are 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 493,000 net tons at December 31, 2001,
compared to 330,000 net tons at December 31, 2000. All orders related to the
order load at December 31, 2001 are expected to be shipped during the first
half of 2002. The order load represents orders received but not yet shipped.

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 and energy sources are generally
purchased in the open market from various sources. Certain of the purchased
raw materials and energy sources are not covered by long-term contracts and,
therefore, availability and price are subject to 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 2001, approximately 66% of the Companys coke was
provided by U.S. Steel. The Company acquired approximately 34% of its coke
through a tolling agreement with New Boston Coke Corporation (New Boston),
whose total productive capacity is dedicated to the Company. Under the
tolling agreement, the Company provides coal to New Boston for processing into
coke. During the past 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 and the increased demand for coal as an energy source
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 3.6 million
gross tons of iron ore pellets annually over the three-year period ended
December 31, 2001. Approximately 66% of the Companys requirements for pellets
during this period was obtained under a trade arrangement with Stelco, Inc or
The Cleveland-Cliffs Iron Company (Cleveland-Cliffs). Under this
arrangement, the Company exchanged acid pellets purchased from its 45% owned
joint venture, EVTAC, for fluxed pellets or acid pellets with a higher
manganese content, which are used to

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enhance blast furnace productivity. The
Company is required to pay a cash premium equal to the
difference between the market price of the fluxed pellets and the contract
price of EVTAC acid pellets in addition to providing the EVTAC acid pellets.
During the three-year period ended December 31, 2001, the Company traded an
average of 2.3 million gross tons of EVTAC pellets annually, which constituted
100% of the Companys share of the pellets produced by EVTAC. The balance of
the Companys pellet requirements was purchased pursuant to a contract with
Cleveland-Cliffs.

The iron ore reserves of EVTAC are sufficient to provide the Company with
an estimated 20 to 25-year supply at the current level of production. The
six-year pellet purchase agreement with EVTAC expires on December 31, 2002 and
the Company and the other owners of EVTAC continue 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 Company spent approximately $56 million to purchase steel
scrap in 2001 compared to $80 million in 2000 and $60 million in 1999.

Other Raw Materials and Energy Sources.During 2001, natural gas,
electricity and steam constituted 53%, 17% and 30%, respectively, of the
Companys total energy costs. Natural gas is acquired at prevailing market
prices from various producers. The cost of natural gas increased dramatically
during 2000 and early 2001. Rouge Industries was protected from the large
price increases for a portion of its natural gas requirements because of fixed
price contracts. However, the average natural gas prices paid by the Company
in 2001 were approximately $1.50 per MMBTU higher than the Companys 2000
average. The Company used 16 million MMBTUs of natural gas in 2001. The
additional cost to the Company in 2001 of the 40% increase in the natural gas
price was approximately $23 million.

Prior to the Powerhouse explosion, the Powerhouse provided electricity for
all of the Companys steel-making facilities except its ladle refining
facility, as well as all of its steam requirements pursuant to an operating
agreement with Ford (the Powerhouse Joint Operating Agreement). The
Powerhouse is owned 60% by the Company and 40% by Ford. The Powerhouse Joint
Operating Agreement was due to expire on December 31, 1999, but has been
extended on a rolling 30-day basis until it is terminated by either party upon
30 days notice. The Powerhouse Joint Operating Agreement governs the utility
distribution and cost sharing arrangements for the Rouge Complex. The Company
installed temporary package steam boilers to provide heating and processing
steam after the Powerhouse explosion. In 1998, Rouge Steel and Ford signed an
agreement for long-term energy services with Dearborn Industrial Generation,
L.L.C., an affiliate of CMS Energy Corporation (together with its subsidiaries,
CMS) which operates a new co-generation power plant. The Company began to
purchase electricity from the co-generation power plant in April, 2001 and
began to purchase steam in October, 2001. However, the new co-generation power
plant has not yet been able to consume all of the blast furnace gas generated
by the Company. Consequently, the Company continues to flare the blast furnace
gas at a cost penalty of $1.0 million to $1.5 million per month.

The Company has a long-term contract for the supply of oxygen and nitrogen
with Praxair, Inc. which expires in 2005. The contract contains minimum oxygen
and nitrogen purchase levels of $14.1 million and $816,000 per year,
respectively.

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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 service, quality, price and the
ability to meet customers product specifications and delivery schedules. The
steel industry is highly competitive. This competition affects the prices that
the Company can charge for its products, the utilization levels at its
production facilities, and, ultimately, its profitability. 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 several years in steel-making equipment and downstream joint
ventures, and (iv) a single-site, geographically strategic location.

Imports. Domestic steel producers continue to face significant
competition from foreign producers. Decisions by 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 2001 are estimated to have been 30 million tons, a 23%
decrease from 2000 levels. Imports as a percentage of apparent domestic
consumption, including semifinished steel, averaged approximately 24% in 2001,
32% in 2000 and 29% in 1999. In 1998, steel imports were 42 million tons, or
32% of apparent domestic consumption. The Company believes that the decrease
in imports in 2001 was a temporary and pre-emptive attempt by foreign producers
to mitigate the level and scope of tariffs that potentially will be imposed on
them. See Trade Case.

Domestic Steel Industry. The domestic steel industry is a cyclical
business. 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,
together with high levels of imports, have caused downward price pressure. The
availability and fluctuations in the cost of electricity and scrap, the primary
raw materials for mini-mill steel production, may influence the ability of
mini-mills to compete with domestic integrated producers.

Due to the intensely competitive conditions within the domestic steel
industry, a number of integrated steel producers are presently going through
bankruptcy reorganizations. As a result of these reorganizations, these
competitors may achieve certain cost savings that would permit them to price
their steel products at levels below those at which it would be profitable for
the Company to sell its products.

Trade Case.The U.S. steel industry has been suffering financially, with
marked declines in profits, returns on investment and market share. As a
result, many steel-related companies have

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sought bankruptcy protection. Many
U.S. steel producers maintain that an increase in low-priced imports, which
began three years ago, is responsible for the hardships within the industry.

On June 5, 2001, President Bush announced a comprehensive initiative to
respond to the challenges facing the U.S. steel industry. As part of that
initiative, the President requested that the U.S. International Trade
Commission (the ITC) undertake an investigation under section 201 of the
Trade Act of 1974 to determine whether steel products are being imported into
the United States in such increased quantities as to be a substantial cause of
serious injury, or a threat of serious injury, to domestic steel manufacturers.
On October 22, 2001, the ITC determined that foreign steel imports have been a
substantial cause of injury to the U.S. steel industry in affirmative decisions
covering nearly 80% of the total import tonnage, including the four carbon and
alloy flat product categories that Rouge Steel produces. On December 7, 2001,
the ITC outlined remedy recommendations that included import tariffs ranging
from 20% to 40% and quotas. On December 19, 2001, the ITC formally presented
its remedy recommendations to President Bush.

On March 5, 2002, the Bush Administration announced its decision regarding
remedies to the trade situation. Tariffs of 30% will be imposed on imports of
flat rolled steel (which compete with the Companys products) for one year,
declining to 24% the second year and 18% the third year. Such remedies could
cause the Companys financial situation to improve, primarily by allowing steel
prices, productivity and shipments to recover to reasonable levels.

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 and roofing materials
for houses.

Employees

At December 31, 2001, the work force of Rouge Steel was comprised of 2,062
hourly and 622 salaried personnel, including Rouge Steel employees working at
Double Eagle. In 2001, the Companys employment cost per ton shipped decreased
to $91 from $96 in 2000. Tons shipped per employee in 2001 increased to 909
from 892 in 2000.

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. Rouge Steel and the UAW
negotiated a four-year labor agreement in 2000, which expires August 1, 2004.
This labor contract provides for, among other things, improved work force
utilization, more flexible maintenance schedules, annual base wage increases,
improvements in retirement, medical, life and disability benefits and lump-sum
bonuses. The Company believes that it maintains 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 expires July 31, 2004.

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Environmental Control and Cleanup Expenditures

General.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. Except as set forth below,
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 $5.4 million during the past four years. In addition, the
Company has planned an aggregate of approximately $2 million in capital
expenditures for environmental compliance for the years 2002 through 2005.
Since environmental laws and regulations are becoming increasingly 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.

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 the Comprehensive Environmental Response Compensation and Liability
Act of 1980, as amended, (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 shall 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. With respect to previously
submitted claims, in some instances Ford has accepted responsibility; 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. Rouge Steel 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.

Rouge Steel and Ford co-signed a Corrective Action Consent Order which
committed both companies to a four-phase remediation program throughout the
Rouge Complex. Ford has indicated its concurrence with Rouge Steels position
that, under the Ford Indemnity, the demolition of Rouge Steels coke oven
batteries, including environmental remediation, will be Fords responsibility.
Based on the available data regarding the cost to demolish the coke ovens and
remediate the site, during 2001, the Company increased its existing coke oven
demolition reserve and recorded a corresponding receivable for anticipated
recoveries from Ford. The net effect of these events was a benefit of $7.4
million to operating income in 2001.

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From time to time, the Company has received from the United States
Environmental Protection Agency (the EPA) various requests for information in
connection with an environmental statute. Whether these information requests
suggest contemplated actions by the EPA at any given time and whether such
requests for information will lead to a materially adverse effect on the
Companys results of operations or financial position is unknown.

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 (a Title V
Permit) in 1997 with amendments in 1998. The Michigan Department of
Environmental Quality (the MDEQ) advised the Company that the application and
the amendments were administratively complete. The Company expects to receive
a draft Title V Permit during 2002.

Settled.In 1998, the Company and the Wayne County Air Quality Division
(the Division) entered into a consent order resolving certain notices of
violation (NOVs) and issues involving the basic oxygen furnace (BOF)
electrostatic precipitator and the blast furnace flare stack. The settlement
agreement imposed a $125,000 penalty, stipulated penalties for future
violations, a compliance program and a five-year term. The Company paid the
penalty in 1998, and the compliance program has been implemented.

Recent Events.In 2000, the EPA promulgated regulations limiting air
emissions of nitrogen oxides (NOx), and establishing a cap and trade program
and allocation scheme for allowable NOx emissions. The regulations identified
specific emissions sources. The regulations treated the Companys blast
furnaces as affected sources and established a NOx emissions allocation for
them. The Company appealed the regulation to the United States Circuit Court
of Appeals and was successful in obtaining a letter from the EPA acknowledging
that the blast furnaces were not intended to be subject to the NOx emissions
allocation scheme. The EPA proposed amendments to its regulations that would
delete the identification of the Company as an affected source. Those
amendments have not been finalized, but the Company anticipates that the blast
furnaces will remain outside the scope of the regulations.

In 2000, the MDEQ finalized state NOx emissions regulations. The
regulations required sources to submit proposals for the control of NOx
emissions utilizing reasonably available control technologies. The proposals
are to be implemented by April 1, 2003. The Company submitted a proposal to
the MDEQ that concluded that only the Companys hot strip mill reheat furnaces
are subject to the regulation and that there are no cost effective means of
improving existing control of NOx emissions at the reheat furnaces. The
Company anticipates that this proposal will be accepted by the MDEQ, and that
no emissions control measures will be required.

In 2000, the Company and Ford entered into a voluntary consent order with
the MDEQ. The consent order calls for a phased cleanup of waste management
units and areas of concern at the Rouge Complex under the Michigan Natural
Resources and Environmental Protection Act (NREPA) and allows utilization of
the flexible cleanup standards of Part 201 of NREPA. The consent order calls
for meeting remediation goals by 2005. Ford has agreed to pay for most of the
remediation work, subject to its right to seek reimbursement from the Company
for any cleanup costs that are subsequently shown to be outside the scope of
Fords obligations to the Company under the Ford Indemnity. The Company has no
information at this time to suggest that the cost of remediation required by
the consent order will have a materially adverse effect on its results of
operations or financial position.

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In 2000, the EPA filed a complaint against the Company in the United
States District Court for the Eastern District of Michigan, U.S. vs. Rouge
Steel Company, CV-00-75452.The complaint arose out of a 1998 investigation of
Rouge Steels air, water and solid waste storage and disposal (the Multimedia
Investigation). The complaint alleges violations of the Clean Air Act and the
State of Michigans opacity emissions standards at the blast furnaces and the
BOF during 1998 and 1999. The complaint also alleges violations of RCRA.
Prior to the filing of the complaint, the EPA informed the Company that it
would seek $1.0 million in penalties, not
including any economic benefit component. Through subsequent negotiations and
discussions, the agency agreed to drop its demand for approximately $300,000 in
penalties under the Emergency Planning and Community Right-to-Know Act and
CERCLA. Accordingly, the federal complaint did not include those claims. The
Company is presently engaging in discussions with the EPA regarding the alleged
violations, potential penalties and other relief. Based on those discussions,
the Company presently believes that the agency will seek penalties of
approximately $450,000.

In 2000, the County of Wayne (the County) filed a complaint against the
Company in the United States District Court for the Eastern District of
Michigan, County of Wayne v. Rouge Steel Company and Rouge Industries, Inc.
CV-00-75454. The complaint alleges violations of the opacity emission
standards of the Wayne County Air Pollution Control Ordinance during 1998 and
1999. These allegations parallel those in the EPAs complaint that arose from
the Multimedia Investigation. The County and the EPA have agreed to jointly
settle the opacity claims with the Multimedia complaint. The County complaint
also alleged claims under the Michigan Environmental Protection Act for the
creation of a public nuisance. The County presented the Company with an order
to abate the alleged public nuisance and proposed a settlement penalty of
$252,000 for 15 fallout incidents alleged to have been caused by the Company.
However, as of October 1, 2001, the County relinquished enforcement of air
quality matters to the State of Michigan (the State). Through a Stipulation
filed with the court in February, 2002, the State joined with the County and
the EPA as a party in the settlement of the opacity claims. The State
indicated that it will review the fallout allegations, but has not yet reported
a decision on the matter. The Company has recorded an accrual with respect to
the EPA and the County lawsuits which it believes will be adequate to cover any
penalties arising from them.

The County issued several NOVs to the Company regarding opacity emissions
and fallout during 2000 that were not included in the Countys 2000 complaint.
The County has since agreed to consolidate the enforcement of these alleged
opacity NOVs in the joint settlement with the EPA discussed above. The
Companys disclosure of matters discussed herein does not indicate the
Companys acknowledgment of the validity of any claims made in connection
therewith. The preliminary nature of these matters makes it difficult for the
Company to predict the nature of their outcome or impact on the Company.

In 2000, the EPA issued a Unilateral Administrative Order (the Order) to
Rouge Steel pursuant to Section 7003(a) of RCRA. The Order directs the Company
to take immediate measures to stop the exposure of wildlife and migratory birds
to solid wastes and to develop and implement continuous emergency measures to
eliminate contact by wildlife with the solid wastes at the Companys Schaefer
Road Waste Water Treatment Plant. Rouge Steel complied with the Order and
submitted a continuing emergency measures workplan (CEMW) which the EPA
approved. Since then, the EPA has taken issue with the effectiveness of the
CEMW and with Rouge Steels implementation of the CEMW. In 2001, the EPA
issued an NOV to Rouge Steel informing the Company that the EPA has determined
that the Company is not complying with the

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Order nor the approved CEMW. Rouge
Steel has raised vigorous objections to a number of the allegations contained
in the NOV. The parties have conducted several negotiations to address these
issues but have not yet reached a resolution. In February 2002, the EPA issued
Rouge Steel a request for information pursuant to Section 3007 of RCRA seeking
information regarding the Companys Schaefer Road Waste Water Treatment Plant.
The Company is currently responding to this request. The preliminary nature of
this matter makes it difficult for the Company to predict the nature of its
outcome or its impact on the Company.

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.




Item 2. Properties.

Rouge Steels integrated single-site facility is located on a 457-acre
industrial site adjacent to Fords stamping, engine, frame and assembly plants
in Dearborn, Michigan. Rouge Steel 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, one waste oxide reclamation
facility (which is leased), 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 (which is presently idle due to a fire on December
15, 2001) and a 60% interest in the Powerhouse that was managed, operated and
maintained 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 and
destroyed the Powerhouse. Prior to the Powerhouse explosion, Ford and Rouge
Steel had entered an agreement for long-term energy services with CMS, which
has built and is operating a co-generation power plant. Along with Rouge
Steels properties, Rouge Industries owns (i) a 48% interest in Spartan Steel,
a cold rolled hot dip galvanizing facility; (ii) a 45% interest in EVTAC, an
iron ore mining and pellet producing facility; (iii) an 11.1% interest in TWB,
a producer of laser welded blanks and (iv) a 49% interest in Delaco Steel
Processing, a steel processor.




Item 3. Legal Proceedings.

Environmental Lawsuit

On December 18, 2000, the EPA and the County filed lawsuits in the United
States District Court for the Eastern District of Michigan in connection with a
Multimedia Investigation conducted in 1998. The suit alleges air and solid
waste violations. The Company, the EPA and

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the County are continuing
negotiations. The Company believes that such negotiations will result in a
settlement that will not have a materially adverse effect on its results of
operations or financial position.

Settlement of Litigation

During late 2000, the cost of natural gas increased dramatically. Rouge
Industries was protected from the large price increases for a portion of its
natural gas requirements because of fixed price contracts. However, one
supplier of natural gas defaulted on its contract with the Company late in 2000
leaving the Company with no insulation from the extremely high market
prices. In November 2001, the Company settled its claim with the natural gas
supplier for $8.5 million.

Powerhouse Related Lawsuits

Rouge Steel has been served with 14 lawsuits filed by 17 current or former
Ford employees and two Rouge Steel employees claiming unspecified injuries
relating to the February 1, 1999 Powerhouse explosion. Rouge Steels insurers
have assumed the defense and indemnity obligations for these lawsuits under a
reservation of rights. The Company believes that its insurance coverage will
be adequate to respond to damages awarded, if any, to the claimants.

From time to time, Rouge Industries and its consolidated subsidiaries are
defendants in routine litigation incidental to their business. The Company
believes that such current proceedings, individually or in the aggregate, will
not have a materially adverse effect on the Companys results of operations or
financial position.




Item 4. Submission of Matters to a Vote of Security Holders.

There were no matters submitted to a vote of security holders during the
fourth quarter of 2001.

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EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth, as of December 31, 2001, certain
information with respect to the executive officers of the Company. Executive
officers are chosen by the Board of Directors of the Company at the first
meeting of the Board after each annual meeting of stockholders. Officers of
the Company serve at the discretion of the Board of Directors and are subject
to removal at any time. There is no family relationship among any of the
officers or directors.

|                      |  |     |    |          |  |                                                                
|--------------------- |  | --- | -- | -------- |  | ---------------------------------------------------------------
|Name                  |  | Age |    | Position
|                      |  |     |    |         
|Carl L. Valdiserri    |  |     | 65 |          |  | Chairman and Chief Executive Officer                           
|                     
|                     
|                     
|                     
|Gary P. Latendresse   |  |     | 58 |          |  | Vice Chairman and Chief Financial Officer                      
|                     
|                     
|                     
|                     
|William E. Hornberger |  |     | 55 |          |  | Senior Vice President, Corporate Relations and External Affairs
|                     
|                     
|                     
|                     
|Ronald J. Nock        |  |     | 49 |          |  | Senior Vice President, Commercial and Strategic Planning       
|                     
|                     
|                     
|                     
|Martin Szymanski      |  |     | 48 |          |  | Vice President, General Counsel and Secretary                  

Business Experience

Mr. Valdiserri has been Chairman and Chief Executive Officer of the
Company since 1989. From 1987 until 1989 he was an independent consultant
regarding the steel industry, principally to The Chase Manhattan Bank, N.A.
From 1982 until 1987, Mr. Valdiserri was Executive Vice President of Weirton
Steel Corporation. Mr. Valdiserri joined the Weirton Division of National
Steel Corporation in 1978. He was Chief Engineer in the Great Lakes Division
of National Steel Corporation from 1973 to 1978 and held various other
engineering positions from 1964 to 1972. He began his career with
Wheeling-Pittsburgh Steel Corporation in 1958. Mr. Valdiserri has 43 years of
experience in the steel manufacturing industry. Mr. Valdiserri is also a
director of Champion Enterprises, Inc.

Mr. Latendresse has been Vice Chairman and Chief Financial Officer since
July 1999. From January 1998 to July 1999, he was Executive Vice President and
Chief Financial Officer. Mr. Latendresse was Vice President and Chief
Financial Officer from 1992 to 1997. He became a director of the Company in
1992. He was Vice President, Finance and Controller from 1987 until 1992. Mr.
Latendresse has held various financial positions with the Company and Ford for
33 years. Mr. Latendresse has 33 years of experience in the steel
manufacturing industry. Mr. Latendresse is also the Treasurer and Assistant
Secretary of the Company.

Mr. Hornberger has been Senior Vice President, Corporate Relations and
External Affairs since October 1999. He was Vice President, Employee Relations
and Public Affairs from 1992 to 1999. From 1987 to 1992, he was Vice
President, Employee Relations. Mr. Hornberger has held various employee
relations positions at Rouge Steel and Ford since 1973. He has 18 years of
experience in the steel manufacturing industry.

Mr. Nock has been Senior Vice President, Commercial and Strategic Planning
since January 2000. He served as Vice President, Sales and Marketing from 1988
through 1999. Mr. Nock held various positions at the Company since 1982,
including Manager of Sales and Sales Representative. He has 26 years of
experience in the steel manufacturing industry.

Mr. Szymanski has been Vice President, General Counsel and Secretary since
October 1999. He served as General Counsel and Secretary from January 1998 to
October 1999. From

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January 1997 to December 1997, he was Associate General
Counsel of the Company. From 1990
through 1996, he served as General Counsel and Assistant Secretary of Modern
Engineering, Inc., a Warren, Michigan-based tier one automotive technical
services, prototype and assembly tooling supplier. Prior to that, he held key
legal assignments at Stroh Brewery Company and Fruehauf Corporation. Mr.
Szymanski has over 23 years of corporate and private practice legal experience.

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PART II




Item 5. Market for Registrants Common Stock and Related Stockholder Matters.

As of December 31, 2001, there were (i) 15,103,839 shares of class A
common stock, par value $0.01 per share (the Class A Common Stock), issued
and outstanding and held by approximately 7,000 stockholders of record, and
(ii) 7,140,400 shares of class B common stock, par value $0.01 per share (the
Class B Common Stock and together with the Class A Common Stock, the Common
Stock), issued and outstanding and held by one stockholder of record, Carl L.
Valdiserri. The principal market for the Class A Common Stock is the New York
Stock Exchange, Inc. (the NYSE). The Class B Common Stock is not listed for
trading on any securities exchange.

In January, 2002, the Company was notified by the NYSE that its share
price had fallen below the continued listing criteria relating to the minimum
share price. The NYSE requires an average closing price of not less than $1.00
per share over a consecutive 30-day trading period. The Companys share price
closed under $1.00 from shortly after September 11, 2001 until the end of
November, 2001. Following such notification by the NYSE, the Company is
required to return its share price and average share price to above $1.00
within six months or face possible delisting. The Company believes that
certain actions by the Company, together with continued support by its
customers and suppliers, will bring its share price into compliance with NYSE
requirements. However, in the event that the NYSE undertakes delisting
procedures with respect to Rouge Industries shares, the Company believes that
an alternate trading venue would be available. The Companys share price
closed above $1.00 on December 3, 2001 and, except for one day, has remained at
or above that level since then.

Quarterly cash dividends of $0.03 per share of Common Stock were paid on
January 21, April 21, July 21 and October 20, 2000 and January 19, 2001. The
dividend was cut to $0.02 per share on March 8, 2001 and quarterly cash
dividends of $0.02 per share were paid on April 20 and July 20, 2001. On
September 28, 2001, the Companys Board of Directors eliminated cash dividends.
Future dividends on the Common Stock, if any, are payable in cash or shares of
Class A Common Stock, at the discretion of the Board of Directors of the
Company. The Companys Certificate of Incorporation provides that (i) no
dividends be paid on the Class B Common Stock unless a dividend (equal to the
dividend declared and paid to the holders of Class B Common Stock) is declared
and paid on the Class A Common Stock and (ii) any dividend paid on the Class B
Common Stock will be paid only in shares of Class A Common Stock or cash.
Holders of Class A Common Stock and Class B Common Stock will be entitled to
share ratably, as a single class, in any dividends paid on the Common Stock.
The declaration and payment of dividends on the Common Stock will be subject to
a quarterly review by the Board of Directors of the Company. The timing and
amount of dividends, if any, will depend, among other things, on the Companys
funding obligations with respect to profit sharing plans, results of
operations, financial condition, cash requirements, restrictions, if any, in
loan agreements, obligations with respect to preferred stock, if any, and other
factors deemed relevant by the Board of Directors.

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The Companys Class A Common Stock has been listed for trading on the NYSE
since March 29, 1994 under the symbol ROU. The following table sets forth, for
the periods indicated, the high and low sales prices of the Companys Class A
Common Stock. The closing sale price of the Companys Class A Common Stock on
March 20, 2002 was $1.28.

|               |  |      |      |     |  |   |      | 
|-------------- |  | ---- | ---- | --- |  | - | ---- | 
|2001           |  | High |      | Low
|               |  |      |      |    
|First Quarter  |  | $    | 3.06 |     |  | $ | 1.75 | 
|              
|              
|              
|              
|Second Quarter |  |      | 2.59 |     |  |   | 1.55 | 
|              
|              
|              
|              
|Third Quarter  |  |      | 2.50 |     |  |   | 0.63 | 
|              
|              
|              
|              
|Fourth Quarter |  |      | 1.90 |     |  |   | 0.61 | 

|               |  |      |      |     |  |   |      | 
|-------------- |  | ---- | ---- | --- |  | - | ---- | 
|2000           |  | High |      | Low
|               |  |      |      |    
|First Quarter  |  | $    | 8.94 |     |  | $ | 6.00 | 
|              
|              
|              
|              
|Second Quarter |  |      | 6.44 |     |  |   | 2.38 | 
|              
|              
|              
|              
|Third Quarter  |  |      | 5.00 |     |  |   | 2.63 | 
|              
|              
|              
|              
|Fourth Quarter |  |      | 2.94 |     |  |   | 1.50 | 

19



---



##### Table of Contents






Item 6. Selected Financial Data.

The Statement of Operations data and Balance Sheet data in the following
table present selected historical consolidated financial information derived
from the historical consolidated financial statements of the Company as of and
for each of the years in the five-year period ended December 31, 2001. This
information should be read in conjunction with the historical consolidated
financial statements of the Company and related notes thereto and Managements
Discussion and Analysis of Financial Condition and Results of Operations
beginning on page 22.

|                                          |                                       |   |                                                 |       |      |   |         |       |      |   |        |       |   |   |         |      |  |   |         |      | 
|----------------------------------------- | ------------------------------------- | - | ----------------------------------------------- | ----- | ---- | - | ------- | ----- | ---- | - | ------ | ----- | - | - | ------- | ---- |  | - | ------- | ---- | 
|                                          |                                       |   | Years Ended December 31                        
|                                          |                                       |   |                                                
|                                          |                                       |   | 2001                                            |       | 2000 |   | 1999    |       | 1998 |   | 1997  
|                                          |                                       |   |                                                 |       |      |   |         |       |      |   |       
|                                          |                                       |   | (dollars in millions, except per share amounts)
|Statement of Operations Data              |                                       |   |                                                 |       |      |   |         |       |      |   |        |       |   |   |         |      |  |   |         |     
|                                         
|                                         
|                                         
|                                         
|Total Sales(1)                            |                                       | $ | 923.5                                           |       |      | $ | 1,099.8 |       |      | $ | 995.6  |       |   | $ | 1,193.0 |      |  | $ | 1,341.6 |     
|                                         
|                                         
|                                         
|                                         
|Operating Income (Loss)                   |                                       |   | (190.7                                          | )(2)  |      |   | (166.8  | )(2)  |      |   | (254.1 | )(2)  |   |   | 35.1    |      |  |   | 31.7    |     
|                                         
|                                         
|                                         
|                                         
|Net Interest Income (Expense)             |                                       |   | (8.4                                            | )     |      |   | (4.3    | )     |      |   | (2.1   | )     |   |   | 0.7     |      |  |   | 0.8     |     
|                                         
|                                         
|                                         
|                                         
|Income Tax (Provision) Benefit            |                                       |   |                                                |       |      |   | (37.3   | )     |      |   | 30.5   |       |   |   | (8.7    | )    |  |   | (8.1    | )   
|                                         
|                                         
|                                         
|                                         
|Net Income (Loss)                         |                                       |   | (111.5                                          | )(2)  |      |   | (117.3  | )(2)  |      |   | (47.8  | )(2)  |   |   | 23.4    |      |  |   | 22.4    |     
|                                         
|                                         
|                                         
|                                         
|                                          |                                       |   |                                                 |       |      |   |         |       |      |   |        |       |   |   |         |      |  |   |         |     
|                                         
|                                         
|                                         
|                                         
|Per Share Data                            |                                       |   |                                                 |       |      |   |         |       |      |   |        |       |   |   |         |      |  |   |         |     
|                                         
|                                         
|                                         
|                                         
|                                          | Net Income (Loss)  Basic and Diluted |   | $                                               | (5.01 | )    |   | $       | (5.29 | )    |   | $      | (2.16 | ) |   | $       | 1.06 |  |   | $       | 1.02 | 
|                                         
|                                         
|                                         
|                                         
|                                          | Cash Dividends Declared               |   |                                                 | 0.04  |      |   |         | 0.12  |      |   |        | 0.12  |   |   |         | 0.12 |  |   |         | 0.12 | 
|                                         
|                                         
|                                         
|                                         
|Weighted-Average Shares Outstanding (000) |                                       |   | 22,242                                          |       |      |   | 22,158  |       |      |   | 22,122 |       |   |   | 22,025  |      |  |   | 21,939  |     

|                                    |  |                       |       |      |  |      |       |      |  |      |       |  |  |   |       |  |  |   |       | 
|----------------------------------- |  | --------------------- | ----- | ---- |  | ---- | ----- | ---- |  | ---- | ----- |  |  | - | ----- |  |  | - | ----- | 
|                                    |  | December 31          
|                                    |  |                      
|                                    |  | 2001                  |       | 2000 |  | 1999 |       | 1998 |  | 1997
|                                    |  |                       |       |      |  |      |       |      |  |     
|                                    |  | (dollars in millions)
|Balance Sheet Data                  |  |                       |       |      |  |      |       |      |  |      |       |  |  |   |       |  |  |   |       | 
|                                   
|                                   
|                                   
|                                   
|Working Capital                     |  | $                     | (42.7 | )    |  | $    | 117.8 |      |  | $    | 198.3 |  |  | $ | 212.4 |  |  | $ | 177.2 | 
|                                   
|                                   
|                                   
|                                   
|Property, Plant, and Equipment, Net |  |                       | 237.2 |      |  |      | 244.4 |      |  |      | 278.6 |  |  |   | 258.1 |  |  |   | 268.6 | 
|                                   
|                                   
|                                   
|                                   
|Total Assets                        |  |                       | 673.3 |      |  |      | 741.0 |      |  |      | 867.6 |  |  |   | 768.9 |  |  |   | 728.5 | 
|                                   
|                                   
|                                   
|                                   
|Long-Term and Short-Term Debt       |  |                       | 145.5 |      |  |      | 66.5  |      |  |      | 104.8 |  |  |   | 29.0  |  |  |   | 17.9  | 
|                                   
|                                   
|                                   
|                                   
|Stockholders Equity                |  |                       | 170.6 |      |  |      | 292.8 |      |  |      | 409.8 |  |  |   | 459.6 |  |  |   | 438.6 | 

|                                            |  |                         |       |      |  |      |       |      |  |      |       |      |  |   |       |   |  |   |       |  
|------------------------------------------- |  | ----------------------- | ----- | ---- |  | ---- | ----- | ---- |  | ---- | ----- | ---- |  | - | ----- | - |  | - | ----- | -
|                                            |  | Years Ended December 31
|                                            |  |                        
|                                            |  | 2001                    |       | 2000 |  | 1999 |       | 1998 |  | 1997
|                                            |  |                         |       |      |  |      |       |      |  |     
|Other Data                                  |  |                         |       |      |  |      |       |      |  |      |       |      |  |   |       |   |  |   |       |  
|                                           
|                                           
|                                           
|                                           
|Net Tons Shipped (000)                      |  |                         | 2,440 |      |  |      | 2,570 |      |  |      | 2,320 |      |  |   | 2,630 |   |  |   | 3,029 |  
|                                           
|                                           
|                                           
|                                           
|Raw Steel Production (Mils) NT              |  |                         | 2.8   |      |  |      | 2.9   |      |  |      | 2.2   |      |  |   | 3.1   |   |  |   | 2.8   |  
|                                           
|                                           
|                                           
|                                           
|Effective Capacity Utilization              |  |                         | 89    | %    |  |      | 92    | %    |  |      | 66    | %    |  |   | 94    | % |  |   | 91    | %
|                                           
|                                           
|                                           
|                                           
|Purchased Slabs (000) NT                    |  |                         |      |      |  |      | 91    |      |  |      | 351   |      |  |   | 76    |   |  |   | 619   |  
|                                           
|                                           
|                                           
|                                           
|Number of Employees at Year-End(3)          |  |                         | 2,684 |      |  |      | 2,881 |      |  |      | 3,006 |      |  |   | 3,108 |   |  |   | 3,128 |  
|                                           
|                                           
|                                           
|                                           
|Average Hourly Labor Rate(4)                |  | $                       | 32.18 |      |  | $    | 31.26 |      |  | $    | 31.28 |      |  | $ | 30.25 |   |  | $ | 30.43 |  
|                                           
|                                           
|                                           
|                                           
|Total Sales per Employee (000)(1)(3)        |  |                         | 344   |      |  |      | 382   |      |  |      | 331   |      |  |   | 384   |   |  |   | 429   |  
|                                           
|                                           
|                                           
|                                           
|Hours Worked per Net Ton Produced(3)        |  |                         | 2.79  |      |  |      | 2.67  |      |  |      | 2.94  |      |  |   | 2.81  |   |  |   | 2.81  |  
|                                           
|                                           
|                                           
|                                           
|Operating Income (Loss) per Net Ton Shipped |  | $                       | (78   | )(2) |  | $    | (65   | )(2) |  | $    | (110  | )(2) |  | $ | 13    |   |  | $ | 10    |  
|                                           
|                                           
|                                           
|                                           
|Capital Expenditures (Mils)(5)              |  |                         | 17.7  |      |  |      | 21.4  |      |  |      | 80.5  |      |  |   | 31.8  |   |  |   | 112.4 |  

20



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##### Table of Contents





---

|(1) |  | During 2000, the Company adopted the requirements of Emerging
Issues Task Force Issue 00-10, Accounting for Shipping and Handling
Fees and Costs, which requires all amounts billed to customers
related to shipping and handling to be classified as revenue.
Historically, the Company had included all freight charges to
customers as a component of revenue, however, the cost of certain
types of freight was recorded as a reduction of revenue. The Company
has reclassified such freight cost for 1998, 1999, 2000 and 2001.
The reclassification had no impact on operating income (loss) or net
income (loss). Freight cost was not reclassified in 1997 because of
the impracticality of obtaining the data.                                                                                                                                                                                                                                                                                                                                                                                                               
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Operating loss and net loss for the year ended December 31, 2001 include
the pre-tax effect of business interruption and property damage losses of
$23.7 million (or $10 per ton shipped) resulting from the February 1, 1999
Powerhouse explosion. Net loss for the year ended December 31, 2001 also
includes the offsetting impact of $81.5 million of pre-tax insurance
recovery. Operating loss and net loss for the year ended December 31,
2000 include the pre-tax effect of business interruption and property
damage losses of $72.0 million (or $28 per net ton shipped) resulting from
the Powerhouse explosion. Net loss for the year ended December 31, 2000
also includes the offsetting impact of $84.3 million of pre-tax insurance
recovery. Operating loss and net loss for the year ended December 31,
1999 include the pre-tax effect of business interruption and property
damage losses of $217.4 million (or $94 per net ton shipped) resulting
from the Powerhouse explosion. Net loss for the year ended December 31,
1999 also includes the offsetting impact of $177.4 million of pre-tax
insurance recovery.
|   
|   
|   
|   
|(3) |  | Includes all hourly and salaried employees.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|   
|   
|   
|(4) |  | Includes $0.21 per hour in 2000, $0.29 per hour in 1998, and $0.35 per
hour in 1997 paid or accrued pursuant to the Rouge Steel Company Profit
Sharing Plan for Hourly Employees. Due to losses sustained in 1999 and
2001, no amounts were paid or accrued. The amount paid with respect to
2000 was the result of the favorable impact of the partial settlement of
the Powerhouse explosion insurance claim in the second quarter.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|   
|   
|   
|(5) |  | Includes capital expenditures paid or accrued and investments in
unconsolidated subsidiaries.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

21



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##### Table of Contents






Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.

Overview

The following discussion should be read in conjunction with, and is
qualified in its entirety by reference to, the Consolidated Financial
Statements which begin on page 38.

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 steel products consisting of hot rolled, cold rolled
and galvanized steel. The Company has emphasized the production of value-added
flat rolled carbon steel products that require additional processing and
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.
These customers have exacting quality, delivery and service requirements. 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 three Michigan-based joint ventures. Eveleth holds a
45% interest in Eveleth Mines LLC (EVTAC), a Minnesota-based iron ore mining
and pellet producing operation.

On February 1, 1999, an explosion and fire at the Rouge Complex Powerhouse
(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 93-day shutdown of Rouge Steels steel making facilities. During the
shutdown, the Company processed purchased slabs and coils, but the production
interruption had a significant impact on Rouge Steels shipments, sales, costs
and expenses and insurance recovery. Continuing business interruption and
Powerhouse property damage expenses in 2000 and 2001 along with a partial
settlement of the insurance claim in 2000 and the full settlement in 2001
affected the Companys results of operations in those years. Consequently,
comparisons between 2001 and 2000 and between 2000 and 1999 may be difficult to
discern.

The Company continues to face difficult market conditions. During 2000
and 2001, there was intense downward pressure on prices caused by high levels
of imports and a softening of demand for steel by the Companys customers. The
lower prices and the cash strain caused by the Powerhouse explosion and the
delay in the full startup of the new power plant have resulted in considerable
pressure on the Companys liquidity. The Company responded to the liquidity
stress by refinancing its long-term debt early in 2001 and procuring a
subordinated credit facility late in 2001. Additionally, the Company has
undertaken an aggressive cost reduction program and reduced capital
expenditures in order to help conserve cash.

The Companys liquidity is dependent on operating performance, which is
closely related to business conditions in the domestic steel industry, the
implementation of operating and capital cost reduction programs, the impact of
the governments response to the Section 201 filings, and sources of financing.
The Company depends on borrowings to fund operations. In the event that
market conditions fail to improve adequately, operating losses continue and the
Company is unable to secure additional financing sources to fund expected
operating losses, it may be required

22



---



##### Table of Contents



to seek bankruptcy protection or commence
liquidation or other administrative proceedings.

The following table summarizes the annual raw steel capacity, raw steel
production, utilization rates and finished shipment information for the
domestic steel industry (as reported by the American Iron and Steel Institute)
and for Rouge Steel for the years from 1999 through 2001:

|                  |                      |  |                                          |       |      |  |      |       |   |  |  |       |     
|----------------- | -------------------- |  | ---------------------------------------- | ----- | ---- |  | ---- | ----- | - |  |  | ----- | ----
|                  |                      |  | Years Ended December 31                 
|                  |                      |  |                                         
|                  |                      |  | 2001                                     |       | 2000 |  | 1999
|                  |                      |  |                                          |       |      |  |     
|                  |                      |  | (in millions of tons except utilization)
|Domestic Industry |                      |  |                                          |       |      |  |      |       |   |  |  |      
|                 
|                 
|                 
|                 
|                  | Raw Steel Capacity   |  |                                          | 125.8 |      |  |      | 130.3 |   |  |  | 128.2 |     
|                 
|                 
|                 
|                 
|                  | Raw Steel Production |  |                                          | 100.9 |      |  |      | 111.0 |   |  |  | 105.9 |     
|                 
|                 
|                 
|                 
|                  | Utilization          |  |                                          | 80.4  | %    |  |      | 92.1  | % |  |  | 82.6  | %   
|                 
|                 
|                 
|                 
|                  | Finished Shipments   |  |                                          | 99.4  |      |  |      | 109.1 |   |  |  | 105.1 |     
|                 
|                 
|                 
|                 
|Rouge Steel       |                      |  |                                          |       |      |  |      |       |   |  |  |      
|                 
|                 
|                 
|                 
|                  | Raw Steel Capacity   |  |                                          | 3.2   |      |  |      | 3.2   |   |  |  | 3.3   |     
|                 
|                 
|                 
|                 
|                  | Raw Steel Production |  |                                          | 2.8   |      |  |      | 2.9   |   |  |  | 2.2   |     
|                 
|                 
|                 
|                 
|                  | Utilization          |  |                                          | 88.9  | %    |  |      | 92.1  | % |  |  | 65.7  | %(1)
|                 
|                 
|                 
|                 
|                  | Finished Shipments   |  |                                          | 2.4   |      |  |      | 2.6   |   |  |  | 2.3   |     



---

|(1) |  | The lower utilization was the result of a 93-day outage in primary
operations caused by the Powerhouse explosion. See Powerhouse
Explosion and Insurance Claims.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

The cyclicality of the steel industry and the domestic economy affects the
Companys steel product prices. To protect itself from the volatile nature of
prices in the domestic steel industry, the Company sells more than one half of
its steel products pursuant to fixed price contracts, under which prices are
typically set annually. The Companys financial results are significantly
affected by relatively small (on a percentage basis) variations in the realized
prices for its products. For example, Rouge Industries shipped 2.4 million net
tons of steel products and recorded total sales of $924 million during 2001,
implying an average realized price per ton of $379. A one percent increase or
decrease in this implied average realized price during 2001 would, on a pro
forma basis, have resulted in an increase or decrease in total sales and
pre-tax income of approximately $9 million. The competitive pressures in the
domestic steel industry affect the prices that the Company can charge for its
products and, ultimately, its profitability. These pressures could limit the
Companys ability to obtain price increases or could lead to a further decline
in prices which could have a materially adverse effect on Rouge Industries.

Prices in the domestic steel industry have been volatile for a number of
years. In 1994, prices reached the highest level since 1988. By mid-1995,
however, prices began to soften despite the strong demand for steel. In 1996,
there was some strengthening of prices but in 1997, prices declined. When
unprecedented levels of imports arrived in 1998, prices declined dramatically.
In late 1999 and early 2000, prices made a modest recovery, but never reached
the early-1998 levels. By the second half of 2000, prices again declined
considerably. Despite operating losses by nearly all of the domestic
integrated steel producers, prices continued to deteriorate in 2001. There is
some evidence that prices have begun to improve in early 2002, but much depends
on factors such as the impact of the Bush Administrations remedies imposed
with respect to the trade cases and whether there will be additional
consolidation in the steel industry.

23



---



##### Table of Contents



Total Sales. The Companys total sales are a function of net tons
shipped, prices and mix of products. The following table sets forth the
percentage of the Companys steel product revenues represented by each of its
product types for each of the years from 1999 through 2001:

|                   |       |  |                         |       |      |  |      |       |   |  |      |       |  
|------------------ | ----- |  | ----------------------- | ----- | ---- |  | ---- | ----- | - |  | ---- | ----- | -
|                   |       |  | Years Ended December 31
|                   |       |  |                        
|                   |       |  | 2001                    |       | 2000 |  | 1999
|                   |       |  |                         |       |      |  |     
|Hot Rolled         |       |  | 39.9                    | %     |      |  | 37.5 | %     |   |  | 37.3 | %    
|                  
|                  
|                  
|                  
|Cold Rolled        |       |  | 21.2                    |       |      |  | 25.5 |       |   |  | 27.4 |      
|                  
|                  
|                  
|                  
|Electrogalvanized  |       |  | 19.1                    |       |      |  | 20.5 |       |   |  | 21.9 |      
|                  
|                  
|                  
|                  
|Hot Dip Galvanized |       |  | 19.8                    |       |      |  | 16.5 |       |   |  | 13.4 |      
|                   |       |  |                         |       |      |  |      |       |   |  |      |      
|                   | Total |  |                         | 100.0 | %    |  |      | 100.0 | % |  |      | 100.0 | %
|                   |       |  |                         |       |      |  |      |       |   |  |      |      

Sales to affiliates in 1999 were comprised primarily of sales to
Worthington Industries, Inc. (Worthington), Rouge Industries sixth largest
customer and second largest shareholder in 1999. Until March 1, 2000,
Worthington owned approximately 27.2% of the Companys common stock which
represented a voting interest of 19.8%. In February 1997, Worthington issued
debt securities (DECS) which, upon maturity, could be redeemed for shares of
Rouge Industries common stock or cash. On March 1, 2000, Worthington
relinquished its shares of the Companys common stock to satisfy its
obligations with respect to the DECS. Worthington no longer owns any Rouge
Industries common stock; therefore, in 2000 and 2001, Worthington is not
presented as an affiliate.

Sales to Ford Motor Company (Ford), the Companys largest customer, were
primarily made pursuant to a ten-year steel purchase agreement which expired
after model-year 2000. Under the terms of the steel purchase agreement, Ford
agreed to purchase steel from the Company contingent upon the Companys ability
to meet Fords requirements for quality, delivery and price. Since model-year
2000, the Company has made sales to Ford pursuant to annual contracts.

Costs of Goods Sold.The principal elements constituting Rouge
Industries costs of goods sold are raw materials, labor and energy.

The major raw materials and energy used by the Company in its production
process are coke, iron ore pellets, steel scrap, natural gas, electricity,
steam, oxygen and nitrogen. Iron ore pellets are purchased from EVTAC pursuant
to a pellet purchase agreement which expires in 2002. The Companys
wholly-owned subsidiary, Eveleth, holds a 45% interest in EVTAC.

Rouge Steels hourly production and maintenance employees are represented
by the International Union, United Automobile, Aerospace and Agricultural
Implement Workers of America, UAW (the UAW) and are working under a labor
contract which expires on August 1, 2004.

The Company uses between 16 million and 19 million MMBTUs of natural gas
per year in its blast furnaces, hot strip mill and cold mills. The cost of
natural gas increased dramatically in 2000 and early 2001. The Company was
protected from the large price increases for a portion of its natural gas
requirements because of fixed price contracts. However, the Companys cost of
natural gas was significantly higher in 2001 than in 2000.

24



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##### Table of Contents



Outside processing costs, which are principally costs for value-added
processing that the Company cannot perform at Rouge Steels integrated
facility, have always been an element of the Companys costs of goods sold.
The Companys joint ventures have increased the outside processing and related
costs. However, Rouge Industries believes that the incremental revenue
generated from additional sales of value-added products produced by the joint
ventures has exceeded such cost increases.

Powerhouse Explosion and Insurance Claim

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 93-day shutdown of Rouge Steels steel
making facilities. The Powerhouse is owned 60% by Rouge Steel and 40% by Ford.
Ford was responsible for the day-to-day management, operation and maintenance
of the Powerhouse.

The Companys insurance program relating to the Powerhouse provided
coverage for damage to property destroyed, interruption of business operations,
including profit recovery, and expenditures incurred to minimize the period and
total cost of disruption to operations. During the period from February 1,
1999 until the settlement of claims with Companys insurers during the second
quarter of 2001, the Company evaluated its insurance recoveries in three areas:



|1. |  | Damage to Rouge Steel property and Powerhouse property as a result of the
explosion  Costs for repairs were expensed as incurred, with related
estimated insurance recoveries recorded as they were considered to be
probable, up to the amount of the actual costs incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Rouge Steel business interruption costs  The non-capitalizable costs
were expensed as incurred. Estimated insurance recoveries were recorded
to the extent such recoveries were considered to be probable. Recoveries
in excess of actual costs incurred were recorded as gains in 2000 and 2001
when portions of the claims were settled and proceeds received. Certain
costs relating to temporary steam boilers and electrical facilities which
were procured to mitigate the Companys loss from the Powerhouse explosion
were capitalized and amortized over their estimated useful lives.
Insurance recoveries relating to these items were recognized over the same
periods. The amount capitalized for these temporary facilities was
approximately $72.6 million.
|  
|3. |  | Powerhouse property damage  The net book value of the Powerhouse
property destroyed, which was $1.6 million, was written off in 1999.
Proceeds from the claims relating to Powerhouse property damage (other
than amounts relating to repairs discussed in 1. above) were recorded when
the claim was settled and resulted in a gain since the proceeds exceeded
the net book value of the property written off.                                                                                                                                                                                                                                                                                                                                                          

During 2000, the Company received cash proceeds representing a partial
settlement with its insurers regarding Rouge Steel first-party property damage
and business interruption costs through March 31, 2000. The partial settlement
covered all of the first-party property damage and substantially all aspects of
the business interruption claim, including profit on lost sales, operating
inefficiencies caused by the loss and costs to mitigate the claim.

During 2001, the Company received cash proceeds representing final
settlement with its insurers regarding Rouge Steels insurable first-party and
Powerhouse property damage and business interruption costs. As a result of the
settlement, the Company recorded $81.5 million of

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insurance recoveries in 2001,
of which $63.2 million represents gain on the net book value of the
Powerhouse property destroyed. Total recoveries and final proceeds of the
claim amount to $343.3 million.

Based on current engineering information and applicable legal
requirements, the Company has evaluated the amount and probability of certain
ancillary costs relating to the explosion, principally cleanup, demolition and
abatement activities. As a result of these obligations with respect to its
share of expenditures required to mitigate safety and environmental risks
associated with the final disposition of the Powerhouse, in 2001, the Company
recorded an accrual of $14.6 million for these anticipated costs.

During 2001, the Company and Ford settled certain claims related to the
1999 Powerhouse explosion. The settlement of these claims and adjustments
relating to the Companys remaining obligations resulted in a one-time non-cash
profit impact of $17.2 million.

Results of Operations

Year Ended December 31, 2001 versus Year Ended December 31, 2000

Total Sales.Total sales decreased 16.0% in 2001 to $923.5 million from
$1,099.8 million in 2000, a decrease of $176.3 million. The decrease in total
sales in 2001 was caused principally by lower steel product prices and
shipments. Average realized revenue per ton decreased 11.5% in 2001 to $379
per ton from $428 per ton in 2000, a decrease of $49 per ton. The decrease in
average realized revenue per ton was the result of dramatically lower steel
prices and, to a lesser extent, an unfavorable sales mix in 2001. Steel
product shipments decreased 5.1% in 2001 to 2,440,000 net tons from 2,570,000
net tons in 2000, a decrease of 130,000 net tons. Rouge Industries shipments
were lower in 2001 because of the weak demand for steel products in the market.

Costs and Expenses.Total costs and expenses decreased 12.0% in 2001 to
$1,114.3 million from $1,266.6 million in 2000, a decrease of $152.3 million.
Costs of goods sold decreased 9.8% in 2001 to $1,067.7 million from $1,183.2
million in 2000, a decrease of $115.5 million. The decrease in costs of goods
sold was primarily due to the lower shipments discussed above, lower costs
associated with the Powerhouse explosion, an effective cost reduction effort
and lower utility costs partially offset by higher natural gas prices. Costs
of goods sold in 2001 was 115.6% of total sales, up from 107.6% of total sales
in 2000. Depreciation and amortization decreased 54.2% in 2001 to $26.0
million from $56.7 million in 2000, a decrease of $30.7 million. The decrease
in depreciation and amortization is attributable to lower amortization of the
cost of the temporary steam boilers and electrical distribution systems
installed to provide the Company with steam and electricity after the
Powerhouse explosion. The temporary facilities, which were placed into service
in the second quarter of 1999, were amortized over the period from the second
quarter of 1999 through December 31, 2000. Selling and administrative expenses
decreased 22.8% in 2001 to $20.6 million from $26.7 million in 2000, a decrease
of $6.1 million . The decrease in selling and administrative expenses was the
result of considerably lower fees paid to professional service firms to assist
with the Powerhouse explosion insurance claim, lower salaried labor costs and
lower spending by administrative departments resulting from an aggressive cost
reduction effort.

Operating Loss.The operating loss increased 14.3% in 2001 to $190.7
million from $166.8 million in 2000, an increase of $23.9 million. The
increase is primarily the result of significantly

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lower steel product selling
prices and higher natural gas costs, partially offset by lower spending
from an aggressive cost reduction effort, lower depreciation and amortization
expense and lower selling and administrative expenses.

Interest Expense.Interest expense increased 69.2% in 2001 to $8.8
million from $5.2 million in 2000, an increase of $3.6 million. The increase
in interest expense was the result of higher debt in 2001 resulting primarily
from operating losses. The average debt balance in 2001 was $100.6 million
compared to $55.8 million in 2000.

Insurance Recovery.Insurance recovery decreased 10.4% in 2001 to $81.5
million from $91.0 million in 2000, a decrease of $9.5 million. The Companys
insurance program provides coverage for damage to property destroyed,
interruption of business operations and expenses incurred to minimize the
period of disruption incurred as a result of an insurable event. The Company
records insurance recovery for actual and anticipated insurance proceeds. The
amount in 2001 represents the final settlement of the Powerhouse insurance
claim. The amount in 2000 represents $84.3 million related to the Powerhouse
explosion and $6.7 million related to an incident that occurred at the basic
oxygen furnace (BOF) in early 2000. There was no insurance recovery recorded
for the December 15, 2001 fire at Double Eagle Steel Coating Company (Double
Eagle), the Companys electrogalvanizing joint venture. The expenses incurred
as a result of the Double Eagle fire did not exceed the Companys $7.5 million
insurance deductible during 2001. The Company expects to record significant
insurance recovery and related costs in 2002 as a result of the Double Eagle
fire.

Income Tax Provision.The Company did not record an income tax provision
or benefit in 2001 compared to an income tax provision of $37.3 million in
2000. The change is the result of the Companys decision to record a non-cash
valuation reserve against its deferred tax assets in 2000. In evaluating the
need for a reserve, the Company considered the likelihood of its ability to
realize the benefit of its deferred tax assets given the continuing uncertainty
of the domestic steel market and the Companys future profitability. The
Company will continue to assess the valuation reserve and to the extent it is
determined that it is not necessary, the reserve will be subsequently adjusted.

Equity in Unconsolidated Subsidiaries.Equity in unconsolidated
subsidiaries increased in 2001 to $8.1 million from $1.9 million in 2000, an
increase of $6.2 million. The increase is attributable to improved performance
at Eveleth Mines LLC, the Companys 45% owned iron ore mine and pellet
producer, and the adjustment of the Companys basis in Shiloh of Michigan,
L.L.C. (Shiloh of Michigan). Rouge Industries transferred its interest in
Shiloh of Michigan to an affiliate of Shiloh Industries, Inc., the Companys
partner in the Shiloh of Michigan joint venture. This agreement resulted in
the Company recording a $1.8 million non-cash gain relating to the reversal of
previously recorded losses in excess of the Companys basis in Shiloh of
Michigan. The Company also was released from its guarantee of Shiloh of
Michigans debt. The Company has no further obligations with respect to Shiloh
of Michigan.

Powerhouse Explosion Insurance Claim.The insurance claim related to the
February 1, 1999 explosion and fire at the Powerhouse was settled in 2001.
Costs of Goods Sold includes property damage and business interruption expenses
of $23.7 million and $38.6 million in 2001 and 2000, respectively.
Depreciation and Amortization Expense includes an additional $32.2 million in
2000 related to the temporary steam boilers, electrical distribution equipment
and other temporary facilities. The aggregate effect of Powerhouse-related
items on operating loss was $23.7 million and $72.0 million in 2001 and 2000,
respectively.

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Year Ended December 31, 2000 versus Year Ended December 31, 1999

Total Sales.Total sales increased 10.5% in 2000 to $1,099.8 million from
$995.6 million in 1999, an increase of $104.2 million. The increase in total
sales in 2000 was caused principally by higher steel product shipments. Steel
product shipments increased 10.8% in 2000 to 2,570,000 net tons from 2,320,000
net tons in 1999, an increase of 250,000 net tons. Rouge Industries shipments
were lower in 1999 because of the disruption of production resulting from the
Powerhouse explosion. The Company lost approximately 900,000 net tons of slab
production in the first half of 1999. A portion of the lost production was
made up by processing semi-finished inventories and purchased slabs and coils.

Costs and Expenses.Total costs and expenses increased 1.4% in 2000 to
$1,266.6 million from $1,249.6 million in 1999, an increase of $17.0 million.
Costs of goods sold increased 1.6% in 2000 to $1,183.2 million from $1,165.1
million in 1999, an increase of $18.1 million. The increase in cost of goods
sold was primarily due to the higher shipments discussed above, unfavorable
manufacturing efficiencies, higher labor costs resulting from the new UAW labor
contract, costs associated with a mechanical system failure at the Companys
basic oxygen furnace and higher natural gas costs, partially offset by lower
electricity costs resulting from the long-term energy services agreement with
Dearborn Industrial Generation, L.L.C., an affiliate of CMS Energy Corporation,
that took effect June 1, 2000, lower coke and scrap costs and lower costs
related to the Powerhouse explosion. Cost of goods sold in 2000 was 107.6% of
total sales, down from 117.0% of total sales in 1999. Depreciation and
amortization decreased 10.4% in 2000 to $56.7 million from $63.3 million in
1999, a decrease of $6.6 million. The decrease in depreciation and
amortization is primarily attributable to lower amortization of the cost of the
temporary steam boilers and electrical distribution systems installed to
provide the Company with steam and electricity until the new power plant was
placed into service. Amortization of net assets acquired over cost was
recorded in connection with the acquisition of Rouge Steel from Ford Motor
Company in 1989. The amount was written off as a credit to costs and expenses
over ten years, with the last $5.5 million credit recorded in 1999. The
absence of the credit in 2000 caused total costs and expenses to be higher.

Operating Loss.The operating loss decreased 34.3% in 2000 to $166.8
million from $254.1 million in 1999, a decrease of $87.3 million. The decrease
is primarily the result of the $145.3 million reduction in Powerhouse related
costs and expenses in 2000. These lower costs were offset by higher costs
resulting from the BOF incident, unfavorable manufacturing efficiencies, and
the new UAW labor contract.

Interest Expense.Interest expense increased 84.3% in 2000 to $5.2
million from $2.8 million in 1999, an increase of $2.4 million. The increase
in interest expense was the result of higher debt in 2000 resulting from
operating losses and the delay in insurance payments as well as higher interest
rates. The average debt balance in 2000 was $55.8 million compared to $44.7
million in 1999.

Insurance Recovery.The Company recorded insurance recovery for actual
and anticipated insurance proceeds related to the Powerhouse explosion of $84.3
million in 2000 compared to $177.4 million in 1999, a decrease of $93.1
million. The Company has an insurance program that provides coverage for
damage to property destroyed, interruption of business operations and expenses
incurred to minimize the period of disruption incurred as a result of insurable
events. Consequently, the Company has recorded a reserve with respect to its
anticipated insurance proceeds, which has the effect of reducing income
recognized. Additionally, the Company

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recorded $6.7 million of recoverable insurance proceeds related to the January
2000 BOF incident.

Other
 Net.Other - net expense increased 56.9% in 2000 to $1.9 million
from $1.2 million in 1999 an increase of $700,000. The amount in 2000 was
comprised primarily of a $3.0 million reserve recorded against the Companys
note receivable from its joint venture, Bing Blanking. During 2000, the
Companys joint venture partners indicated a desire to exit Bing Blanking. As
a result of the financial difficulties experienced by Bing Blanking, the
Company has recorded a reserve against its entire $3.0 million note receivable.
In addition, at the request of Bing Blankings lender, the Company placed $2.7
million on deposit with the bank as collateral against its guarantee of Bing
Blankings term loan. Other - net expense in 1999 was comprised primarily of
$1.0 million of insurance deductibles and the writeoff of $1.6 million of
Powerhouse assets related to the Powerhouse explosion.

Income Tax (Provision) Benefit.The income tax provision was $37.3
million in 2000 compared to an income tax benefit of $30.5 million in 1999, a
change of $67.8 million. The change is the result of the Companys decision to
record a non-cash valuation reserve against its deferred tax assets. In
evaluating the need for a reserve, the Company considered the likelihood of its
ability to realize the benefit of its deferred tax assets given the continuing
uncertainty of the domestic steel market. The Company will continue to assess
the valuation reserve and to the extent it is determined that it is not
necessary, the reserve will be subsequently adjusted.

Powerhouse Explosion Insurance Claim.The insurance claim related to the
February 1, 1999 explosion and fire at the Powerhouse includes the effect of a
93-day outage in 1999 and the corresponding reduction in shipments, Total Sales
and Costs and Expenses. Costs of Goods Sold includes property damage and
business interruption expenses of $38.6 million and $168.7 million in 2000 and
1999, respectively. Depreciation and Amortization Expense includes an
additional $32.2 million and $40.4 million in 2000 and 1999, respectively,
related to the temporary steam boilers, electrical distribution equipment and
other temporary facilities. The aggregate effect of Powerhouse
explosion-related items on operating loss was $72.0 million in 2000 and $217.4
million in 1999. Other income includes $84.3 million and $177.4 million in
2000 and 1999, respectively, of insurance recoveries.

Liquidity and Capital Resources

The Company continues to face difficult market conditions. During 2000
and 2001, there was intense downward pressure on steel prices caused by high
levels of imports and a softening demand for steel by the Companys customers.
The lower prices and the cash strain caused by the Powerhouse explosion and the
delay in the startup of the new power plant have caused significant operating
losses and considerable pressure on the Companys liquidity. During the three
years ended December 31, 2001, the Company incurred net losses of approximately
$277 million. The Company responded to the liquidity stress by refinancing its
long-term debt early in 2001 and procuring a subordinated credit facility late
in 2001. During the year ended December 31, 2001, the Companys borrowings
increased from $66.5 million to $145.5 million.

The Companys liquidity is dependent on operating performance, which is
closely related to business conditions in the domestic steel industry, the
implementation of operating and capital cost reduction programs, the impact of
the governments response to the Section 201 filings, and sources of financing.
The Company depends on borrowings to fund operations. In the event that
market conditions fail to improve adequately, operating losses continue and the
Company is

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unable to secure additional financing sources to fund expected
operating losses, it may be required to seek bankruptcy protection or commence
liquidation or other administrative proceedings.

The Company has undertaken an aggressive cost reduction program and
reduced capital expenditures in order to help conserve cash. In addition, the
Company is presently making plans to apply for a loan under the Federal
governments Emergency Steel Loan Guarantee Act. This loan has significant
contingencies that the Company may or may not be able to overcome to facilitate
borrowings. If Rouge Steel succeeds in obtaining such loan, the Company
expects to embark on a restructuring effort designed to substantially lower its
operating costs and strengthen its longer-term viability. This restructuring
effort could result in asset impairment and other charges and the acceleration
of employee benefit and other costs.

Cash and cash equivalents on December 31, 2001 totaled $3.2 million
compared to $2.7 million on December 31, 2000, an increase of $500,000. The
Company also had restricted cash of $2.7 million at December 31, 2000. Cash
used for operating activities was offset by cash provided by financing
activities during 2001.

Cash Flows from Operating Activities.Net cash used for operating
activities was $59.8 million in 2001 compared to net cash provided by operating
activities of $69.6 million in 2000. The net decrease of $129.4 was comprised
primarily of four items: (i) a higher net loss in 2001 than in 2000 before the
non-cash income tax provision, (ii) deferred insurance recovery which was
included in net loss in 2001, but for which the cash was received in 2000;
(iii) an inventory reduction and (iv) accelerated payments on accounts
receivable, primarily by automotive customers.

Capital Expenditures.Cash used for capital expenditures, including
investments in unconsolidated subsidiaries, decreased 24.3% in 2001 to $23.0
million from $30.4 million in 2000, a decrease of $7.4 million. The
expenditures made in 2001 were primarily to modernize and expand the Companys
facilities. In 2002, the Company plans to spend approximately $20 million on
capital items, which will be generally directed at maintaining plant efficiency
and product quality.

Credit Facilities. During the first quarter of 2001, while seeking
refinancing of its debt, the Company was required to seek amendments to the
$100 million, unsecured credit facility it had in place since 1997 (the
Original Credit Facility). Among other things, these amendments increased
the commitments of the banks from $100 million to $150 million.

The Companys expected liquidity needs in 2001 required it to refinance
the Original Credit Facility. Rouge Steel executed a $250 million Loan and
Security Agreement (the Credit Agreement) on March 13, 2001. The commitments
of the banks under the Credit Agreement will expire on March 13, 2004. Rouge
Steel is the borrower under the Credit Agreement and Rouge Industries is a
guarantor. The Credit Agreement is secured by substantially all the assets of
the Company. Borrowings under the Credit Agreement are limited to specified
percentages of receivables and inventories. In 2001, the Company obtained an
amendment to the Credit Agreement, which, among other things, allowed for
subordinated borrowings under the Ford Facility discussed below. This
amendment also reduced the commitment of the bank group under the Credit
Agreement to $200 million. The Company agreed to this reduction because it
does not project that its accounts receivable and inventories will support
borrowings more than $200 million under the Credit Agreement. There is one
financial covenant in the Credit Agreement,

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Minimum Net Worth, which will be
tested only when excess availability under the Credit Agreement is under $25
million. There is also a subjective acceleration clause in the Credit
Agreement which causes the Company to classify its debt outstanding under the
Credit Agreement as current. At December 31, 2001, the Companys receivables
and inventories supported availability under the Credit Agreement of $167.8
million, of which it could borrow up
to $142.8 million without a covenant default. The Company had borrowings
outstanding under the Credit Agreement of $105.5 million as of December 31,
2001. The Credit Agreement bears an unused line fee of 0.375%. The revolving
loans provided for under the Credit Agreement bear interest, at the option of
the Company, at a rate equal to either (i) the base rate, which is the higher
of the prime rate or the federal funds rate, plus a margin ranging from 0.25%
to 1.00% depending on excess availability under the Credit Agreement during the
prior quarter, or (ii) the LIBOR rate plus a margin ranging from 2.25% to 3.00%
depending on the Companys excess availability under the Credit Agreement
during the prior quarter.

In November 2001, the Company executed a new $75 million credit facility
(the Ford Facility). The Ford Facility, as amended, expires on December 31,
2002 and bears interest at approximately the same rate as the Credit Agreement.
The Ford Facility is subordinate to the Credit Agreement, has a second
security interest in the accounts receivable and inventory of the Company and
contains cross default provisions with the Credit Agreement.

Contractual Obligations and Other Commercial Commitments.The Company has
certain obligations with various parties that include commitments to make
future payments. Such obligations are presented below:

|                                      |       |   |                                           |       |        |   |           |       |       |   |         |      |       |   |      |      |  |   |   |   | 
|------------------------------------- | ----- | - | ----------------------------------------- | ----- | ------ | - | --------- | ----- | ----- | - | ------- | ---- | ----- | - | ---- | ---- |  | - | - | - | 
|                                      |       |   | Contractual Obligations with Payments Due
|                                      |       |   |                                          
|                                      |       |   |                                           |       |        |   | Less Than |       | 1-3   |   | 4-5     |      | After
|                                      |       |   | Total                                     |       | 1 Year |   | Years     |       | Years |   | 5 Years
|                                      |       |   |                                           |       |        |   |           |       |       |   |        
|                                      |       |   | (Dollars in millions)                    
|Short-Term Debt(1)                    |       | $ | 145.5                                     |       |        | $ | 145.5     |       |       | $ |        |      |       | $ |     |      |  | $ |  |  
|                                     
|                                     
|                                     
|                                     
|Operating Lease(2)                    |       |   | 36.1                                      |       |        |   | 9.3       |       |       |   | 26.8    |      |       |   |     |      |  |   |  |  
|                                     
|                                     
|                                     
|                                     
|Unconditional Purchase
Obligations(3) |       |   | 134.5                                     |       |        |   | 104.7     |       |       |   | 14.9    |      |       |   | 14.9 |      |  |   |  |  
|                                      |       |   |                                           |       |        |   |           |       |       |   |         |      |       |   |      |      |  |   |   |  
|                                      | Total |   | $                                         | 316.1 |        |   | $         | 259.5 |       |   | $       | 41.7 |       |   | $    | 14.9 |  |   |   |  | 
|                                      |       |   |                                           |       |        |   |           |       |       |   |         |      |       |   |      |      |  |   |   |  



---

|(1) |  | Includes $105.5 million of debt outstanding under the Credit Agreement.
This amount is classified as an obligation with payments due in less than
one year because of a subjective acceleration clause in the Credit
Agreement. Also includes $40.0 million of debt outstanding under the Ford
Facility.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Includes the Companys operating lease for its Waste Oxide Reclamation
Facility. Does not include immaterial amounts for short-term rentals.                                                                                                                                                            
|   
|   
|   
|   
|(3) |  | Includes 1,980,000 tons of pellets to be purchased from EVTAC in 2002
($75.2 million), $14.6 million of expected coke tolling charges from New
Boston, $14.1 million per year until 2005 for minimum oxygen purchases and
$816,000 per year until 2005 for minimum nitrogen purchases.                  

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|                             |                              |   |                                                     |     |        |   |           |     |       |   |         |     |       |   |     |     |  |   |   |   | 
|---------------------------- | ---------------------------- | - | --------------------------------------------------- | --- | ------ | - | --------- | --- | ----- | - | ------- | --- | ----- | - | --- | --- |  | - | - | - | 
|                             |                              |   | Other Commercial Commitments which Expire by Period
|                             |                              |   |                                                    
|                             |                              |   |                                                     |     |        |   | Less Than |     | 1-3   |   | 4-5     |     | After
|                             |                              |   | Total                                               |     | 1 Year |   | Years     |     | Years |   | 5 Years
|                             |                              |   |                                                     |     |        |   |           |     |       |   |        
|                             |                              |   | (Dollars in millions)                              
|Standby Letters of Credit(1) |                              | $ | 1.2                                                 |     |        | $ | 1.2       |     |       | $ |        |     |       | $ |    |     |  | $ |  |  
|                            
|                            
|                            
|                            
|Guarantees(2)                |                              |   | 1.9                                                 |     |        |   | 0.6       |     |       |   | 1.1     |     |       |   | 0.2 |     |  |   |  |  
|                             |                              |   |                                                     |     |        |   |           |     |       |   |         |     |       |   |     |     |  |   |   |  
|                             | Total Commercial Commitments |   | $                                                   | 3.1 |        |   | $         | 1.8 |       |   | $       | 1.1 |       |   | $   | 0.2 |  |   | $ |  | 
|                             |                              |   |                                                     |     |        |   |           |     |       |   |         |     |       |   |     |     |  |   |   |  



---

|(1) |  | Includes $1.0 million to the Bureau of Workers Compensation and $200,000
as collateral under the Companys automobile insurance program.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Includes amount guaranteed to a bank in favor of Delaco Processing,
L.L.C., a 49% owned joint venture.                                   

Environmental Matters

General.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. Except as set forth below,
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 $5.4 million during
the past four years. In addition, the Company has planned an aggregate of
approximately $2 million in capital expenditures for environmental compliance
for the years 2002 through 2005. Since environmental laws and regulations are
becoming increasingly 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.

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 the Comprehensive Environmental Response Compensation and Liability
Act of 1980, as amended, (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 shall 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. With respect to previously
submitted claims, in some instances Ford has accepted responsibility; in
others, it has denied responsibility. The submitted claims include asbestos
removal, CERCLA liabilities, National Pollutant Discharge Elimination System
permit

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violations, underground storage tank removal, transformer replacement
and transformer removal and disposal. Rouge Steel 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.

Rouge Steel and Ford co-signed a Corrective Action Consent Order which
committed both companies to a four-phase remediation program throughout the
Rouge Complex. Ford has indicated its concurrence with Rouge Steels position
that, under the Ford Indemnity, the demolition of Rouge Steels coke oven
batteries, including environmental remediation, will be Fords responsibility.
Based on the available data regarding the cost to demolish the coke ovens and
remediate the site, during 2001, the Company increased its existing coke oven
demolition reserve and recorded a corresponding receivable for anticipated
recoveries from Ford. The net effect of these events was a benefit of $7.4
million to operating income in 2001.

From time to time, the Company has received from the United States
Environmental Protection Agency (the EPA) various requests for information in
connection with an environmental statute. Whether these information requests
suggest contemplated actions by the EPA at any given time and whether such
requests for information will lead to a materially adverse effect on the
Companys results of operations or financial position is unknown.

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 (a Title V Permit) in 1997 with amendments in 1998. The
Michigan Department of Environmental Quality (the MDEQ) advised the Company
that the application and the amendments were administratively complete. The
Company expects to receive a draft Title V Permit during 2002.

Settled. In 1998, the Company and the Wayne County Air Quality Division
(the Division) entered into a consent order resolving certain notices of
violation (NOVs) and issues involving the BOF electrostatic precipitator and
the blast furnace flare stack. The settlement agreement imposed a $125,000
penalty, stipulated penalties for future violations, a compliance program and a
five-year term. The Company paid the penalty in 1998, and the compliance
program has been implemented.

Recent Events.In 2000, the EPA promulgated regulations limiting air
emissions of nitrogen oxides (NOx), and establishing a cap and trade program
and allocation scheme for allowable NOx emissions. The regulations identified
specific emissions sources. The regulations treated the Companys blast
furnaces as affected sources and established a NOx emissions allocation for
them. The Company appealed the regulation to the United States Circuit Court
of Appeals and was successful in obtaining a letter from the EPA acknowledging
that the blast furnaces were not intended to be subject to the NOx emissions
allocation scheme. The EPA proposed amendments to its regulations that would
delete the identification of the Company as an affected source. Those
amendments have not been finalized, but the Company anticipates that the blast
furnaces will remain outside the scope of the regulations.

In 2000, the MDEQ finalized state NOx emissions regulations. The
regulations required sources to submit proposals for the control of NOx
emissions utilizing reasonably available control technologies. The proposals
are to be implemented by April 1, 2003. The Company submitted a proposal to
the MDEQ that concluded that only the Companys hot strip mill reheat furnaces
are subject to the regulation and that there are no cost effective means of
improving

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existing control of NOx emissions at the reheat furnaces. The
Company anticipates that this proposal will be accepted by the MDEQ, and that
no emissions control measures will be required.

In 2000, the Company and Ford entered into a voluntary consent order with
the MDEQ. The consent order calls for a phased cleanup of waste management
units and areas of concern at the Rouge Complex under the Michigan Natural
Resources and Environmental Protection Act
(NREPA) and allows utilization of the flexible cleanup standards of Part 201
of NREPA. The consent order calls for meeting remediation goals by 2005. Ford
has agreed to pay for most of the remediation work, subject to its right to
seek reimbursement from the Company for any cleanup costs that are subsequently
shown to be outside the scope of Fords obligations to the Company under the
Ford Indemnity. Because of the preliminary nature of this matter, the Company
is presently unable to assess the probability that material expenses for
remediation required by the consent order will ultimately be apportioned to the
Company or to reasonably estimate the potential amount of any expenses that
might be apportioned to it. The Company has no information at this time to
suggest that the cost of remediation required by the consent order will have a
materially adverse effect on its results of operations or financial position.

In 2000, the EPA filed a complaint against the Company in the United
States District Court for the Eastern District of Michigan, U.S. vs. Rouge
Steel Company, CV-00-75452.The complaint arose out of a 1998 investigation of
Rouge Steels air, water and solid waste storage and disposal (the Multimedia
Investigation). The complaint alleges violations of the Clean Air Act and the
State of Michigans opacity emissions standards at the blast furnaces and the
BOF during 1998 and 1999. The complaint also alleges violations of RCRA.
Prior to the filing of the complaint, the EPA informed the Company that it
would seek $1.0 million in penalties, not including any economic benefit
component. Through subsequent negotiations and discussions, the agency agreed
to drop its demand for approximately $300,000 in penalties under the Emergency
Planning and Community Right-to-Know Act and CERCLA. Accordingly, the federal
complaint did not include those claims. The Company is presently engaging in
discussions with the EPA regarding the alleged violations, potential penalties
and other relief. Based on those discussions, the Company presently believes
that the agency will seek penalties of approximately $450,000.

In 2000, the County of Wayne (the County) filed a complaint against the
Company in the United States District Court for the Eastern District of
Michigan, County of Wayne v. Rouge Steel Company and Rouge Industries, Inc.
CV-00-75454. The complaint alleges violations of the opacity emission
standards of the Wayne County Air Pollution Control Ordinance during 1998 and
1999. These allegations parallel those in the EPAs complaint that arose from
the Multimedia Investigation. The County and the EPA have agreed to jointly
settle the opacity claims with the Multimedia complaint. The County complaint
also alleged claims under the Michigan Environmental Protection Act for the
creation of a public nuisance. The County presented the Company with an order
to abate the alleged public nuisance and proposed a settlement of penalty of
$252,000 for 15 fallout incidents alleged to have been caused by the Company.
However, as of October 1, 2001, the County relinquished enforcement of air
quality matters to the State of Michigan (the State). Through a Stipulation
filed with the court in February, 2002, the State joined with the county and
the EPA as a party in the settlement of the opacity claims. The State
indicated that it will review the fallout allegations, but has not yet reported
a decision on the matter. The Company has recorded an accrual with respect to
the EPA and the County lawsuits, which it believes will be adequate to cover
any penalties arising from them.

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The County issued several NOVs to the Company regarding opacity emissions
and fallout during 2000 that were not included in the Countys 2000 complaint.
The County has since agreed to consolidate the enforcement of these alleged
opacity NOVs in the joint settlement with the EPA discussed above. The
Companys disclosure of matters discussed herein does not indicate the
Companys acknowledgment of the validity of any claims made in connection
therewith. The preliminary nature of these matters makes it difficult for the
Company to predict the nature of their outcome or impact on the Company.

In 2000, the EPA issued a Unilateral Administrative Order (the Order) to
Rouge Steel pursuant to Section 7003(a) of RCRA. The Order directs the Company
to take immediate measures to stop the exposure of wildlife and migratory birds
to solid wastes and to develop and implement continuous emergency measures to
eliminate contact by wildlife with the solid wastes at the Companys Schaefer
Road Waste Water Treatment Plant. Rouge Steel complied with the Order and
submitted a continuing emergency measures workplan (CEMW) which the EPA
approved. Since then, the EPA has taken issue with the effectiveness of the
CEMW and with Rouge Steels implementation of the CEMW. In 2001, the EPA
issued an NOV to Rouge Steel informing the Company that the EPA has determined
that the Company is not complying with the Order nor the approved CEMW. Rouge
Steel has raised vigorous objections to a number of the allegations contained
in the NOV. The parties have conducted several negotiations to address these
issues but have not yet reached a resolution. In February 2002, the EPA issued
Rouge Steel a request for information regarding the Companys Schaefer Road
Waste Water Treatment Plant. The Company is currently responding to this
request. The preliminary nature of this matter makes it difficult for the
Company to predict the nature of its outcome or its impact on the Company.

Significant Accounting Policies

The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets, liabilities, revenues
and expenses. The Company believes the following critical accounting policies
require the most difficult, subjective or complex judgements and estimates that
are used in the preparation of the consolidated financial statements.

Insurance Matters. Since the Powerhouse explosion in February 1999, the
Companys results have been significantly impacted by estimates of the timing
and amount of costs incurred and related insurance recoveries from third
parties. On a quarterly basis, the Company considers all available information
relating to costs incurred, including the extent of damage to its facilities as
a result of the explosion, costs incurred for rebuilding and repairs, business
interruption costs and related remediation costs. The Company assesses the
probability of recoveries and makes a determination as to the amount to be
recorded each quarter based upon discussions with insurers, legal and financial
advisors and the status of the insurance settlement process.

The policies with respect to the timing of expenses and recovery
recognition were outlined in the first Quarterly Report on Form 10-Q subsequent
to the explosion and have been consistently followed by the Company since that
time. The status of the contested amounts and contingencies were discussed and
the amounts recorded each quarter were disclosed in the footnotes to the
financial statements as well as in Managements Discussion and Analysis of
Financial Condition and Results of Operations. As additional insurable events
have occurred,

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such as the recent fire at the Companys Double Eagle joint
venture, they have also been discussed and a consistent accounting treatment
has been applied. (See Note 12 of the Notes to Consolidated Financial
Statements and - Powerhouse Explosion and Insurance Claim).

Asset Impairments. Based on its recent operating losses, the Company has
made estimates of undiscounted future cash flow over the remaining useful lives
of its operating assets to determine if the assets are impaired. As of
December 31, 2001, the Company determined that no impairment existed.
Estimates of future cash flows in volatile market conditions are inherently
subjective and these estimates of future expected cash flows may change by a
material amount in the future.

Valuation Allowances, Including Customer Items and Environmental Matters.
On a quarterly basis, the Company evaluates its significant reserves and
valuation allowances and makes revisions to the estimates as required. The
ultimate cost or loss to the Company changes as additional information
regarding the uncertainty becomes available. The Company uses the following
policies to establish these reserves:



| |  |  | Management analyzes accounts receivable balances on an ongoing basis,
including historical bad debt information, customer creditworthiness
and current economic trends, when evaluating the adequacy of the
allowances for accounts receivable.                                                                                                                                                                                                                                                                                                                                                                                 
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Environmental matters are evaluated on an individual occurrence basis.
The Company works closely with legal and environmental consultants and
government agencies to make estimates relative to the cost of
environmental matters. Estimates are adjusted, both upward and
downward, as information becomes available to support such changes in
estimates. The Company also considers recoveries available pursuant to
the indemnification provisions of an agreement with the Companys
former owner, Ford.                                                                                                                   
|
| |  |  | On quarterly basis, the Company considers the likelihood of its ability
to realize the future benefit of its deferred tax assets given the
continuing uncertainty of the domestic steel market. The Company
utilizes information regarding historical and projected financial
performance and other factors relating to the generation of taxable
income as a basis for its estimates. During the fourth quarter of
2000, the Company determined that a valuation allowance was necessary
for all of its net deferred tax assets. The Company will continue to
evaluate the need for a valuation allowance on a quarterly basis.

Other Events

Double Eagle Fire.On December 15, 2001, a major fire at Double Eagle
halted production. The Company and its joint venture partner, U.S. Steel
Corporation, are rebuilding Double Eagle and plan to return the facility to
full production by the fourth quarter of 2002. The Company has an 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 Company believes that its share of such damage
and losses should be substantially covered by its insurance program above a
$7.5 million deductible. The Company has reallocated its portion of Double
Eagles production to other domestic coating facilities during the production

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outage. During 2002, the Company expects to record significant costs and
expenses and insurance recoveries related to the Double Eagle fire.

New Accounting Pronouncements.During 2001, the Company adopted Statement
of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities, No. 141, Business Combinations and No.
142, Goodwill and Other Intangible Assets. These pronouncements did not have
a significant impact on the Companys results of operations or financial
position. The Financial Accounting Standards Board recently issued SFAS No.
143. Accounting for Asset Retirement Obligations and SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets. The Company
is required to adopt SFAS No. 143 on January 1, 2003 and SFAS No. 144 on
January 1, 2002. The Company is presently evaluating the full extent of the
impact these standards will have on its financial statements.

Insurance Matters.As a result of the recent insurable losses incurred by
the Company, the Companys cost for insurance and deductible amount have
increased substantially. In addition, the Company has coverage for losses up
to $300 million per occurrence. The Companys previous coverage was for
amounts per occurrence of up to $1.0 billion.

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 of raw
materials, supplies, utilities and other services and items required by the
Companys operations, (vi) the availability of sufficient cash to support the
Companys operations, (vii) remedies imposed by the President related to the
International Trade Commissions determination of injury from imports, (viii)
the impact of the Double Eagle fire and (ix) higher than expected operating
costs.




Item 7A. Qualitative and Quantitative Disclosures About Market Risk

The Company is exposed to certain market risks that exist as part of its
ongoing business operations. Primary exposures include fluctuations in the
cost of energy and raw materials and movements in the prime rate and London
Interbank Offered Rate. The Company has generally relied upon competitive
market purchases for its energy and raw materials. The Companys debt is
floating based on market rates and the Company does not use swaps or other
interest rate protection agreements to hedge this risk.

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Item 8. Financial Statements and Supplementary Data.

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

|                                                                                                                |  |      |    | 
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|                                                                                                                |  |     
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|Report of Independent Accountants                                                                               |  |      | 39 | 
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|Consolidated Balance Sheets as of December 31, 2001 and 2000                                                    |  |      | 40 | 
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|Consolidated Statements of Operations for the Years Ended
December 31, 2001, 2000 and 1999                      |  |      | 42 | 
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|Consolidated Statements of Changes in Stockholders Equity for the Years Ended
December 31, 2001, 2000 and 1999 |  |      | 43 | 
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|Consolidated Statements of Cash Flows for the Years Ended
December 31, 2001, 2000 and 1999                      |  |      | 44 | 
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|Notes to Consolidated Financial Statements                                                                      |  |      | 45 | 
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|Schedule II  Valuation and Qualifying Accounts and Reserves                                                    |  |      | 61 | 

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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, 2001
and 2000, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2001 in conformity with
accounting principles generally accepted in the United States of America. 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 auditing standards generally accepted in the United States of
America, 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 our opinion.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to
the consolidated financial statements, the Company has suffered recurring
losses from operations and negative cash flows that raise substantial doubt
about its ability to continue as a going concern. Managements plans in regard
to these matters are also described in Note 2. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

PricewaterhouseCoopers LLP
Detroit, Michigan
March 20, 2002

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

Assets

|                                          |                                |                                                           |        |                                    |         |             |         |          |         |   |         | 
|----------------------------------------- | ------------------------------ | --------------------------------------------------------- | ------ | ---------------------------------- | ------- | ----------- | ------- | -------- | ------- | - | ------- | 
|                                          |                                |                                                           |        |                                    |         | December 31
|                                          |                                |                                                           |        |                                    |         |            
|                                          |                                |                                                           |        |                                    |         | 2001        |         | 2000    
|                                          |                                |                                                           |        |                                    |         |             |         |         
|Current Assets                            |                                |                                                           |        |                                    |         |             |         |         
|                                         
|                                         
|                                         
|                                         
|                                          | Cash and Cash Equivalents      |                                                           | $      | 3,235                              |         |             | $       | 2,733    |        
|                                         
|                                         
|                                         
|                                         
|                                          | Restricted Cash                |                                                           |        |                                   |         |             |         | 2,700    |        
|                                         
|                                         
|                                         
|                                         
|                                          | Accounts Receivable            |                                                           |        |                                    |         |             |         |          |        
|                                         
|                                         
|                                         
|                                         
|                                          |                                | Trade and Other (Net of Allowances of $13,970 and $9,823) |        |                                    | 70,365  |             |         |          | 108,708 |  
|                                         
|                                         
|                                         
|                                         
|                                          |                                | Insurance Recovery                                        |        |                                    |        |             |         |          | 20,007  |  
|                                         
|                                         
|                                         
|                                         
|                                          |                                | Affiliates                                                |        |                                    | 1,052   |             |         |          | 1,822   |  
|                                         
|                                         
|                                         
|                                         
|                                          | Inventories                    |                                                           |        | 232,937                            |         |             |         | 269,245  |        
|                                         
|                                         
|                                         
|                                         
|                                          | Other Current Assets           |                                                           |        | 10,636                             |         |             |         | 8,499    |        
|                                          |                                |                                                           |        |                                    |         |             |         |          |        
|                                          |                                | Total Current Assets                                      |        |                                    | 318,225 |             |         |          | 413,714 |  
|                                          |                                |                                                           |        |                                    |         |             |         |          |        
|Property, Plant, and Equipment            |                                |                                                           |        |                                    |         |             |         |         
|                                         
|                                         
|                                         
|                                         
|                                          | Land                           |                                                           |        | 360                                |         |             |         | 360      |        
|                                         
|                                         
|                                         
|                                         
|                                          | Buildings and Improvements     |                                                           |        | 23,344                             |         |             |         | 23,122   |        
|                                         
|                                         
|                                         
|                                         
|                                          | Machinery and Equipment        |                                                           |        | 383,377                            |         |             |         | 379,460  |        
|                                         
|                                         
|                                         
|                                         
|                                          | Construction in Progress       |                                                           |        | 27,980                             |         |             |         | 18,338   |        
|                                          |                                |                                                           |        |                                    |         |             |         |          |        
|                                          |                                | Subtotal                                                  |        |                                    | 435,061 |             |         |          | 421,280 |  
|                                          | Less: Accumulated Depreciation |                                                           |        | (197,868                           | )       |             |         | (176,912 | )      
|                                          |                                |                                                           |        |                                    |         |             |         |          |        
|                                         
|                                         
|                                         
|                                         
|                                          |                                |                                                           |        | Net Property, Plant, and Equipment |         |             | 237,193 |          |         |   | 244,368 | 
|                                          |                                |                                                           |        |                                    |         |             |         |          |        
|Investment in Unconsolidated Subsidiaries |                                |                                                           | 72,455 |                                    |         |             | 66,918  |         
|                                          |                                |                                                           |        |                                    |         |             |         |          |        
|Deferred Charges and Other                |                                |                                                           | 45,434 |                                    |         |             | 16,018  |         
|                                          |                                |                                                           |        |                                    |         |             |         |          |        
|                                          |                                |                                                           |        | Total Assets                       |         | $           | 673,307 |          |         | $ | 741,018 | 
|                                          |                                |                                                           |        |                                    |         |             |         |          |        

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

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

Liabilities and Stockholders Equity

|                                                |                                               |                                                                                                                                            |                                            |         |             |         |        |         |         |         | 
|----------------------------------------------- | --------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------ | ------- | ----------- | ------- | ------ | ------- | ------- | ------- | 
|                                                |                                               |                                                                                                                                            |                                            |         | December 31
|                                                |                                               |                                                                                                                                            |                                            |         |            
|                                                |                                               |                                                                                                                                            |                                            |         | 2001        |         | 2000  
|                                                |                                               |                                                                                                                                            |                                            |         |             |         |       
|Current Liabilities                             |                                               |                                                                                                                                            |                                            |         |             |         |        |        
|                                               
|                                               
|                                               
|                                               
|                                                | Accounts Payable                              |                                                                                                                                            |                                            |         |             |         |        |         |        
|                                               
|                                               
|                                               
|                                               
|                                                |                                               | Trade                                                                                                                                      |                                            | $       | 146,814     |         |        | $       | 188,626 |        
|                                                |                                               | Affiliates                                                                                                                                 |                                            |         | 17,112      |         |        |         | 11,149  |        
|                                               
|                                               
|                                               
|                                               
|                                                | Deferred Insurance Recovery                   |                                                                                                                                            |                                            |        |             |         |        | 44,000  |        
|                                               
|                                               
|                                               
|                                               
|                                                | Short-Term Debt                               |                                                                                                                                            |                                            | 145,549 |             |         |        |        |        
|                                               
|                                               
|                                               
|                                               
|                                                | Accrued Vacation Pay                          |                                                                                                                                            |                                            | 9,644   |             |         |        | 10,087  |        
|                                               
|                                               
|                                               
|                                               
|                                                | Taxes Other than Income                       |                                                                                                                                            |                                            | 6,001   |             |         |        | 6,128   |        
|                                               
|                                               
|                                               
|                                               
|                                                | Other Accrued Liabilities                     |                                                                                                                                            |                                            | 35,795  |             |         |        | 35,964  |        
|                                                |                                               |                                                                                                                                            |                                            |         |             |         |        |         |        
|                                                |                                               | Total Current Liabilities                                                                                                                  |                                            |         | 360,915     |         |        |         | 295,954 |        
|                                                |                                               |                                                                                                                                            |                                            |         |             |         |        |         |        
|Long-Term Debt                                  |                                               |                                                                                                                                            |                                           |         |             |         | 66,500 |        
|                                                |                                               |                                                                                                                                            |                                            |         |             |         |        |         |        
|Pensions and Other Postretirement Benefits      |                                               |                                                                                                                                            | 121,003                                    |         |             |         | 73,288 |        
|                                                |                                               |                                                                                                                                            |                                            |         |             |         |        |         |        
|Other Liabilities                               |                                               |                                                                                                                                            | 20,816                                     |         |             |         | 12,430 |        
|                                                |                                               |                                                                                                                                            |                                            |         |             |         |        |         |        
|Commitments and Contingencies (Notes 11 and 12) |                                               |                                                                                                                                            |                                            |         |             |         |        |        
|                                               
|                                               
|                                               
|                                               
|                                               
|Stockholders Equity                            |                                               |                                                                                                                                            |                                            |         |             |         |        |        
|                                               
|                                               
|                                               
|                                               
|                                                | Common Stock                                  |                                                                                                                                            |                                            |         |             |         |        |         |        
|                                               
|                                               
|                                               
|                                               
|                                                |                                               | Class A, 80,000,000 shares authorized with 15,103,839 and
15,087,577 issued and outstanding as of December 31, 2001
and 2000, respectively |                                            |         | 151         |         |        |         | 151     |        
|                                               
|                                               
|                                               
|                                               
|                                                |                                               | Class B, 8,690,400 shares authorized with 7,140,400
issued and outstanding as of December 31, 2001
and 2000                                |                                            |         | 72          |         |        |         | 72      |        
|                                               
|                                               
|                                               
|                                               
|                                                | Capital in Excess of Par Value                |                                                                                                                                            |                                            | 130,270 |             |         |        | 130,233 |        
|                                               
|                                               
|                                               
|                                               
|                                                | Retained Earnings                             |                                                                                                                                            |                                            | 50,022  |             |         |        | 162,430 |        
|                                               
|                                               
|                                               
|                                               
|                                                | Accumulated Other Comprehensive Income (Loss) |                                                                                                                                            |                                            | (9,942  | )           |         |        | (40     | )      
|                                                |                                               |                                                                                                                                            |                                            |         |             |         |        |         |        
|                                                |                                               |                                                                                                                                            | Total Stockholders Equity                 |         |             | 170,573 |        |         |         | 292,846 | 
|                                                |                                               |                                                                                                                                            |                                            |         |             |         |        |         |        
|                                                |                                               |                                                                                                                                            | Total Liabilities and Stockholders Equity |         | $           | 673,307 |        |         | $       | 741,018 | 
|                                                |                                               |                                                                                                                                            |                                            |         |             |         |        |         |        

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

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

|                                                                   |                                                         |             |            |                         |         |      |            |           |           |   |            |           |         | 
|------------------------------------------------------------------ | ------------------------------------------------------- | ----------- | ---------- | ----------------------- | ------- | ---- | ---------- | --------- | --------- | - | ---------- | --------- | ------- | 
|                                                                   |                                                         |             |            | Years Ended December 31
|                                                                   |                                                         |             |            |                        
|                                                                   |                                                         |             |            | 2001                    |         | 2000 |            | 1999     
|                                                                   |                                                         |             |            |                         |         |      |            |          
|Sales                                                              |                                                         |             |            |                         |         |      |            |           |           |   |            |          
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Unaffiliated Customers                                  |             | $          | 908,541                 |         |      | $          | 1,070,031 |           |   | $          | 950,148   |        
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Affiliates                                              |             |            | 15,005                  |         |      |            | 29,780    |           |   |            | 45,434    |        
|                                                                   |                                                         |             |            |                         |         |      |            |           |           |   |            |           |        
|                                                                   |                                                         | Total Sales |            |                         | 923,546 |      |            |           | 1,099,811 |   |            |           | 995,582 | 
|                                                                   |                                                         |             |            |                         |         |      |            |           |           |   |            |           |        
|Costs and Expenses                                                 |                                                         |             |            |                         |         |      |            |           |           |   |            |          
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Costs of Goods Sold                                     |             |            | 1,067,673               |         |      |            | 1,183,215 |           |   |            | 1,165,091 |        
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Depreciation and Amortization                           |             |            | 25,992                  |         |      |            | 56,711    |           |   |            | 63,267    |        
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Selling and Administrative Expenses                     |             |            | 20,612                  |         |      |            | 26,699    |           |   |            | 26,772    |        
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Amortization of Excess of Net Assets Acquired Over Cost |             |            |                        |         |      |            |          |           |   |            | (5,484    | )      
|                                                                   |                                                         |             |            |                         |         |      |            |           |           |   |            |           |        
|                                                                   | Total Costs and Expenses                                |             |            | 1,114,277               |         |      |            | 1,266,625 |           |   |            | 1,249,646 |        
|                                                                   |                                                         |             |            |                         |         |      |            |           |           |   |            |           |        
|Operating Loss                                                     |                                                         |             | (190,731   | )                       |         |      | (166,814   | )         |           |   | (254,064   | )        
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Interest Income                                                    |                                                         |             | 437        |                         |         |      | 949        |           |           |   | 750        |          
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Interest Expense                                                   |                                                         |             | (8,815     | )                       |         |      | (5,240     | )         |           |   | (2,843     | )        
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Insurance Recovery                                                 |                                                         |             | 81,533     |                         |         |      | 91,006     |           |           |   | 177,414    |          
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Other  Net                                                        |                                                         |             | (2,087     | )                       |         |      | (1,905     | )         |           |   | (1,214     | )        
|                                                                   |                                                         |             |            |                         |         |      |            |           |           |   |            |           |        
|Loss Before Income Taxes
and Equity in Unconsolidated Subsidiaries |                                                         |             | (119,663   | )                       |         |      | (82,004    | )         |           |   | (79,957    | )        
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Income Tax (Provision) Benefit                                     |                                                         |             |           |                         |         |      | (37,262    | )         |           |   | 30,494     |          
|                                                                   |                                                         |             |            |                         |         |      |            |           |           |   |            |           |        
|Loss Before Equity in Unconsolidated Subsidiaries                  |                                                         |             | (119,663   | )                       |         |      | (119,266   | )         |           |   | (49,463    | )        
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Equity in Income of Unconsolidated Subsidiaries                    |                                                         |             | 8,145      |                         |         |      | 1,947      |           |           |   | 1,652      |          
|                                                                   |                                                         |             |            |                         |         |      |            |           |           |   |            |           |        
|Net Loss                                                           |                                                         | $           | (111,518   | )                       |         | $    | (117,319   | )         |           | $ | (47,811    | )        
|                                                                   |                                                         |             |            |                         |         |      |            |           |           |   |            |           |        
|Net Loss Per Share  Basic and Diluted                             |                                                         | $           | (5.01      | )                       |         | $    | (5.29      | )         |           | $ | (2.16      | )        
|                                                                   |                                                         |             |            |                         |         |      |            |           |           |   |            |           |        
|Weighted-Average Shares Outstanding                                |                                                         |             | 22,241,651 |                         |         |      | 22,157,980 |           |           |   | 22,121,701 |          
|                                                                   |                                                         |             |            |                         |         |      |            |           |           |   |            |           |        

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

42



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##### Table of Contents



ROUGE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(amounts in thousands)

|                                     |                                                 |                |          |          |                         |   |          |          |         |   |         |         |         |   | 
|------------------------------------ | ----------------------------------------------- | -------------- | -------- | -------- | ----------------------- | - | -------- | -------- | ------- | - | ------- | ------- | ------- | - | 
|                                     |                                                 |                |          |          | Years Ended December 31
|                                     |                                                 |                |          |          |                        
|                                     |                                                 |                |          |          | 2001                    |   | 2000     |          | 1999   
|                                     |                                                 |                |          |          |                         |   |          |          |        
|Class A and Class B Common Stock    
|                                    
|                                    
|                                    
|                                    
|                                     | Beginning
Balance                               |                | $        | 223      |                         |   | $        | 222      |         |   | $       | 221     |        
|                                    
|                                    
|                                    
|                                    
|                                     | Common Stock Issued for Benefit Plans           |                |          |         |                         |   |          | 1        |         |   |         | 1       |        
|                                     |                                                 |                |          |          |                         |   |          |          |         |   |         |        
|                                     |                                                 | Ending Balance |          |          | 223                     |   |          |          | 223     |   |         |         | 222     |  
|                                     |                                                 |                |          |          |                         |   |          |          |         |   |         |        
|Capital in Excess of Par Value      
|                                    
|                                    
|                                    
|                                    
|                                     | Beginning Balance                               |                |          | 130,233  |                         |   |          | 129,943  |         |   |         | 129,458 |        
|                                    
|                                    
|                                    
|                                    
|                                     | Common Stock Issued for Benefit Plans           |                |          |          |                         |   |          | 256      |         |   |         | 410     |        
|                                    
|                                    
|                                    
|                                    
|                                     | Common Stock Issued for ODEP                    |                |          | 37       |                         |   |          | 34       |         |   |         | 55      |        
|                                    
|                                    
|                                    
|                                    
|                                     | Exercise of Stock Options                       |                |          |         |                         |   |          |         |         |   |         | 20      |        
|                                     |                                                 |                |          |          |                         |   |          |          |         |   |         |        
|                                     |                                                 | Ending Balance |          |          | 130,270                 |   |          |          | 130,233 |   |         |         | 129,943 |  
|                                     |                                                 |                |          |          |                         |   |          |          |         |   |         |        
|Retained Earnings                   
|                                    
|                                    
|                                    
|                                    
|                                     | Beginning Balance                               |                |          | 162,430  |                         |   |          | 282,409  |         |   |         | 332,876 |        
|                                    
|                                    
|                                    
|                                    
|                                     | Net Loss                                        |                | (111,518 | )        |                         |   | (117,319 | )        |         |   | (47,811 | )      
|                                    
|                                    
|                                    
|                                    
|                                     | Cash Dividends Declared                         |                | (890     | )        |                         |   | (2,660   | )        |         |   | (2,656  | )      
|                                     |                                                 |                |          |          |                         |   |          |          |         |   |         |        
|                                     |                                                 | Ending Balance |          |          | 50,022                  |   |          |          | 162,430 |   |         |         | 282,409 |  
|                                     |                                                 |                |          |          |                         |   |          |          |         |   |         |        
|Accumulated Other Comprehensive Loss
|                                    
|                                    
|                                    
|                                    
|                                     | Beginning Balance                               |                |          | (40      | )                       |   |          | (2,799   | )       |   |         | (2,933  | )      
|                                    
|                                    
|                                    
|                                    
|                                     | Additional Minimum Pension Liability Adjustment |                |          | (9,902   | )                       |   |          | 2,759    |         |   |         | 134     |        
|                                     |                                                 |                |          |          |                         |   |          |          |         |   |         |        
|                                     |                                                 | Ending Balance |          |          | (9,942                  | ) |          |          | (40     | ) |         |         | (2,799  | )
|                                     |                                                 |                |          |          |                         |   |          |          |         |   |         |        
|Total Stockholders Equity           |                                                 | $              | 170,573  |          |                         | $ | 292,846  |          |         | $ | 409,775 |        
|                                     |                                                 |                |          |          |                         |   |          |          |         |   |         |        
|Comprehensive Loss                   |                                                 |                |          |          |                         |   |          |          |         |   |         |        
|                                    
|                                    
|                                    
|                                    
|                                     | Net Loss                                        |                | $        | (111,518 | )                       |   | $        | (117,319 | )       |   | $       | (47,811 | )      
|                                    
|                                    
|                                    
|                                    
|                                     | Additional Minimum Pension Liability Adjustment |                |          | (9,902   | )                       |   |          | 2,759    |         |   |         | 134     |        
|                                     |                                                 |                |          |          |                         |   |          |          |         |   |         |        
|                                     | Comprehensive Loss                              |                | $        | (121,420 | )                       |   | $        | (114,560 | )       |   | $       | (47,677 | )      
|                                     |                                                 |                |          |          |                         |   |          |          |         |   |         |        

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

43



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##### Table of Contents



ROUGE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)

|                                                     |                                                                                            |                                                         |                                          |                                                      |        |                         |          |          |        |        |         |          |         |         |         |  
|---------------------------------------------------- | ------------------------------------------------------------------------------------------ | ------------------------------------------------------- | ---------------------------------------- | ---------------------------------------------------- | ------ | ----------------------- | -------- | -------- | ------ | ------ | ------- | -------- | ------- | ------- | ------- | -
|                                                     |                                                                                            |                                                         |                                          |                                                      |        | Years Ended December 31
|                                                     |                                                                                            |                                                         |                                          |                                                      |        |                        
|                                                     |                                                                                            |                                                         |                                          |                                                      |        | 2001                    |          | 2000     |        | 1999  
|                                                     |                                                                                            |                                                         |                                          |                                                      |        |                         |          |          |        |       
|Cash Flows From Operating Activities
Net Loss        |                                                                                            | $                                                       | (111,518                                 | )                                                    |        | $                       | (117,319 | )        |        | $      | (47,811 | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Adjustments to Reconcile Net Loss to Net Cash
Provided by (Used for) Operating Activities: |                                                         |                                          |                                                      |        |                         |          |          |        |        |         |          |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                            | Deferred Taxes                                          |                                          |                                                      |       |                         |          |          | 42,386 |        |         |          | (31,434 | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                            | Depreciation and Amortization                           |                                          |                                                      | 25,992 |                         |          |          | 56,711 |        |         |          | 63,267  |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                            | Equity in Unconsolidated Subsidiaries                   |                                          |                                                      | (8,145 | )                       |          |          | (1,947 | )      |         |          | (1,652  | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                            | Amortization of Excess of Net Assets Acquired Over Cost |                                          |                                                      |       |                         |          |          |       |        |         |          | (5,484  | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                            | Environmental Remediation Recovery                      |                                          |                                                      | (7,391 | )                       |          |          |       |        |         |          |        |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                            | Common Stock Issued for Benefit Plans                   |                                          |                                                      | 37     |                         |          |          | 291    |        |         |          | 466     |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                            | Changes in Assets and Liabilities:                      |                                          |                                                      |        |                         |          |          |        |        |         |          |         |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                            |                                                         | Accounts Receivable                      |                                                      |        | 59,120                  |          |          |        | 50,779 |         |          |         | (48,048 | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                            |                                                         | Inventories                              |                                                      |        | 37,068                  |          |          |        | 2,319  |         |          |         | 4,723   |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                            |                                                         | Prepaid Expenses                         |                                                      |        | (18,282                 | )        |          |        | (7,092 | )       |          |         | 3,696   |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                            |                                                         | Accounts Payable and Accrued Liabilities |                                                      |        | 7,785                   |          |          |        | 20,981 |         |          |         | 31,254  |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                            |                                                         | Deferred Insurance Recovery              |                                                      |        | (44,000                 | )        |          |        | 19,329 |         |          |         | 24,671  |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                            |                                                         | Other  Net                              |                                                      |        | (449                    | )        |          |        | 3,116  |         |          |         | 2,629   |        
|                                                     |                                                                                            |                                                         |                                          |                                                      |        |                         |          |          |        |        |         |         
|                                                     |                                                                                            |                                                         |                                          | Net Cash Provided by (Used for) Operating Activities |        |                         | (59,783  | )        |        |        | 69,554  |          |         |         | (3,723  | )
|                                                     |                                                                                            |                                                         |                                          |                                                      |        |                         |          |          |        |        |         |         
|Cash Flows From Investing Activities                 |                                                                                            |                                                         |                                          |                                                      |        |                         |          |          |        |        |         |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Capital Expenditures                                                                       |                                                         |                                          | (22,422                                              | )      |                         |          | (29,156  | )      |        |         | (64,700  | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Investment in Unconsolidated Subsidiaries                                                  |                                                         |                                          | (865                                                 | )      |                         |          | (1,290   | )      |        |         | (5,298   | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Distributions from Unconsolidated Subsidiaries                                             |                                                         |                                          | 2,713                                                |        |                         |          | 5,823    |        |        |         |         |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Change in Restricted Cash                                                                  |                                                         |                                          | 2,700                                                |        |                         |          | (2,700   | )      |        |         |         |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Other  Net                                                                                |                                                         |                                          |                                                     |        |                         |          | (399     | )      |        |         |         |        
|                                                     |                                                                                            |                                                         |                                          |                                                      |        |                         |          |          |        |        |         |         
|                                                     |                                                                                            |                                                         |                                          | Net Cash Used for Investing Activities               |        |                         | (17,874  | )        |        |        | (27,722 | )        |         |         | (69,998 | )
|                                                     |                                                                                            |                                                         |                                          |                                                      |        |                         |          |          |        |        |         |         
|Cash Flows From Financing Activities                 |                                                                                            |                                                         |                                          |                                                      |        |                         |          |          |        |        |         |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Drawdowns on Subordinated Debt                                                             |                                                         |                                          | 40,000                                               |        |                         |          |         |        |        |         |         |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Drawdowns on Revolving Line                                                                |                                                         |                                          | 1,206,945                                            |        |                         |          | 453,000  |        |        |         | 453,200  |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Principal Payments on Revolving Line                                                       |                                                         |                                          | (1,167,896                                           | )      |                         |          | (491,300 | )      |        |         | (377,400 | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Cash Dividend Payments                                                                     |                                                         |                                          | (890                                                 | )      |                         |          | (2,660   | )      |        |         | (2,656   | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Exercise of Stock Options                                                                  |                                                         |                                          |                                                     |        |                         |          |         |        |        |         | 20       |        
|                                                     |                                                                                            |                                                         |                                          |                                                      |        |                         |          |          |        |        |         |         
|                                                     |                                                                                            |                                                         |                                          | Net Cash (Used for) Provided by Financing Activities |        |                         | 78,159   |          |        |        | (40,960 | )        |         |         | 73,164  |  
|                                                     |                                                                                            |                                                         |                                          |                                                      |        |                         |          |          |        |        |         |         
|Net Increase (Decrease) in Cash and Cash Equivalents |                                                                                            |                                                         | 502                                      |                                                      |        |                         | 872      |          |        |        | (557    | )       
|                                                    
|                                                    
|                                                    
|                                                    
|Cash and Cash Equivalents  Beginning of Year        |                                                                                            |                                                         | 2,733                                    |                                                      |        |                         | 1,861    |          |        |        | 2,418   |         
|                                                     |                                                                                            |                                                         |                                          |                                                      |        |                         |          |          |        |        |         |         
|Cash and Cash Equivalents  End of Year              |                                                                                            | $                                                       | 3,235                                    |                                                      |        | $                       | 2,733    |          |        | $      | 1,861   |         
|                                                     |                                                                                            |                                                         |                                          |                                                      |        |                         |          |          |        |        |         |         

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

44



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##### Table of Contents



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 three Michigan-based joint ventures.
Eveleth holds a 45% 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.

The steel industry is cyclical in nature and the domestic steel industry has
been adversely affected in recent years by high levels of steel imports,
worldwide production overcapacity, increased domestic and international
competition, high labor and energy costs and inefficient plants. As a result
of the most recent industry downturn and its effect on the Company, management
has pursued several initiatives intended to increase liquidity and better
position Rouge Industries to compete under current market conditions, including
the refinancing of the Companys long-term debt (see Notes 2 and 6).

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.

Segment Information

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.

Revenue Recognition

Revenue from product sales is recognized when the customer has taken title and
assumed the risks and rewards of ownership. Provisions for returns and other
adjustments are recorded in the period the revenue is recognized. Management
analyzes accounts receivable balances, including historical bad debt
information, customer creditworthiness and current economic trends, when
evaluating the adequacy of provisions for returns and other adjustments.

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

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December 31, 2001 and 2000.
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, 2001.

Significant Customers

The Companys significant customers are Ford Motor Company (Ford), General
Motors Corporation (GM) and DaimlerChrysler AG (DaimlerChrysler). Sales to
Ford totaled $334,732,000 in 2001, $420,504,000 in 2000 and $402,994,000 in
1999.

Sales to GM totaled $92,110,000 in 2001, $103,916,000 in 2000 and $63,000,000
in 1999.

Sales to DaimlerChrysler totaled $87,628,000 in 2001, $96,043,000 in 2000 and
$99,800,000 in 1999.

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 5) 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. Based on its recent operating losses, the Company has made estimates
of undiscounted cash flows over the remaining useful lives of its operating
assets to determine if the assets are impaired. At December 31, 2001, the
Company determined that no impairment existed. Estimates of future cash flows
in volatile market conditions are inherently subjective and these estimates of
future expected cash flows may change by a material amount in the future.

46



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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.

As a result of the explosion and fire at the Rouge Complex Powerhouse (the
Powerhouse) (see Note 12), during 1999 the Company installed temporary
facilities to provide steam and electrical distribution. The cost of these
assets was $72,602,000, which was amortized over their expected useful lives of
20 to 23 months, which ended December 31, 2000. No amortization was recorded
in 2001 with respect to the temporary facilities.

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

Income Taxes

As required by SFAS 109, Accounting for Income Taxes, the Company has
considered the likelihood of its ability to realize the future benefit of its
deferred tax assets given the continuing uncertainty of the domestic steel
market. In evaluating the need for a valuation allowance against its net
deferred tax assets, the Company has considered historical and projected
financial performance and other factors relating to generation of future
taxable income. At this time, the Company has concluded that a valuation
allowance is necessary for all its net deferred tax assets (see Note 8).

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. Environmental matters are evaluated on an individual occurrence
basis. The Company works closely with legal and environmental consultants and
government agencies to make estimates relative to the cost of environmental
matters. Liabilities for environmental expenditures are accrued when it is
probable that such obligations have been incurred and the amounts can be
reasonably estimated. Estimates are adjusted, both upward and downward, as
information becomes available to support such changes in estimates. The
Company also considers recoveries available pursuant to the indemnification
provisions of an agreement with the Companys former owner, Ford.

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.

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New Accounting Pronouncements

During 2001, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 133, Accounting for Derivative Instruments and Hedging
Activities, No. 141, Business Combinations and No. 142, Goodwill and Other
Intangible Assets. These pronouncements did not have a significant impact on
the Companys results of operations or financial position. The Financial
Accounting Standards Board recently issued SFAS No. 143, Accounting for Asset
Retirement Obligations and SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. The Company is required to adopt SFAS No. 143
on January 1, 2003 and SFAS No. 144 on January 1, 2002. The Company is
presently evaluating the full extent of the impact these standards will have on
its financial statements.

NOTE 2  LIQUIDITY MATTERS

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed below, the
Company has suffered recurring losses from operations and negative cash flows
that raise substantial doubt about its ability to continue as a going concern.
Managements plans in regard to these matters are also described below. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

The Company continues to face difficult market conditions. During 2000 and
2001, there was intense downward pressure on steel prices caused by high levels
of imports and a softening demand for steel by the Companys customers. The
lower prices and the cash strain caused by the Powerhouse explosion and the
delay in the startup of the new power plant have caused significant operating
losses and considerable pressure on the Companys liquidity. During the three
years ended December 31, 2001, the Company has incurred net losses of
approximately $277,000,000. The Company has responded to the liquidity stress
by refinancing its long-term debt early in 2001 and procurring a subordinated
credit facility late in 2001. During the year ended December 31, 2001, the
Companys borrowings increased from $66,500,000 to $145,549,000.

The Companys liquidity is dependent on operating performance, which is closely
related to business conditions in the domestic steel industry, the
implementation of operating and capital cost reduction programs, the impact of
the governments response to the Section 201 filings, and sources of financing.
The Company depends on borrowings to fund operations (see Note 6). In the
event that market conditions fail to improve adequately, operating losses
continue and the Company is unable to secure additional financing sources to
fund expected operating losses, it may be required to seek bankruptcy
protection or commence liquidation or other administrative proceedings.

The Company has undertaken an aggressive cost reduction program and reduced
capital expenditures in order to help conserve cash. In addition, the Company
is presently making plans to apply for a loan under the Federal governments
Emergency Steel Loan Guarantee Act. This loan has significant contingencies
that the Company may or may not be able to overcome to facilitate borrowings.
If Rouge Steel succeeds in obtaining such loan, the Company expects to embark
on a restructuring effort designed to substantially lower its operating costs
and strengthen its longer-term viability. This restructuring effort could
result in asset impairment and other charges and the acceleration of employee
benefit and other costs.

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NOTE 3  MARKETABLE SECURITIES

As of December 31, 2001 and 2000, marketable securities classified as cash
equivalents were $0 and $693,000, respectively. The Companys investments in
marketable securities are comprised entirely of money market funds.

NOTE 4  INVENTORIES

The major classes of inventories are as follows (dollars in thousands):

|                         |                                          |                          |        |             |         |      |        |         |         | 
|------------------------ | ---------------------------------------- | ------------------------ | ------ | ----------- | ------- | ---- | ------ | ------- | ------- | 
|                         |                                          |                          |        | December 31
|                         |                                          |                          |        |            
|                         |                                          |                          |        | 2001        |         | 2000
|                         |                                          |                          |        |             |         |     
|Production               |                                          |                          |        |             |         |      |        |        
|                        
|                        
|                        
|                        
|                         | Raw Materials                            |                          | $      | 58,631      |         |      | $      | 86,182  |        
|                        
|                        
|                        
|                        
|                         | Semifinished and Finished Steel Products |                          |        | 175,552     |         |      |        | 180,688 |        
|                         |                                          |                          |        |             |         |      |        |        
|                         |                                          | Total Production at FIFO |        |             | 234,183 |      |        |         | 266,870 | 
|                        
|                        
|                        
|                        
|                         | LIFO Reserves                            |                          |        | (14,292     | )       |      |        | (13,387 | )      
|                         |                                          |                          |        |             |         |      |        |        
|                         |                                          | Total Production at LIFO |        | $           | 219,891 |      |        |         | 253,483 | 
|                        
|                        
|                        
|                        
|Nonproduction and Sundry |                                          |                          | 13,046 |             |         |      | 15,762 |        
|                         |                                          |                          |        |             |         |      |        |        
|                         |                                          | Total Inventories        |        | $           | 232,937 |      |        | $       | 269,245 | 
|                         |                                          |                          |        |             |         |      |        |        

NOTE 5  INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES

At December 31, 2001, the Companys investments in unconsolidated subsidiaries
consist of a 50% interest in Double Eagle Steel Coating Company (Double
Eagle), a 45% interest in Eveleth Mines LLC (EVTAC), a 48% interest in
Spartan Steel Coating, L.L.C. (Spartan Steel), an 11.1% interest in TWB
Company, L.L.C. (TWB), a 40% interest in Bing Blanking, L.L.C. (Bing
Blanking) and a 49% 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. On March 1, 2002, Rouge Industries
and its partner liquidated their interests in Bing Blanking (see Note 11).

Double Eagle is an electrogalvanizing facility which is operated as a cost
center. Accordingly, Double Eagle records neither sales nor income. On
December 15, 2001, a major fire at Double Eagle halted production at the plant.
The Company and its joint venture partner, U.S. Steel Corporation (U.S.
Steel) are rebuilding Double Eagle and plan to return the facility to full
production by the fourth quarter of 2002. Rouge Industries proportionate share
of Double Eagles production costs of $32,906,000, $41,232,000 and $39,609,000
for 2001, 2000 and 1999, respectively, is included in the Companys costs and
expenses and inventory. The Company is committed to pay 50% 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, 2001, the Companys share of the
underlying net assets of Double Eagle exceeded its investment by $18,087,000.
This excess results from purchase accounting adjustments made on the
consolidated accounts of the Company at the time of the acquisition of the
Company from Ford 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.

Eveleth became a wholly-owned subsidiary of the Company in 1996 and, in
exchange for a 45% ownership interest in EVTAC, Eveleth assigned substantially
all of its operating assets and liabilities to EVTAC. At December 31, 2001,
the Companys share of the underlying net assets of EVTAC exceeded its
investment by $5,492,000. This excess is being amortized over the estimated
remaining useful lives of the contributed assets.

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TWB produces laser welded blanks, Spartan Steel is a cold rolled hot dip
galvanizing facility, Bing Blanking produced first operation blanks and roll
formed parts, and Delaco Steel Processing is a steel processor. Spartan Steel,
Bing Blanking and Delaco Steel Processing began operation in 1998.

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

|                       |  |             |         |      |  |   |         | 
|---------------------- |  | ----------- | ------- | ---- |  | - | ------- | 
|                       |  | December 31
|                       |  |            
|                       |  | 2001        |         | 2000
|                       |  |             |         |     
|Current Assets         |  | $           | 119,532 |      |  | $ | 99,848  | 
|                      
|                      
|                      
|                      
|Noncurrent Assets      |  |             | 270,418 |      |  |   | 320,595 | 
|                      
|                      
|                      
|                      
|Current Liabilities    |  |             | 76,350  |      |  |   | 88,457  | 
|                      
|                      
|                      
|                      
|Noncurrent Liabilities |  |             | 141,718 |      |  |   | 96,038  | 

|             |  |                         |         |      |  |      |         |  |  |   |         | 
|------------ |  | ----------------------- | ------- | ---- |  | ---- | ------- |  |  | - | ------- | 
|             |  | Years Ended December 31
|             |  |                        
|             |  | 2001                    |         | 2000 |  | 1999
|             |  |                         |         |      |  |     
|Net Sales    |  | $                       | 355,079 |      |  | $    | 354,459 |  |  | $ | 327,760 | 
|            
|            
|            
|            
|Gross Profit |  |                         | 33,528  |      |  |      | 31,021  |  |  |   | 34,108  | 
|            
|            
|            
|            
|Net Income   |  |                         | 16,885  |      |  |      | 7,270   |  |  |   | 15,546  | 

The balance sheet information presented above does not include amounts for
Shiloh of Michigan, L.L.C. (Shiloh of Michigan) because the Company no longer
holds an interest in Shiloh of Michigan. See Note 11.

NOTE 6  DEBT

The Company had borrowings of $145,549,000 outstanding as of December 31, 2001
and $66,500,000 outstanding as of December 31, 2000 under the facilities
described below.

During the first quarter of 2001, while seeking refinancing of its debt, the
Company was required to seek amendments to the $100,000,000, unsecured credit
facility it had in place since 1997 (the Original Credit Facility). Among
other things, these amendments increased the commitments of the banks from
$100,000,000 to $150,000,000.

The Companys expected liquidity needs in 2001 required it to refinance the
Original Credit Facility. Rouge Steel executed a $250,000,000 Loan and
Security Agreement (the Credit Agreement) on March 13, 2001. The Credit
Agreement expires on March 13, 2004. Rouge Steel is the borrower under the
Credit Agreement and Rouge Industries is a guarantor. The Credit Agreement is
secured by substantially all the assets of the Company. Borrowings under the
Credit Agreement are limited to specified percentages of receivables and
inventories. In 2001, the Company obtained an amendment to the Credit
Agreement, which, among other things, allowed for subordinated borrowings under
the Ford Facility discussed below. This amendment also reduced the commitment
of the bank group under the Credit Agreement to $200,000,000. The Company
agreed to this reduction because it des not project that its accounts
receivable and inventories will support borrowings more than $200,000,000 under
the Credit Agreement. There is one financial covenant in the Credit Agreement,
a minimum net worth requirement, which is tested only when excess availability
under the Credit Agreement is less than $25,000,000. There is also a
subjective acceleration clause in the Credit Agreement which causes the Company
to classify its debt outstanding under the Credit Agreement as current. At
December 31, 2001, the Companys receivables

50



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and inventories supported
availability under the Credit Agreement of $167,824,000, of which it could
borrow up to $142,824,000 without a covenant default. The Company had
borrowings outstanding under the Credit Agreement of $105,549,000 as of
December 31, 2001. The Credit Agreement bears an unused line fee of 0.375%.
Interest on loans under the Credit Agreement is calculated by one of two
methods: (i) the prime rate plus a margin ranging from 0.25% to 1.00%,
depending upon excess availability or (ii) the London Interbank Offered Rate
plus a margin ranging from 2.25% to 3.00%, depending upon the Companys excess
availability under the Credit Agreement during the prior quarter.

In November 2001, the Company executed a new $75,000,000 credit facility from
Ford (the Ford Facility). The Ford Facility, as amended, expires on December
31, 2002 and bears interest at approximately the same rate as the Credit
Agreement. The Ford Facility is subordinate to the Credit Agreement, has a
second security interest in the accounts receivable and inventory of the
Company and contains cross default provisions with the Credit Agreement. As of
December 31, 2001, the Company had borrowings outstanding under the Ford
Facility of $40,000,000.

Cash paid for interest was $8,607,000 in 2001, $4,005,000 in 2000 and
$2,550,000 in 1999.

NOTE 7  PENSION AND POSTRETIREMENT BENEFIT PLANS

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):

|                                               |                              |                                          |         |               |         |                              |         |         |         |      |         |        |         |      |         |       |         |   |         |        |         |   |         |        |         |  
|---------------------------------------------- | ---------------------------- | ---------------------------------------- | ------- | ------------- | ------- | ---------------------------- | ------- | ------- | ------- | ---- | ------- | ------ | ------- | ---- | ------- | ----- | ------- | - | ------- | ------ | ------- | - | ------- | ------ | ------- | -
|                                               |                              |                                          |         | Pension Plans |         | Postretirement Benefit Plans
|                                               |                              |                                          |         |               |         |                             
|                                               |                              |                                          |         | 2001          |         | 2000                         |         | 1999    |         | 2001 |         | 2000   |         | 1999
|                                               |                              |                                          |         |               |         |                              |         |         |         |      |         |        |         |     
|Change in Benefit Obligation                   |                              |                                          |         |               |         |                              |         |         |         |      |         |        |         |      |         |       |         |   |         |        |         |   |         |       
|                                              
|                                              
|                                              
|                                              
|Benefit Obligation at Beginning of Year        |                              | $                                        | 149,950 |               |         | $                            | 141,446 |         |         | $    | 130,763 |        |         | $    | 71,768  |       |         | $ | 68,594  |        |         | $ | 67,879  |       
|                                              
|                                              
|                                              
|                                              
|                                               | Service Cost                 |                                          |         | 6,250         |         |                              |         | 7,006   |         |      |         | 7,993  |         |      |         | 4,053 |         |   |         | 4,346  |         |   |         | 4,490  |        
|                                              
|                                              
|                                              
|                                              
|                                               | Interest Cost                |                                          |         | 12,312        |         |                              |         | 11,125  |         |      |         | 9,280  |         |      |         | 6,048 |         |   |         | 5,459  |         |   |         | 4,878  |        
|                                              
|                                              
|                                              
|                                              
|                                               | Participants Contributions  |                                          |         | 323           |         |                              |         | 329     |         |      |         | 337    |         |      |         |      |         |   |         |       |         |   |         |       |        
|                                              
|                                              
|                                              
|                                              
|                                               | Plan Amendments              |                                          |         | (11           | )       |                              |         | 9,728   |         |      |         |       |         |      |         |      |         |   |         | (231   | )       |   |         |       |        
|                                              
|                                              
|                                              
|                                              
|                                               | Actuarial (Gain) Loss        |                                          |         | 12,280        |         |                              |         | (15,673 | )       |      |         | (4,034 | )       |      |         | 6,735 |         |   |         | (5,951 | )       |   |         | (8,320 | )      
|                                              
|                                              
|                                              
|                                              
|                                               | Total Benefit Payments       |                                          |         | (5,426        | )       |                              |         | (4,011  | )       |      |         | (2,893 | )       |      |         | (623  | )       |   |         | (449   | )       |   |         | (333   | )      
|                                               |                              |                                          |         |               |         |                              |         |         |         |      |         |        |         |      |         |       |         |   |         |        |         |   |         |       
|                                               |                              | Benefit Obligation at End of Year        |         | $             | 175,678 |                              |         | $       | 149,950 |      |         | $      | 141,446 |      |         | $     | 87,981  |   |         | $      | 71,768  |   |         | $      | 68,594  |  
|                                               |                              |                                          |         |               |         |                              |         |         |         |      |         |        |         |      |         |       |         |   |         |        |         |   |         |       
|Change in Plan Assets                          |                              |                                          |         |               |         |                              |         |         |         |      |         |        |         |      |         |       |         |   |         |        |         |   |         |       
|                                              
|                                              
|                                              
|                                              
|Fair Value of Plan Assets at Beginning of Year |                              | $                                        | 163,775 |               |         | $                            | 146,253 |         |         | $    | 128,055 |        |         | $    |        |       |         | $ |        |        |         | $ |        |       
|                                              
|                                              
|                                              
|                                              
|                                               | Actual Return on Plan Assets |                                          |         | (23,094       | )       |                              |         | 20,538  |         |      |         | 20,554 |         |      |         |      |         |   |         |       |         |   |         |       |        
|                                              
|                                              
|                                              
|                                              
|                                               | Employer Contributions       |                                          |         | 476           |         |                              |         | 861     |         |      |         | 187    |         |      |         | 623   |         |   |         | 449    |         |   |         | 333    |        
|                                              
|                                              
|                                              
|                                              
|                                               | Participants Contributions  |                                          |         | 323           |         |                              |         | 329     |         |      |         | 337    |         |      |         |      |         |   |         |       |         |   |         |       |        
|                                              
|                                              
|                                              
|                                              
|                                               | Total Benefit Payments       |                                          |         | (5,426        | )       |                              |         | (4,011  | )       |      |         | (2,893 | )       |      |         | (623  | )       |   |         | (449   | )       |   |         | (333   | )      
|                                              
|                                              
|                                              
|                                              
|                                               | Other                        |                                          |         | (61           | )       |                              |         | (195    | )       |      |         | 13     |         |      |         |      |         |   |         |       |         |   |         |       |        
|                                               |                              |                                          |         |               |         |                              |         |         |         |      |         |        |         |      |         |       |         |   |         |        |         |   |         |       
|                                               |                              | Fair Value of Plan Assets at End of Year |         | $             | 135,993 |                              |         | $       | 163,775 |      |         | $      | 146,253 |      |         |       |        |   |         | $      |        |   |         | $      |        |  
|                                               |                              |                                          |         |               |         |                              |         |         |         |      |         |        |         |      |         |       |         |   |         |        |         |   |         |       
|Funded Status                                  |                              | $                                        | (39,685 | )             |         | $                            | 13,825  |         |         | $    | 4,807   |        |         | $    | (87,981 | )     |         | $ | (71,768 | )      |         | $ | (68,594 | )     
|                                              
|                                              
|                                              
|                                              
|Unrecognized Actuarial (Gain) Loss             |                              |                                          | 14,366  |               |         |                              | (37,647 | )       |         |      | (14,427 | )      |         |      | 5,173   |       |         |   | (1,571  | )      |         |   | 4,380   |       
|                                              
|                                              
|                                              
|                                              
|Unrecognized Prior Service Cost                |                              |                                          | 14,548  |               |         |                              | 16,547  |         |         |      | 7,492   |        |         |      | (79     | )     |         |   | (88     | )      |         |   | 190     |       
|                                              
|                                              
|                                              
|                                              
|Adjustment to Book Value                       |                              |                                          |        |               |         |                              |        |         |         |      |        |        |         |      | 183     |       |         |   | 139     |        |         |   | 88      |       
|                                              
|                                              
|                                              
|                                              
|Adjustment for Sept. 30th Measurement Date     |                              |                                          | 13      |               |         |                              | 2       |         |         |      | 81      |        |         |      |        |       |         |   |        |        |         |   |        |       
|                                               |                              |                                          |         |               |         |                              |         |         |         |      |         |        |         |      |         |       |         |   |         |        |         |   |         |       
|                                               |                              | Net Amount Recognized                    |         | $             | (10,758 | )                            |         | $       | (7,273  | )    |         | $      | (2,047  | )    |         | $     | (82,704 | ) |         | $      | (73,288 | ) |         | $      | (63,936 | )
|                                               |                              |                                          |         |               |         |                              |         |         |         |      |         |        |         |      |         |       |         |   |         |        |         |   |         |       

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|                                                |                                          |                       |       |               |         |                              |       |         |        |      |       |        |        |      |   |         |         |   |   |         |         |   |   |         |         |  
|----------------------------------------------- | ---------------------------------------- | --------------------- | ----- | ------------- | ------- | ---------------------------- | ----- | ------- | ------ | ---- | ----- | ------ | ------ | ---- | - | ------- | ------- | - | - | ------- | ------- | - | - | ------- | ------- | -
|                                                |                                          |                       |       | Pension Plans |         | Postretirement Benefit Plans
|                                                |                                          |                       |       |               |         |                             
|                                                |                                          |                       |       | 2001          |         | 2000                         |       | 1999    |        | 2001 |       | 2000   |        | 1999
|                                                |                                          |                       |       |               |         |                              |       |         |        |      |       |        |        |     
|Amount Recognized in the Consolidated           |                                          |                       |       |               |         |                              |       |         |        |      |       |        |        |      |   |         |         |   |   |         |         |   |   |        
|                                               
|                                               
|                                               
|                                               
|Balance
Sheets Consists of
Prepaid Benefit Cost |                                          | $                     | 5,979 |               |         | $                            | 4,818 |         |        | $    | 3,945 |        |        | $    |  |         |         | $ |  |         |         | $ |  |        
|                                               
|                                               
|                                               
|                                               
|                                                | Accrued Benefit Liability                |                       |       | (16,737       | )       |                              |       | (12,091 | )      |      |       | (5,992 | )      |      |   | (82,704 | )       |   |   | (73,288 | )       |   |   | (63,936 | )      
|                                               
|                                               
|                                               
|                                               
|                                                | Additional Minimum Liability             |                       |       | (23,852       | )       |                              |       | (607    | )      |      |       | (5,286 | )      |      |   |        |         |   |   |        |         |   |   |        |        
|                                               
|                                               
|                                               
|                                               
|                                                | Intangible Asset                         |                       |       | 13,910        |         |                              |       | 567     |        |      |       | 980    |        |      |   |        |         |   |   |        |         |   |   |        |        
|                                               
|                                               
|                                               
|                                               
|                                                | Accumulated Other Comprehensive Income   |                       |       | 9,942         |         |                              |       | 40      |        |      |       | 4,306  |        |      |   |        |         |   |   |        |         |   |   |        |        
|                                                |                                          |                       |       |               |         |                              |       |         |        |      |       |        |        |      |   |         |         |   |   |         |         |   |   |        
|                                                |                                          | Net Amount Recognized |       | $             | (10,758 | )                            |       | $       | (7,273 | )    |       | $      | (2,047 | )    |   | $       | (82,704 | ) |   | $       | (73,288 | ) |   | $       | (63,936 | )
|                                                |                                          |                       |       |               |         |                              |       |         |        |      |       |        |        |      |   |         |         |   |   |         |         |   |   |        
|Weighted-Average Assumptions                    |                                          |                       |       |               |         |                              |       |         |        |      |       |        |        |      |   |         |         |   |   |         |         |   |   |        
|                                               
|                                               
|                                               
|                                               
|                                                | Discount Rate                            |                       |       | 7.50          | %       |                              |       | 8.00    | %      |      |       | 7.50   | %      |      |   | 7.50    | %       |   |   | 8.00    | %       |   |   | 7.50    | %      
|                                               
|                                               
|                                               
|                                               
|                                                | Expected Return on Plan Assets           |                       |       | 9.00          |         |                              |       | 9.00    |        |      |       | 9.00   |        |      |   | N/A     |         |   |   | N/A     |         |   |   | N/A     |        
|                                               
|                                               
|                                               
|                                               
|                                                | Rate of Compensation Increase  Salaried |                       |       | 3.70          |         |                              |       | 3.70    |        |      |       | 3.70   |        |      |   | 3.70    |         |   |   | 3.70    |         |   |   | 3.70    |        
|                                               
|                                               
|                                               
|                                               
|                                                | Rate of Compensation Increase  Hourly   |                       |       | N/A           |         |                              |       | N/A     |        |      |       | N/A    |        |      |   | 3.00    |         |   |   | 3.00    |         |   |   | 3.00    |        

For measurement purposes, an assumed health care trend rate of 8.0% (trending
to 5.5% by 2005) was used for the postretirement benefit obligation in 2001 and
6.0% was used for 2000 and 1999. A measurement date of September 30 was used
for the pension plans and the postretirement benefit plans.

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

|                                                     |                                    |                           |       |               |       |                              |       |         |       |      |       |         |       |      |       |       |        |   |       |       |       |   |       |       |       | 
|---------------------------------------------------- | ---------------------------------- | ------------------------- | ----- | ------------- | ----- | ---------------------------- | ----- | ------- | ----- | ---- | ----- | ------- | ----- | ---- | ----- | ----- | ------ | - | ----- | ----- | ----- | - | ----- | ----- | ----- | 
|                                                     |                                    |                           |       | Pension Plans |       | Postretirement Benefit Plans
|                                                     |                                    |                           |       |               |       |                             
|                                                     |                                    |                           |       | 2001          |       | 2000                         |       | 1999    |       | 2001 |       | 2000    |       | 1999
|                                                     |                                    |                           |       |               |       |                              |       |         |       |      |       |         |       |     
|Components
of Net Periodic Benefit Cost
Service Cost |                                    | $                         | 6,250 |               |       | $                            | 7,006 |         |       | $    | 7,993 |         |       | $    | 4,053 |       |        | $ | 4,346 |       |       | $ | 4,490 |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Interest Cost                      |                           |       | 12,312        |       |                              |       | 11,125  |       |      |       | 9,280   |       |      |       | 6,048 |        |   |       | 5,459 |       |   |       | 4,878 |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Expected Return on Plan Assets     |                           |       | (14,536       | )     |                              |       | (13,020 | )     |      |       | (11,411 | )     |      |       |      |        |   |       |      |       |   |       |      |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Amortization of Prior Service Cost |                           |       | 2,004         |       |                              |       | 1,257   |       |      |       | 1,108   |       |      |       | (9    | )      |   |       | 47    |       |   |       | 47    |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Recognized Actuarial (Gain) Loss   |                           |       | (2,056        | )     |                              |       | (360    | )     |      |       | 271     |       |      |       | (9    | )      |   |       |      |       |   |       | 573   |      
|                                                     |                                    |                           |       |               |       |                              |       |         |       |      |       |         |       |      |       |       |        |   |       |       |       |   |       |      
|                                                     |                                    | Net Periodic Benefit Cost |       | $             | 3,974 |                              |       | $       | 6,008 |      |       | $       | 7,241 |      |       | $     | 10,083 |   |       | $     | 9,852 |   |       | $     | 9,988 | 
|                                                     |                                    |                           |       |               |       |                              |       |         |       |      |       |         |       |      |       |       |        |   |       |       |       |   |       |      

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):

|                               |  |             |         |      |  |      |       |  |  |   |        | 
|------------------------------ |  | ----------- | ------- | ---- |  | ---- | ----- |  |  | - | ------ | 
|                               |  | December 31
|                               |  |            
|                               |  | 2001        |         | 2000 |  | 1999
|                               |  |             |         |      |  |     
|Projected Benefit Obligation   |  | $           | 168,395 |      |  | $    | 2,215 |  |  | $ | 20,002 | 
|                              
|                              
|                              
|                              
|Accumulated Benefit Obligation |  |             | 165,597 |      |  |      | 2,137 |  |  |   | 19,759 | 
|                              
|                              
|                              
|                              
|Fair Value of Plan Assets      |  |             | 127,511 |      |  |      |      |  |  |   | 14,529 | 

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.

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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, 2001 (dollars in thousands):

|                                                        |  |                |        |                |  |   |         |  
|------------------------------------------------------- |  | -------------- | ------ | -------------- |  | - | ------- | -
|                                                        |  | One Percentage |        | One Percentage
|                                                        |  | Point Increase |        | Point Decrease
|                                                        |  |                |        |               
|Effect on Total of Service and Interest Cost Components |  | $              | 2,508  |                |  | $ | (1,927  | )
|                                                       
|                                                       
|                                                       
|                                                       
|Effect on Postretirement Benefit Obligation             |  |                | 16,678 |                |  |   | (13,079 | )

NOTE 8  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):

|         |                           |   |                         |   |      |   |         |         |   |   |        |        | 
|-------- | ------------------------- | - | ----------------------- | - | ---- | - | ------- | ------- | - | - | ------ | ------ | 
|         |                           |   | Years Ended December 31
|         |                           |   |                        
|         |                           |   | 2001                    |   | 2000 |   | 1998   
|         |                           |   |                         |   |      |   |        
|Current  |                           | $ |                        |   |      | $ | 5,123   |         |   | $ | (940   | )     
|        
|        
|        
|        
|Deferred |                           |   |                        |   |      |   | (42,386 | )       |   |   | 31,434 |       
|         |                           |   |                         |   |      |   |         |         |   |   |        |       
|         | Total (Provision) Benefit |   | $                       |  |      |   | $       | (37,262 | ) |   | $      | 30,494 | 
|         |                           |   |                         |   |      |   |         |         |   |   |        |       

The Companys income tax provision is net of taxes related to the equity in the
income or loss of unconsolidated subsidiaries. The tax provision associated
with the income of unconsolidated subsidiaries was $0 in 2001 and 2000. The
income tax provision associated with the income of unconsolidated subsidiaries
was $783,000 in 1999, which is comprised of a current provision of $847,000 and
a deferred benefit of $64,000.

The Accumulated Other Comprehensive Income (Loss)
of $(9,942,000), $(40) and
$(4,306,000) for 2001, 2000 and 1999, respectively, are shown net of the
deferred tax impact of $0, $0 and $1,507,000.

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

|                             |                                         |                           |          |                         |   |      |         |         |         |   |         |       |        | 
|---------------------------- | --------------------------------------- | ------------------------- | -------- | ----------------------- | - | ---- | ------- | ------- | ------- | - | ------- | ----- | ------ | 
|                             |                                         |                           |          | Years Ended December 31
|                             |                                         |                           |          |                        
|                             |                                         |                           |          | 2001                    |   | 2000 |         | 1999   
|                             |                                         |                           |          |                         |   |      |         |        
|Pre-Tax Income (Loss)        |                                         | $                         | (119,663 | )                       |   | $    | (82,004 | )       |         | $ | (79,957 | )    
|                             |                                         |                           |          |                         |   |      |         |         |         |   |         |      
|Computed (Provision) Benefit |                                         | $                         | 41,882   |                         |   | $    | 28,701  |         |         | $ | 27,985  |      
|                            
|                            
|                            
|                            
|Source of Difference:        |                                         |                           |          |                         |   |      |         |         |         |   |         |      
|                            
|                            
|                            
|                            
|                             | Income from Unconsolidated Subsidiaries |                           |          | (2,851                  | ) |      |         |        |         |   |         |      |       
|                            
|                            
|                            
|                            
|                             | Amortization of Negative Goodwill       |                           |          |                        |   |      |         |        |         |   |         | 1,919 |       
|                            
|                            
|                            
|                            
|                             | Change in Valuation Allowance           |                           |          | (39,058                 | ) |      |         | (63,012 | )       |   |         | 700   |       
|                            
|                            
|                            
|                            
|                             | Basis Adjustment in Deferred Tax Assets |                           |          |                        |   |      |         | (1,988  | )       |   |         |      |       
|                            
|                            
|                            
|                            
|                             | Other                                   |                           |          | 27                      |   |      |         | (963    | )       |   |         | (110  | )     
|                             |                                         |                           |          |                         |   |      |         |         |         |   |         |      
|                             |                                         | Total (Provision) Benefit |          | $                       |  |      |         | $       | (37,262 | ) |         | $     | 30,494 | 
|                             |                                         |                           |          |                         |   |      |         |         |         |   |         |      

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Deferred tax assets (liabilities) are comprised of the following (dollars in
thousands):

|                                                                |                               |   |             |   |      |   |         |   | 
|--------------------------------------------------------------- | ----------------------------- | - | ----------- | - | ---- | - | ------- | - | 
|                                                                |                               |   | December 31
|                                                                |                               |   |            
|                                                                |                               |   | 2001        |   | 2000
|                                                                |                               |   |             |   |     
|Assets                                                          |                               |   |             |   |      |   |         |  
|                                                               
|                                                               
|                                                               
|                                                               
|Basis of Consolidated Subsidiary                                |                               | $ | 12,061      |   |      | $ | 1,754   |  
|                                                               
|                                                               
|                                                               
|                                                               
|Postretirement and Other Benefits                               |                               |   | 38,969      |   |      |   | 34,857  |  
|                                                               
|                                                               
|                                                               
|                                                               
|Other                                                           |                               |   | 6,295       |   |      |   | 8,501   |  
|                                                               
|                                                               
|                                                               
|                                                               
|Operating Loss and Alternative
Minimum Tax Credit Carryforwards |                               |   | 115,273     |   |      |   | 93,569  |  
|                                                                |                               |   |             |   |      |   |         |  
|Gross Deferred Tax Assets                                       |                               |   | 162,598     |   |      |   | 138,681 |  
|                                                               
|                                                               
|                                                               
|                                                               
|Valuation Allowance                                             |                               |   | (112,085    | ) |      |   | (73,027 | )
|                                                                |                               |   |             |   |      |   |         |  
|Gross Deferred Tax Assets
After Valuation Allowance             |                               |   | 50,513      |   |      |   | 65,654  |  
|                                                                |                               |   |             |   |      |   |         |  
|Liabilities                                                     |                               |   |             |   |      |   |         |  
|                                                               
|                                                               
|                                                               
|                                                               
|Property, Plant, and Equipment                                  |                               |   | (38,685     | ) |      |   | (41,421 | )
|                                                               
|                                                               
|                                                               
|                                                               
|Inventories                                                     |                               |   | (11,828     | ) |      |   | (11,652 | )
|                                                               
|                                                               
|                                                               
|                                                               
|Insurance Adjustment                                            |                               |   |            |   |      |   | (12,548 | )
|                                                               
|                                                               
|                                                               
|                                                               
|Other                                                           |                               |   |            |   |      |   | (33     | )
|                                                                |                               |   |             |   |      |   |         |  
|Gross Deferred Tax Liabilities                                  |                               |   | (50,513     | ) |      |   | (65,654 | )
|                                                                |                               |   |             |   |      |   |         |  
|                                                                | Total Net Deferred Tax Assets |   | $           |  |      |   | $       |  | 
|                                                                |                               |   |             |   |      |   |         |  

Unused regular tax loss carryforwards were approximately $237,335,000 and
$173,720,000 at                      December 31, 2001 and December 31, 2000, respectively.
The tax loss carryforwards will expire between 2019 and 2021. Alternative
minimum tax credit carryforwards amounted to $31,714,000 at December 31, 2001
and 2000. The alternative minimum tax credit may be carried forward
indefinitely.

In 2000 and 2001, the Company recorded a full valuation against its net
deferred tax assets, consistent with the determination that it is more likely
than not that all of the Companys net deferred tax assets will not be
realized. The Company has considered historical and projected financial
performance and other factors relating to the generation of future taxable
income in its assessment of the need for a valuation allowance.

The Company received cash refunds of $0, $5,123,000 and $2,379,000 in 2001,
2000 and 1999, respectively.

NOTE 9  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 (the 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, 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
1,600,000 shares of common stock. Of this amount, options are outstanding for
903,980 shares at December 31, 2001. 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.

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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 loss and net loss per share would have
resulted in the pro forma amounts indicated below:

|                                |  |             |  |   |          |                         |  |      |          |      |  |   |         |   |  | 
|------------------------------- |  | ----------- |  | - | -------- | ----------------------- |  | ---- | -------- | ---- |  | - | ------- | - |  | 
|                                |  |             |  |   |          | Years Ended December 31
|                                |  |             |  |   |          |                        
|                                |  |             |  |   |          | 2001                    |  | 2000 |          | 1999
|                                |  |             |  |   |          |                         |  |      |          |     
|Net Loss (dollars in thousands) |  | As Reported |  | $ | (111,518 | )                       |  | $    | (117,319 | )    |  | $ | (47,811 | )
|                               
|                               
|                               
|                               
|                                |  | Pro Forma   |  |   | (111,460 | )                       |  |      | (117,596 | )    |  |   | (48,010 | )
|                               
|                               
|                               
|                               
|Net Loss Per Share              |  | As Reported |  | $ | (5.01    | )                       |  | $    | (5.29    | )    |  | $ | (2.16   | )
|                               
|                               
|                               
|                               
|                                |  | Pro Forma   |  |   | (5.01    | )                       |  |      | (5.31    | )    |  |   | (2.17   | )

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 2001, 2000 and 1999:

|                        |  |         |       |         |  |         |       |   |  |  |       |  
|----------------------- |  | ------- | ----- | ------- |  | ------- | ----- | - |  |  | ----- | -
|                        |  | 2001    |       | 2000    |  | 1999   
|                        |  |         |       |         |  |        
|Dividend Yield          |  |         | 3.06  | %       |  |         | 1.54  | % |  |  | 1.37  | %
|                       
|                       
|                       
|                       
|Risk-Free Interest Rate |  |         | 4.76  |         |  |         | 6.55  |   |  |  | 4.74  |  
|                       
|                       
|                       
|                       
|Expected Volatility     |  |         | 60.84 |         |  |         | 41.16 |   |  |  | 41.16 |  
|                       
|                       
|                       
|                       
|Expected Life           |  | 7 years |       | 7 years |  | 7 years

A summary of the status of the Companys stock-based compensation plans as of
December 31, 2001, 2000 and 1999 and changes during the years then ended is
presented below:

|                                |                                 |  |         |   |       |   |           |      |       |  |         |   |           |   |       |      |  |  |           |   |  |   |       |      | 
|------------------------------- | ------------------------------- |  | ------- | - | ----- | - | --------- | ---- | ----- |  | ------- | - | --------- | - | ----- | ---- |  |  | --------- | - |  | - | ----- | ---- | 
|                                |                                 |  | 2001    |   | 2000  |   | 1999     
|                                |                                 |  |         |   |       |   |          
|                                |                                 |  |         |   |       |   | Weighted- |      |       |  |         |   | Weighted- |   |       |      |  |  | Weighted-
|                                |                                 |  |         |   |       |   | Average   |      |       |  |         |   | Average   |   |       |      |  |  | Average  
|                                |                                 |  | Shares  |   | Price |   | Shares    |      | Price |  | Shares  |   | Price    
|                                |                                 |  |         |   |       |   |           |      |       |  |         |   |          
|Outstanding at January 1        |                                 |  | 650,875 |   |       | $ | 14.18     |      |       |  | 505,725 |   |           | $ | 16.98 |      |  |  | 383,950   |   |  | $ | 21.09 |     
|                               
|                               
|                               
|                               
|Granted                         |                                 |  | 314,504 |   |       |   | 2.02      |      |       |  | 201,200 |   |           |   | 7.83  |      |  |  | 187,700   |   |  |   | 8.79  |     
|                               
|                               
|                               
|                               
|Forfeited                       |                                 |  | (61,399 | ) |       |   | 17.04     |      |       |  | (56,050 | ) |           |   | 16.63 |      |  |  | (63,625   | ) |  |   | 17.87 |     
|                               
|                               
|                               
|                               
|Exercised                       |                                 |  |        |   |       |   | N/A       |      |       |  |        |   |           |   | N/A   |      |  |  | (2,300    | ) |  |   | 8.75  |     
|                                |                                 |  |         |   |       |   |           |      |       |  |         |   |           |   |       |      |  |  |           |   |  |   |       |     
|Outstanding at December 31      |                                 |  | 903,980 |   |       | $ | 9.76      |      |       |  | 650,875 |   |           | $ | 14.18 |      |  |  | 505,725   |   |  | $ | 16.98 |     
|                                |                                 |  |         |   |       |   |           |      |       |  |         |   |           |   |       |      |  |  |           |   |  |   |       |     
|Options Exercisable at Year-End |                                 |  | 698,903 |   |       | $ | 11.63     |      |       |  | 514,490 |   |           | $ | 15.80 |      |  |  | 399,244   |   |  | $ | 18.98 |     
|                               
|                               
|                               
|                               
|Weighted-Average Fair Value of  |                                 |  |         |   |       |   |           |      |       |  |         |   |           |   |       |      |  |  |           |   |  |   |       |     
|                               
|                               
|                               
|                               
|                                | Options Granted During the Year |  |         |   |       |   | $         | 0.99 |       |  |         |   |           |   | $     | 3.65 |  |  |           |   |  |   | $     | 3.86 | 

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The following table presents summarized information about stock options outstanding at December 31, 2001:

|                |  |                     |         |                     |  |                |     |                   |      |                |       |  |         |  |         |   |      |  |       | 
|--------------- |  | ------------------- | ------- | ------------------- |  | -------------- | --- | ----------------- | ---- | -------------- | ----- |  | ------- |  | ------- | - | ---- |  | ----- | 
|                |  | Options Outstanding |         | Options Exercisable
|                |  |                     |         |                    
|                |  | Number              |         | Weighted-Average    |  | Weighted-      |     | Number            |      | Weighted-     
|Range of        |  | Outstanding at      |         | Remaining           |  | Average        |     | Exercisable at    |      | Average       
|Exercise Prices |  | December 31, 2001   |         | Contractual Life    |  | Exercise Price |     | December 31, 2001 |      | Exercise Price
|                |  |                     |         |                     |  |                |     |                   |      |               
|$0.77 to 4.69   |  |                     | 316,404 |                     |  | 9.3 years      |     | $                 | 2.05 |                |       |  | 158,952 |  |         | $ | 2.06 | 
|               
|               
|               
|               
|$7.88 to 11.44  |  |                     | 325,300 |                     |  |                | 7.6 |                   |      |                | 8.26  |  |         |  | 277,675 |   |      |  | 9.68  | 
|               
|               
|               
|               
|$12.13 to 15.13 |  |                     | 73,289  |                     |  |                | 6.0 |                   |      |                | 12.24 |  |         |  | 73,289  |   |      |  | 12.24 | 
|               
|               
|               
|               
|$21.00 to 23.00 |  |                     | 69,800  |                     |  |                | 4.9 |                   |      |                | 21.10 |  |         |  | 69,800  |   |      |  | 21.10 | 
|               
|               
|               
|               
|$23.01 to 28.88 |  |                     | 119,187 |                     |  |                | 3.5 |                   |      |                | 26.15 |  |         |  | 119,187 |   |      |  | 26.15 | 

NOTE 10  EARNINGS PER SHARE

The calculation of diluted net income per share for the years ended December
31, 2001, 2000, and 1999 did not require an adjustment to net income for the
effect of dilutive securities. The weighted-average shares outstanding were
not adjusted for the effect of potentially dilutive securities consisting
solely of stock options because their impact would have been anti-dilutive as
of December 31, 2001, 2000 and 1999.

NOTE 11  COMMITMENTS AND CONTINGENCIES

Commitments to Ford

The Company purchases various services including environmental, maintenance,
construction and other miscellaneous services 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 $5,972,000 in 2001,
$7,148,000 in 2000 and $7,182,000 in 1999.

The Company also jointly owns a powerhouse facility (the Powerhouse) with
Ford, under a renewable ten-year agreement, which was set to expire on December
31, 1999 but has been extended thereafter on a rolling 30-day basis unless
terminated by either party upon 30 days notice. 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. See Note 12 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% by the Company and 40% by Ford, with
each party receiving a portion of the power generated. The costs of operating
the facility were allocated between the Company and Ford based on the
consumption of utilities. The Companys share of the costs of this facility
was approximately $7,118,000 in 1999. The cost in 1999 represents utility
costs allocated to Rouge Steel for the one month preceding the Powerhouse
explosion. The Company has signed an agreement for long-term energy services
with Dearborn Industrial Generation, L.L.C., an affiliate of CMS Energy
Corporation (CMS) which operates a co-generation power plant.

In connection with its operation of the Powerhouse, Ford purchased a portion of
the gas produced by the Companys blast furnaces for use at the Powerhouse
based on a negotiated formula. Ford purchased $2,040,000 worth of blast
furnace gas in 1999. Of this amount, between 60% and 70% was charged back to
the Company for its proportionate share of the cost of such gas. The temporary
facilities that were put into place after February 1, 1999 are not configured
to use blast furnace gas and the CMS co-generation power plant is not yet able
to consume blast furnace gas. Consequently, from February 1, 1999 through

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December 31, 2001 virtually all of the blast furnace gas was flared and not
sold to the Powerhouse or CMS.

During 2001, 2000 and 1999, the Company purchased scrap from Ford at a cost of
$3,967,000, $8,149,000 and $20,025,000, respectively. The Company
substantially curtailed its purchase of scrap from Ford in 2000 resulting in
the decline of payments to Ford. In late 2001, the Company began to purchase
scrap from Ford once again.

Other Commitments

Pursuant to a purchase and sale agreement executed in connection with the
restructuring of EVTAC in 1996, Rouge Steel is required to purchase 45% 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% of any pellets produced by EVTAC in excess of 5.0 million
natural gross tons. In 1999, EVTAC temporarily scaled back operations by 18%,
reducing capacity to 4.4 million natural gross tons of pellets to be purchased
by the Company and the other owners pursuant to the terms of existing purchase
agreements. The Company and the other owners of EVTAC are continuing
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 coke tolling agreement with New Boston Coke Corporation (New
Boston), whose total productive capacity is dedicated to the Company. The
agreement will terminate on December 31, 2002. Rouge Industries provides coal
to New Boston under the tolling agreement for processing into coke. The
Company expects to incur coke tolling charges of $14,564,000 in 2002.

The Company has a ten-year contract for the supply of oxygen and nitrogen which
expires in 2005. The contract contains minimum oxygen and nitrogen purchases
of $14,100,000 and $816,000 per year, respectively. Oxygen and nitrogen
purchases aggregated approximately $22,764,000 in 2001, $20,550,000 in 2000 and
$18,569,000 in 1999.

The Company has noncancellable operating lease commitments for facilities and
equipment. Annual lease payments under the amended agreement during 2002 will
be $9,305,000 and during 2003 and 2004 will be $13,389,000.

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

During 2001, Rouge Industries transferred its interest in Shiloh of Michigan to
an affiliate of Shiloh Industries, Inc., the Companys partner in the Shiloh of
Michigan joint venture. In connection with this transfer of interest, the
Company was released from its guarantee of Shiloh of Michigans debt. The
Company has no further obligations with respect to Shiloh of Michigan.

Delaco Processing, L.L.C. Loan Guaranty

Rouge Industries and Delaco Steel Corporation have agreed to jointly and
severally guarantee a $2,860,000 credit facility for Delaco Steel Processing,
the Companys 49% owned steel slitting joint venture with Delaco Supreme Tool &
Gear Co. As of December 31, 2001, Delaco Steel Processing had borrowings of
$1,893,000 outstanding under its line of credit.

57



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Bing Blanking, L.L.C. Loan Guaranty

When Rouge Industries entered the Bing Blanking joint venture, the Company
executed a guarantee of Bing Blankings term loan. In addition, Bing Blanking
had a $3,000,000 subordinated loan from the Company. As a result of financial
difficulties experienced by Bing Blanking, its lender called the Companys
guarantee of Bing Blankings $2,474,000 loan. During 2000, the Companys joint
venture partner indicated a desire to exit Bing Blanking. As a result of the
financial difficulties experienced by Bing Blanking, as of December 31, 2000
the Company has recorded a reserve of $3,000,000 against its note receivable.
On March 1, 2002, Rouge Industries and its partner liquidated their interests
in Bing Blanking. The Company fully recovered the $2,474,000 of bank debt that
it paid pursuant to the guarantee.

Environmental Matters

The Company is indemnified by Ford through December 15, 2009 for environmental
obligations relating to conditions arising prior to the Acquisition. 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.

Rouge Steel and Ford co-signed a Corrective Action Consent Order which
committed both companies to a four-phase remediation program throughout the
Rouge Complex. Ford has indicated its concurrence with Rouge Steels position
that, under the Ford Indemnity, the demolition of Rouge Steels coke oven
batteries, including full environmental remediation, will be Fords
responsibility. Based on the available data regarding the cost to demolish the
coke ovens and remediate the site, during 2001, the Company increased its
existing coke oven demolition reserve by $5,909,000 and recorded a
corresponding receivable of $13,300,000 for anticipated recoveries from Ford.
The net effect of these events was a benefit of $7,391,000 to operating income
in 2001.

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

Environmental Lawsuit. On December 18, 2000, the EPA and the County filed
lawsuits in the United States District Court for the Eastern District of
Michigan in connection with a Multimedia Investigation conducted in 1998. The
suit alleges air and solid waste violations. The Company, the EPA and the
County are continuing negotiations. The Company believes that such
negotiations will result in a settlement that will not have a materially
adverse effect on its results of operations or financial position.

Settlement of Litigation. During late 2000, the cost of natural gas increased
dramatically. Rouge Industries was protected from the large price increases
for a portion of its natural gas requirements because of fixed price contracts.
However, one supplier of natural gas defaulted on its contract with the
Company late in 2000 leaving the Company with no insulation from the extremely
high market prices. In November 2001, the Company settled its claim with the
natural gas supplier for $8,500,000.

Powerhouse Related Lawsuits.Rouge Steel has been served with 14 lawsuits
filed by 17 current or former Ford employees and two Rouge Steel employees
claiming unspecified injuries relating to the February 1,

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1999 Powerhouse
explosion. Rouge Steels insurers have assumed the defense and indemnity
obligations for these lawsuits under a reservation of rights. The Company
believes that its insurance coverage will be adequate to respond to damages
awarded, if any, to the claimants.

From time to time, Rouge Industries and its consolidated subsidiaries are
defendants in routine litigation incidental to their business. The Company
believes that such current proceedings, individually or in the aggregate, will
not have a materially adverse effect on the Companys results of operations or
financial position.

NOTE 12  POWERHOUSE EXPLOSION AND INSURANCE CLAIMS

Powerhouse Explosion

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 93-day shutdown of Rouge Steels steel
making facilities. The Powerhouse is owned 60% by Rouge Steel and 40% by Ford.
Ford was responsible for the day-to-day management, operation and maintenance
of the Powerhouse.

The Companys insurance program relating to the Powerhouse provided coverage
for damage to property destroyed, interruption of business operations,
including profit recovery, and expenditures incurred to minimize the period and
total cost of disruption to operations. During the period from February 1,
1999 until the settlement of claims with Companys insurers during the second
quarter of 2001, the Company evaluated its insurance recoveries in three areas:



|1. |  | Damage to Rouge Steel property and Powerhouse property as a result of the
explosion  Costs for repairs were expensed as incurred, with related
estimated insurance recoveries recorded as they were considered to be
probable, up to the amount of the actual costs incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Rouge Steel business interruption costs  The non-capitalizable costs
were expensed as incurred. Estimated insurance recoveries were recorded
to the extent such recoveries were considered to be probable. Recoveries
in excess of actual costs incurred were recorded as gains in 2000 and 2001
when portions of the claims were settled and proceeds received. Certain
costs relating to temporary steam boilers and electrical facilities which
were procured to mitigate the Companys loss from the Powerhouse explosion
were capitalized and amortized over their estimated useful lives.
Insurance recoveries relating to these items were recognized over the same
periods. The amount capitalized for these temporary facilities was
approximately $72,600,000.
|  
|3. |  | Powerhouse property damage  The net book value of the Powerhouse
property destroyed, which was $1,622,000, was written off in 1999.
Proceeds from the claims relating to Powerhouse property damage (other
than amounts relating to repairs discussed in 1. above) were recorded when
the claim was settled and resulted in a gain since the proceeds exceeded
the net book value of the property written off.                                                                                                                                                                                                                                                                                                                                                          

During 2000, the Company received cash proceeds representing a partial
settlement with its insurers regarding Rouge Steel first-party property damage
and business interruption costs through March 31, 2000. The partial settlement
covered all of the first-party property damage and substantially all aspects of
the business interruption claim, including profit on lost sales, operating
inefficiencies caused by the loss and costs to mitigate the claim.

During 2001, the Company received cash proceeds representing final settlement
with its insurers regarding Rouge Steels insurable first-party and Powerhouse
property damage and business interruption costs. As a

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result of the
settlement, the Company recorded $81,533,000 of insurance recoveries in 2001,
of which $63,151,000 represents gain on the net book value of the Powerhouse
property destroyed. Total recoveries and final proceeds of the claim amount to
$343,253,000.

Based on current engineering information and applicable legal requirements, the
Company has evaluated the amount and probability of certain ancillary costs
relating to the explosion, principally cleanup, demolition and abatement
activities. As a result of these obligations with respect to its share of
expenditures required to mitigate safety and environmental risks associated
with the final disposition of the Powerhouse, in 2001, the Company recorded an
accrual of $14,600,000 for these anticipated costs.

Double Eagle Fire

On December 15, 2001, a major fire at Double Eagle halted production. The
Company and its joint venture partner, U.S. Steel, are rebuilding Double Eagle
and plan to return the facility to full production by the fourth quarter of
2002. The Company has an 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 Company
believes that its share of such damage and losses should be substantially
covered by its insurance program above a $7,500,000 deductible. The Company
has reallocated its portion of Double Eagles production to other domestic
coating facilities during the production outage. During 2002, the Company
expects to record significant costs and expenses and insurance recoveries
related to the Double Eagle fire.

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SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

Accounts Receivable Allowances (amounts in thousands)

|            |  |              |        |               |  |            |       |           |  |         |        |   |  |   |        | 
|----------- |  | ------------ | ------ | ------------- |  | ---------- | ----- | --------- |  | ------- | ------ | - |  | - | ------ | 
|            |  |              |        |               |  | Charged    |       |           |  |         |        |   |  |  
|            |  | Balance      |        | (Credited) to |  |            |       |           |  | Balance
|Years Ended |  | at Beginning |        | Costs and     |  |            |       |           |  | at End 
|December 31 |  | of Period    |        | Expenses      |  | Write-Offs |       | of Period
|            |  |              |        |               |  |            |       |          
|2001        |  | $            | 9,823  |               |  | $          | 5,750 |           |  | $       | (1,603 | ) |  | $ | 13,970 | 
|           
|           
|           
|           
|2000        |  |              | 15,997 |               |  |            | 904   |           |  |         | (7,078 | ) |  |   | 9,823  | 
|           
|           
|           
|           
|1999        |  |              | 17,937 |               |  |            | (776  | )         |  |         | (1,164 | ) |  |   | 15,997 | 

Valuation Allowance for Deferred Tax Assets (amounts in thousands)

|            |  |              |        |               |  |            |        |           |  |         |      |   |  |   |         | 
|----------- |  | ------------ | ------ | ------------- |  | ---------- | ------ | --------- |  | ------- | ---- | - |  | - | ------- | 
|            |  |              |        |               |  | Charged    |        |           |  |         |      |   |  |  
|            |  | Balance      |        | (Credited) to |  |            |        |           |  | Balance
|Years Ended |  | at Beginning |        | Costs and     |  |            |        |           |  | at End 
|December 31 |  | of Period    |        | Expenses      |  | Write-Offs |        | of Period
|            |  |              |        |               |  |            |        |          
|2001        |  | $            | 73,027 |               |  | $          | 39,058 |           |  | $       |     |   |  | $ | 112,085 | 
|           
|           
|           
|           
|2000        |  |              | 10,015 |               |  |            | 63,012 |           |  |         |     |   |  |   | 73,027  | 
|           
|           
|           
|           
|1999        |  |              | 10,715 |               |  |            |       |           |  |         | (700 | ) |  |   | 10,015  | 

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SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

|                            |  |                                          |         |         |  |         |         |            |  |   |         |   |  |   |          |  
|--------------------------- |  | ---------------------------------------- | ------- | ------- |  | ------- | ------- | ---------- |  | - | ------- | - |  | - | -------- | -
|                            |  | First                                    |         | Second  |  | Third   |         | Fourth    
|                            |  | Quarter                                  |         | Quarter |  | Quarter |         | Quarter(1)
|                            |  |                                          |         |         |  |         |         |           
|                            |  | (in thousands, except per share amounts)
|2001                        |  |                                          |         |         |  |         |         |            |  |   |         |   |  |   |          |  
|                           
|                           
|                           
|                           
|Total Sales                 |  | $                                        | 230,195 |         |  | $       | 252,306 |            |  | $ | 217,508 |   |  | $ | 223,537  |  
|                           
|                           
|                           
|                           
|Gross Margin                |  |                                          | (58,093 | )       |  |         | (58,850 | )          |  |   | (44,941 | ) |  |   | (8,235   | )
|                           
|                           
|                           
|                           
|Net Income (Loss)           |  |                                          | (59,756 | )       |  |         | 8,668   |            |  |   | (46,333 | ) |  |   | (14,097  | )
|                           
|                           
|                           
|                           
|Net Income (Loss) Per Share |  |                                          | (2.69   | )       |  |         | 0.39    |            |  |   | (2.08   | ) |  |   | (0.63    | )
|                           
|                           
|                           
|                           
|2000                        |  |                                          |         |         |  |         |         |            |  |   |         |   |  |   |          |  
|                           
|                           
|                           
|                           
|Total Sales                 |  | $                                        | 321,606 |         |  | $       | 283,348 |            |  | $ | 264,113 |   |  | $ | 230,744  |  
|                           
|                           
|                           
|                           
|Gross Margin                |  |                                          | (28,383 | )       |  |         | (23,238 | )          |  |   | (23,624 | ) |  |   | (64,870  | )
|                           
|                           
|                           
|                           
|Net Loss                    |  |                                          | (12,897 | )       |  |         | 6,861   |            |  |   | (6,279  | ) |  |   | (105,004 | )
|                           
|                           
|                           
|                           
|Net Loss Per Share          |  |                                          | (0.58   | )       |  |         | 0.31    |            |  |   | (0.28   | ) |  |   | (4.74    | )



---

|(1) |  | Gross margin, net loss and net loss per share in the fourth quarter of
2001 include (i) a one-time effect of $17.2 million resulting from the
settlement of certain claims with Ford Motor Company related to the 1999
Powerhouse explosion and adjustments related to the Companys remaining
obligations with respect to the Powerhouse explosion and (ii) a one-time
profit effect of $8.5 million resulting from the settlement of a claim
related to an energy supply contract. Net loss and net loss per share in
2000 include a the one-time effect of a $69.7 million charge to provide a
100% valuation reserve against previously recorded net deferred tax
assets.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

None.

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##### Table of Contents






PART III




Item 10. Directors and Executive Officers of the Registrant.

Information regarding the Companys Directors is incorporated by reference
to the information contained under the caption Proposal No. 1  Election of
Directors in the Companys 2002 Proxy Statement (the Proxy Statement), which
will be filed with the Securities and Exchange Commission not later than April
30, 2002. Information regarding the Companys Executive Officers is set forth
in Part I of this Form 10-K pursuant to Instruction G of Form 10-K.




Item 11. Executive Compensation.

Incorporated by reference to the information contained under the caption
Executive Compensation in the Companys Proxy Statement, which will be filed
with the Securities and Exchange Commission not later than April 30, 2002.




Item 12. Security Ownership of Certain Beneficial Owners and Management.

Incorporated by reference to the information contained under the caption
Security Ownership in the Companys Proxy Statement, which will be filed with
the Securities and Exchange Commission not later than April 30, 2002.




Item 13. Certain Relationships and Related Transactions.

Incorporated by reference to the information contained under the caption
Certain Relationships and Related Transactions in the Companys Proxy
Statement, which will be filed with the Securities and Exchange Commission not
later than April 30, 2002.

With the exception of the information specifically incorporated by
reference, the Companys Proxy Statement is not to be deemed filed as part of
this report for purposes of this Part III.

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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 37.
|
| | (2) |  | A list of financial statement schedules required to be
filed by Item 8 is located on
page 61.                                                
|
| | (3) |  | Exhibits:                                                                                                                                    

The following exhibits are included in this report or incorporated herein
by reference:

|        |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|Number  |  | Description of Exhibit                                                                                                                                                                                                                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|       
|       
|       
|       
|2.1     |  | Agreement and Plan of Merger dated July 20, 1997, by and among the
Registrant, Rouge Steel Company and Merger Sub (incorporated herein by
reference to Exhibit 2.1 to the Registrants Registration Statement on
Form 8-B (the Form 8-B)).                                                                                                                                                              
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|       
|       
|       
|       
|3.1     |  | Amended and Restated Certificate of Incorporation of the Registrant
(incorporated herein by reference to Exhibit 3.1 to the Form 8-B).                                                                                                                                                                                                                                                                    
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|       
|       
|       
|       
|3.2     |  | Amended and Restated By-Laws of the Registrant (incorporated herein by
reference to Exhibit 3.2 to the Form 8-B)                                                                                                                                                                                                                                                                                          
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|       
|       
|       
|       
|4.1     |  | Amended and Restated Stockholders Agreement dated as of November 14, 1996
(the Stockholders Agreement), among the Registrant, Carl L. Valdiserri
and Worthington Industries, Inc. (Worthington) (incorporated herein by
reference to Exhibit 10.3 to the Registrants 1996 Annual Report on Form
10-K (Commission File Number 1-12852) (the 1996 Form 10-K)).                                       
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|       
|       
|       
|       
|4.2     |  | First Amendment to Amended and Restated Stockholders Agreement dated July
20, 1997, by and among Rouge Steel Company, the Registrant, Carl L.
Valdiserri and Worthington (incorporated herein by reference to Exhibit
4.1 to the Form 8-B).                                                                                                                                                               
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|       
|       
|       
|       
|10.1    |  | Loan and Security Agreement dated March 13, 2001 among Rouge Steel
Company, the financial institutions parties thereto and Congress Financial
Corporation (incorporate herein by reference to Exhibit 10.8 to the
Registrants 2000 Annual Report on Form 10-K (Commission File Number
1-12852) (the 2000 Form 10-K))                                                                                   
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|       
|       
|       
|       
|10.2    |  | Amendment No. 1 to Loan and Security Agreement dated as of November 21,
2001 by and among Rouge Steel Company, the Registrant, QS Steel Inc.,
Eveleth Taconite Company, the financial institutions party thereto and
Congress Financial Corporation (incorporated herein by reference to
Exhibit 99.3 to the Registrants Current Report on
Form 8-K dated December 5, 2001 (the December 5, 2001 8-K)).

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|        |  |                                                                                                                                                                                                                                                                                                                                                                 
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                 
|Number  |  | Description of Exhibit                                                                                                                                                                                                                                                                                                                                          
|        |  |                                                                                                                                                                                                                                                                                                                                                                 
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                                                                                                                                 
|       
|       
|       
|       
|10.3    |  | Subordinated Loan and Security Agreement dated as of November 21, 2001
among Rouge Steel Company, the Registrant, QS Steel Inc., Eveleth Taconite
Company and Ford Motor Company (incorporated herein by reference to
Exhibit 99.2 to the December 5, 2001 8-K).                                                                                                
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                                                                                                                                 
|       
|       
|       
|       
|10.4    |  | Purchase and Sale Agreement dated as of December 15, 1989, between Ford
Motor Company (Ford) and Marico Acquisition Corp. (Marico)
(incorporated herein by reference to Exhibit 10.10 to the Companys
Registration Statement on Form S-1 (Registration No. 33-74698) (the S-1
Registration Statement)).                                                  
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                                                                                                                                 
|       
|       
|       
|       
|10.5    |  | Oxygen, Nitrogen and Argon Supply Agreement dated as of November 16,
1993, between Praxair, Inc. and the Registrant (incorporated herein by
reference to Exhibit 10.4 to the Registrants 1994 Annual Report on Form
10-K (Commission File Number 1-12852)).                                                                                                    
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                                                                                                                                 
|       
|       
|       
|       
|10.6    |  | Amendment No. 1 to Oxygen, Nitrogen and Argon Supply Agreement dated as
of April 10, 1998 between Praxair, Inc. and the Registrant (incorporate
herein by reference to Exhibit 10.11 to the 2000 Form 10-K).                                                                                                                                                    
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                                                                                                                                 
|       
|       
|       
|       
|10.7    |  | Amendment No. 2 to Oxygen, Nitrogen and Argon Supply Agreement dated as
of January 1, 1999 between Praxair, Inc. and the Registrant (incorporated
herein by reference to Exhibit 10.12 to the 2000 Form 10-K).                                                                                                                                                  
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                                                                                                                                 
|       
|       
|       
|       
|10.8    |  | Powerhouse Joint Operating Agreement dated as of December 15, 1989,
between the Registrant and Ford (incorporated herein by reference to
Exhibit 10.21 to the S-1 Registration Statement).                                                                                                                                                                      
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                                                                                                                                 
|       
|       
|       
|       
|10.9    |  | Natural Gas Operating Agreement dated as of December 15, 1989 between the
Registrant and Ford (incorporated herein by reference to Exhibit 10.25 to
the S-1 Registration Statement).                                                                                                                                                                            
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                                                                                                                                 
|       
|       
|       
|       
|10.10   |  | Joint Venture Agreement dated as of November 30, 1984 (the Joint
Venture Agreement), between United States Steel Corporation (USS) and
the Registrant (incorporated herein by reference to Exhibit 10.23 to the
S-1 Registration Statement).                                                                                                                
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                                                                                                                                 
|       
|       
|       
|       
|10.11   |  | Amendment to Joint Venture Agreement (incorporated herein by reference
to Exhibit 10.24 to the S-1 Registration Statement).                                                                                                                                                                                                                                     
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                                                                                                                                 
|       
|       
|       
|       
|10.12   |  | Operating Agreement of TWB Company, L.L.C. dated as of April 15, 1997 by
and between Thyssen Inc. (Thyssen) and Worthington Steel of Michigan,
Inc., (Worthington Steel) (incorporated herein by reference to Exhibit
10.1 to the Registrants Quarterly Report on Form 10-Q for the Quarterly
Period Ended March 31, 1997 (the First Quarter 1997
10-Q)).

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|        |  |                                                                                                                                                                                                                                                                                                                                          
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                          
|Number  |  | Description of Exhibit                                                                                                                                                                                                                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                          
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                                                                                                          
|       
|       
|       
|       
|10.13   |  | First Amendment to Operating Agreement of TWB Company, L.L.C. dated as of
April 15, 1997 by and among Thyssen, Worthington Steel, LTV Steel
Company, Inc. Bethlehem Blank Welding, Inc. and QS Steel Inc.
(incorporated herein by reference to Exhibit 10.2 to the First Quarter
1997 10-Q).                                             
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                                                                                                          
|       
|       
|       
|       
|10.14   |  | Operating Agreement of Delaco Processing, L.L.C. dated as of September
3, 1997 by and between QS Steel Inc. and Delaco Supreme Tool & Gear Co.
(incorporated herein by reference to Exhibit 10.18 to the Registrants
1997 Annual Report on Form 10-K).                                                                                  
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                                                                                                          
|       
|       
|       
|       
|10.15   |  | First Amended and Restated Operating Agreement for Bing Blanking, L.L.C.
dated as of March 31, 1998 by and among Bing Blanking, L.L.C., QS Steel
Inc., and Bing Management II, L.L.C. (incorporated herein by reference to
Exhibit 10.1 to the Registrants Quarterly Report on Form 10-Q for the
Quarterly Period Ended March 31, 1998).
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                                                                                                          
|       
|       
|       
|       
|10.16   |  | Operating Agreement of Spartan Steel Coating, L.L.C. dated as of
November 14, 1996 among QS Steel Inc. and Worthington Steel (incorporated
herein by reference to Exhibit 10.18 to the Registrants 1996 Annual
Report on Form 10-K (Commission File Number 1-12852) (the 1996 Form
10-K)).                                            
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                                                                                                          
|       
|       
|       
|       
|10.17   |  | Member Control Agreement of Eveleth Mines LLC dated as of December 2,
1996 between Virgina Horn Taconite Company, Eveleth Taconite Company and
Ontario Eveleth Company (incorporated herein by reference to Exhibit 10.21
to the 1996 Form 10-K).                                                                                        
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                                                                                                          
|       
|       
|       
|       
|10.18   |  | Pellet Sale and Purchase Agreement dated as of January 1, 1997 by and
between Eveleth Mines LLC and Rouge Steel Company (incorporated herein by
reference to Exhibit 10.20 to the 1996 Form 10-K).                                                                                                                                       
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                                                                                                          
|       
|       
|       
|       
|10.19   |  | Pellet Sale and Purchase and Trade Agreement dated as of January 1, 1991
by and between The Cleveland-Cliffs Iron Company and the Registrant
(incorporated herein by reference to Exhibit 10.31 to the S-1 Registration
Statement).                                                                                                      
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                                                                                                          
|       
|       
|       
|       
|10.20   |  | Agreement for the Provision of Tolled Coke dated December 22, 1992
between New Boston Coke Corporation and the Registrant (incorporated
herein by reference to Exhibit 10.35 to the S-1 Registration
Statement).                                                                                                                         
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                                                                                                          
|       
|       
|       
|       
|10.21   |  | Electricity Sales Agreement between Rouge Steel Company and Dearborn
Industrial Generation, L.L.C. dated as of January 13, 1999 (incorporated
herein by reference to Exhibit 10.27 to the 2000 Form 10-K).                                                                                                                               
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                                                                                                          
|       
|       
|       
|       
|10.22   |  | Steam Sales Agreement between Rouge Steel Company and Dearborn
Industrial Generation, L.L.C. dated as of January 13, 1999 (incorporate
herein by reference to Exhibit 10.28 to the 2000 Form 10-K).                                                                                                                                      

67



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##### Table of Contents



|        |  |                                                                                                                                                                                                                                                           
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                           
|Number  |  | Description of Exhibit                                                                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                           
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                           
|       
|       
|       
|       
|10.23   |  | Ground Lease Between Rouge Steel Company and Dearborn Industrial
Generation, L.L.C. dated as of June 30, 1999 (incorporated herein by
reference to Exhibit 10.29 to the 2000 Form 10-K).                                                                  
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                           
|       
|       
|       
|       
|10.24   |  | Purchase Option Agreement by and between Dearborn Industrial Generation,
L.L.C., Rouge Steel Company and Ford Motor Company dated as of May 31,
2000 (incorporated herein by reference to Exhibit 10.30 to the
2000 Form 10-K).                           
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                           
|       
|       
|       
|       
|10.25   |  | Easement Agreement by and among Rouge Steel Company, Ford Motor Company,
Double Eagle Steel Coating Company and Dearborn Industrial Generation,
L.L.C. dated as of May 31, 2000 (incorporated herein by reference to
Exhibit 10.31 to the 2000 Form 10-K).
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                           
|       
|       
|       
|       
|10.26   |  | Blast Furnace Gas Purchase Agreement by and among Rouge Steel Company
and Dearborn Industrial Generation, L.L.C. dated as of January 13, 1999
(incorporated herein by reference to Exhibit 10.32 to the 2000
Form 10-K).                                  
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                           
|       
|       
|       
|       
|10.27   |  | Amended and Restated Information Systems Services Agreement between
Rouge Steel Company and Perot Systems Corporation dated as of April 1,
2000 (incorporated herein by reference to Exhibit 10.33 to the 2000 Form
10-K).                                
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                           
|       
|       
|       
|       
|10.28   |  | Master Lease between Bank One, Michigan and Rouge Steel Company dated as
of May 14, 1997 (incorporated herein by reference to Exhibit 10.34 to the
2000 Form 10-K).                                                                                       
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                           
|       
|       
|       
|       
|10.29+  |  | Separation and Mutual Release Agreement between Rouge Steel Company
and Louis D. Camino dated as of May 31, 2001.                                                                                                                                         
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                           
|       
|       
|       
|       
|10.30** |  | Rouge Steel Company Savings Plan for Salaried Employees (incorporated
herein by reference to Exhibit 4.1 to the Companys Registration Statement
on Form S-8 (Registration No. 33-88520) (the Form S-8 Registration
Statement)).                        
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                           
|       
|       
|       
|       
|10.31** |  | Amendment to Rouge Steel Company Savings Plan for Salaried Employees
(incorporated herein by reference to Exhibit 10.3 to the
Form 8-B).                                                                                                                  
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                           
|       
|       
|       
|       
|10.32   |  | Rouge Steel Company Tax-Efficient Savings Plan for Hourly
Employees (incorporated herein by reference to Exhibit 4.2 to the
Form S-8 Registration Statement).                                                                                             
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                           
|       
|       
|       
|       
|10.33   |  | Amendment to Rouge Steel Company Tax-Efficient Savings Plan
for Hourly Employees (incorporated herein by reference to Exhibit
10.4 to the Form 8-B).                                                                                                      
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                           
|       
|       
|       
|       
|10.34   |  | Rouge Steel Company Profit Sharing Plan for Salaried
Employees (incorporated herein by reference to Exhibit 10.38 to the
S-1 Registration Statement).                                                                                                     
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                           
|       
|       
|       
|       
|10.35** |  | Rouge Steel Company Incentive Compensation Plan (incorporated herein by
reference to Exhibit 10.39 to the S-1 Registration Statement).                                                                                                                    

68



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##### Table of Contents



|        |  |                                                                                                                                                                                                                                                  
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                  
|Number  |  | Description of Exhibit                                                                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                  
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                  
|       
|       
|       
|       
|10.36** |  | Rouge Steel Company Amended and Restated Stock Incentive Plan
(incorporated herein by reference to Exhibit 10.1 to the
Form 8-B).                                                                                                                
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                  
|       
|       
|       
|       
|10.37** |  | First Amendment to Rouge Steel Company Amended and Restated Stock
Incentive Plan (incorporated herein by reference to Exhibit 10.34 to the
Registrants 1999 Annual Report on Form 10-K (Commission File Number
1-12852) (the 1999 Form 10-K)).
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                  
|       
|       
|       
|       
|10.38** |  | Rouge Steel Company 1998 Stock Incentive Plan (incorporated herein by
reference to Exhibit 10.35 to the 1999 Form 10-K).                                                                                                                         
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                  
|       
|       
|       
|       
|10.39** |  | First Amendment to Rouge Steel Company 1998 Stock Incentive Plan
(incorporated herein by reference to Exhibit 10.36 to the 1999
Form 10-K).                                                                                                      
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                  
|       
|       
|       
|       
|10.40** |  | Rouge Steel Company Retirement Plan for Salaried Employees
(incorporated herein by reference to Exhibit 10.41 to the S-1 Registration
Statement).                                                                                                
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                  
|       
|       
|       
|       
|10.41** |  | Amended and Restated Supplemental Executive Retirement Plan
(incorporated herein by reference to Exhibit 10.38 to the 1999
Form 10-K).                                                                                                           
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                  
|       
|       
|       
|       
|10.42** |  | Amended and Restated Rouge Steel Company Benefit Restoration Plan
(incorporated herein by reference to Exhibit 10.39 to the 1999
Form 10-K).                                                                                                     
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                  
|       
|       
|       
|       
|10.43** |  | Rouge Steel Company Amended and Restated Outside Director Equity Plan
(incorporated herein by reference to Exhibit 10.2 to the
Form 8-B).                                                                                                        
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                  
|       
|       
|       
|       
|21+     |  | List of Subsidiaries.                                                                                                                                                                                                                            
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                  
|       
|       
|       
|       
|23+     |  | Consent of PricewaterhouseCoopers LLP.                                                                                                                                                                                                           



---

|+  |  | Filed herewith.                                                                           
|-- |  | ------------------------------------------------------------------------------------------
|  
|  
|  
|  
|** |  | Compensatory plans in which the Registrants directors and executive
officers participate.



| | (b) |  | The Company did not file a Current Report on Form 8-K during the
fourth quarter of 2001.       
| | --- |  | -----------------------------------------------------------------------------------------------
|
| | (c) |  | The exhibits listed under Item 14(a)(3) are filed herewith or
incorporated herein by reference.
|
| | (d) |  | The financial statement schedule listed under Item 14(a)(2) is
filed herewith.                 

69



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##### Table of Contents



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, on the
20th day of March 2002.



| | ROUGE INDUSTRIES, INC.
| | ----------------------



| | By: /s/ Carl L. Valdiserri
Name: Carl L. Valdiserri
Title: Chief Executive Officer
| | ----------------------------------------------------------------------------------

Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.

|                        |  |                                                     |  |               
|----------------------- |  | --------------------------------------------------- |  | --------------
|Signatures              |  | Title                                               |  | Date          
|                        |  |                                                     |  |               
|/s/ Carl L. Valdiserri  |  | Chief Executive Officer and Chairman of
the Board   |  | March 20, 2002
|                       
|/s/ Gary P. Latendresse |  | Vice Chairman, Chief Financial Officer
and Director |  | March 20, 2002
|                       
|/s/ Dominick C. Fanello |  | Director                                            |  | March 20, 2002
|                       
|/s/ John E. Lobbia      |  | Director                                            |  | March 20, 2002
|                       
|/s/ Peter J. Pestillo   |  | Director                                            |  | March 20, 2002
|                       
|/s/ Shamel T. Rushwin   |  | Director                                            |  | March 20, 2002
|                       
|/s/ Clayton P. Shannon  |  | Director                                            |  | March 20, 2002

70



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##### Table of Contents






Exhibit Index

|               |  |                                                                                                                  
|-------------- |  | -----------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                      
|               |  |                                                                                                                  
|               |  |                                                                                                                  
|              
|              
|              
|              
|10.29          |  | Separation and Mutual Release Agreement between Rouge Steel Company
and Louis D. Camino dated as of May 31, 2001.
|              
|              
|              
|              
|               |  |                                                                                                                  
|              
|              
|              
|              
|21             |  | List of Subsidiaries.                                                                                            
|              
|              
|              
|              
|               |  |                                                                                                                  
|              
|              
|              
|              
|23             |  | Consent of PricewaterhouseCoopers LLP.