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

                                  FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 1997
                                       OR

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

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

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

         DELAWARE                                       38-3340770
         --------                                       ----------
(State or other jurisdiction of                         (IRS Employer
incorporation or organization)                          Identification No.)

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

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

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

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

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

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

                                      None

      Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
                                YES      X                   NO
                                        ---                       ---
      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

      Based upon the closing price of the Class A Common Stock on February 27,
1998, 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
$201,820,902.

      The number of shares of common stock issued and outstanding as of February
27, 1998 was 22,000,536. This amount includes 14,438,136 shares of Class A
Common Stock and 7,562,400 shares of Class B Common Stock.


                       DOCUMENTS INCORPORATED BY REFERENCE

Selected portions of the 1998 Proxy Statement of Rouge Industries, Inc. are
incorporated by reference into Part III of this Form 10-K to the extent provided
herein.



<PAGE>   2



                             ROUGE INDUSTRIES, INC.
                           ANNUAL REPORT ON FORM 10-K
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>

PART I                                                                                                 PAGE

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

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

Item 3.    Legal Proceedings.........................................................................   13

Item 4.    Submission of Matters to a Vote of Security Holders.......................................   13

PART II

Item 5.    Market for Registrant's Common Stock and Related Stockholder Matters......................   16

Item 6.    Selected Financial Data...................................................................   18

Item 7.    Management's Discussion and Analysis of Financial Condition and
           Results of Operations.....................................................................   20

Item 8.    Financial Statements and Supplementary Data...............................................   28

Item 9.    Changes in and Disagreements With Accountants on Accounting
           and Financial Disclosure..................................................................   50

PART III

Item 10.   Directors and Executive Officers of the Registrant........................................   51

Item 11.   Executive Compensation....................................................................   51

Item 12.   Security Ownership of Certain Beneficial Owners and Management............................   51

Item 13.   Certain Relationships and Related Transactions............................................   51


PART IV

Item 14.   Exhibits, Financial Statement Schedules, and Reports on Form 8-K..........................   52

</TABLE>



                                      2

<PAGE>   3




                                      
                                    PART I

Item 1.  Business.

GENERAL

       Rouge Steel Company ("Rouge Steel") and its subsidiaries were reorganized
into a holding company structure effective July 30, 1997. Pursuant to the
reorganization, Rouge Steel became a wholly-owned subsidiary of the new holding
company, Rouge Industries, Inc., a Delaware corporation (together with its
subsidiaries, "Rouge Industries" or the "Company"). Rouge Industries, which was
incorporated in 1996, is the issuer of all shares of Class A Common Stock and
Class B Common Stock outstanding. On the reorganization date, Rouge Industries
and its subsidiaries had the same consolidated net worth as Rouge Steel and its
subsidiaries prior to the reorganization.

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

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

PRODUCTS

       Rouge Steel currently produces primarily three 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; and
(iii) electrogalvanized, which is cold rolled steel that is coated on one or
both sides with either pure zinc or a zinc/iron combination to make the steel
more corrosion resistant and is sold almost exclusively to automotive customers.



                                        3

<PAGE>   4



       The following table sets forth the percentage of Rouge Industries' steel
product revenues from hot rolled, cold rolled and galvanized steel for the years
from 1995 through 1997.

<TABLE>
<CAPTION>

                                                                  Year Ended December 31
                                                                  ----------------------
                                                         1997               1996               1995
                                                         ----               ----               ----
<S>                                                     <C>                <C>               <C>  
Hot Rolled                                                49.4%              47.4%             49.8%
Cold Rolled                                               29.8               30.6              28.4
Hot Dip Galvanized                                         0.6                  -                 -
Electrogalvanized                                         20.2               22.0              21.8
                                                        ------             ------            ------
       Total                                             100.0%             100.0%            100.0%
                                                        ======             ======            ======
</TABLE>


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

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

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

       (ii)  Spartan Steel Coating, L.L.C. ("Spartan Steel"), a joint venture
             with Worthington Industries, Inc. (together with its subsidiaries,
             "Worthington") which is in the process of constructing a cold
             rolled hot dipped galvanizing line that will provide the Company
             with additional coated steel products, primarily for automotive
             applications;

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

       (iv)  Delaco Processing, L.L.C. ("Delaco Steel Processing"), a joint
             venture with Delaco Supreme Tool and Gear Company which is expected
             to slit and warehouse steel coils to be sold to automotive and
             other end user customers; and

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

       It is expected that Spartan Steel will begin production in the second
quarter of 1998, Delaco Steel Processing will begin operating in the third
quarter of 1998 and Bing Blanking will begin

                                        4

<PAGE>   5



production in the first quarter of 1998. The Company expects to invest a total
of approximately $51 million in Spartan Steel, $28.3 million of which had been
invested as of December 31, 1997. Shiloh of Michigan has a $30 million credit
facility, 20% of which is guaranteed by the Company. Delaco Steel Processing and
Bing Blanking are expected to be financed with debt of approximately $4 million
and $8 million, respectively, all or a portion of which the Company intends to
guarantee. Rouge Industries' participation in these joint ventures responds to
the demand by end users for increasingly complex products and is intended to
mitigate the erosion in sales that might occur if the Company were unable to
provide these products to its current customers. In addition, participation in
these joint ventures may provide opportunities for the Company to supply new
customers.

MARKETS AND CUSTOMERS

       In light of the Company's goal to strengthen long-term customer
relationships, improved customer service is a key component of the Company's
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 Company's primary goal in this respect is to maintain
and improve its responsiveness to customer needs in a continually changing
competitive environment.

       Ford Motor Company ("Ford") and Worthington, the Company's two largest
customers, accounted for approximately 32% and 12%, respectively, of total sales
in 1997 and 30% and 12%, respectively, of total sales in 1996. While the loss of
Ford or Worthington as a customer, or a significant reduction of either
company's business, would have a material adverse effect on the Company's
business, the Company believes that its relationships with Ford and Worthington
provide a stable sales base and the ability to expand its product capability and
concentrate on increasing margins through more efficient production. No other
single customer has accounted for more than 10% of the Company's total sales
over the past five years. The Company's ten largest customers in the aggregate
accounted for approximately 77% of total sales in 1997 and approximately 70% of
total sales in 1996. For 1997, the Company estimates that its share of the
domestic flat rolled steel market, as measured by shipments, was approximately
5.0%.

       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, 1995 through 1997.

<TABLE>
<CAPTION>
                                                           Year Ended December 31
                                                 ----------------------------------
                                                      1997         1996        1995

<S>                                              <C>          <C>           <C>  
        Automotive                                    62.0%        61.7%       60.7%
        Converters                                    19.0         18.6        18.4
        Service Centers                               15.8         16.3        16.8
        Other End Users                                3.2          3.4         3.1
        Exports                                          -            -         1.0
                                                 ---------    ---------     -------
           Total                                     100.0%       100.0%      100.0%
                                                 =========    =========     =======
</TABLE>

       Automotive. The Company is a significant supplier of hot rolled, cold
rolled and electrogalvanized steel to the automotive industry. Car and truck
manufacturers and their parts suppliers require sheet steel with exact
dimensions, enhanced formability and defect-free surfaces.

                                        5

<PAGE>   6



The Company's steel products have been used in a variety of automotive
applications including exposed and unexposed panels and high strength parts for
safety applications and to achieve weight reduction. The Company supplies
sophisticated steel products to meet the demand for lighter, safer, and longer
lasting vehicles such as bake hardenable steel and steel for hot forming, which
is used for high strength and safety applications such as automotive door beams.
In the past five years, the Company has made significant improvements in quality
and customer service. The automotive market comprised 62.0% of the Company's
steel product revenues in 1997 up from 60.7% in 1995.

       Sales to Ford, the Company's largest customer, accounted for
approximately 32% of total sales in 1997, 30% of total sales in 1996 and 31% of
total sales in 1995. In addition to its relationship with Ford, the Company has
diversified its automotive customer base. Until the early 1990's, the Company
sold only a small amount of steel to Chrysler Corporation ("Chrysler") and had
no direct sales to General Motors Corporation ("GM"). Currently, Chrysler and GM
are both among the Company's four largest customers. The Company believes that
its ability to provide the sophisticated grades of steel required for automotive
applications combined with its ability to provide competitive pricing, quality
and delivery caused Chrysler and GM to begin purchasing significant quantities
of hot rolled, cold rolled and electrogalvanized steel from the Company.

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

       Sales to Worthington, a major steel fabricator and processor and the
Company's second largest customer and shareholder, were approximately 12% of
total sales in each of 1997 and 1996, and 13% of total sales in 1995.
Worthington owns approximately 27.3% of the Company's Common Stock which
represents a voting interest of 19.9%.

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

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

       Order Status. The order load was 583,000 net tons at December 31, 1997,
compared to 667,000 net tons at December 31, 1996. All orders related to the
order load at December 31, 1997 are expected to be shipped during the first half
of 1998. The order load represents orders received but not yet filled.

RAW MATERIALS AND ENERGY SOURCES

       The principal raw materials and energy sources used by Rouge Steel in its
production process are coke, iron ore pellets, steel scrap, natural gas,
electricity, steam, oxygen and nitrogen. Coke, coal, iron ore pellets,
electricity, steam, oxygen and nitrogen are predominantly purchased

                                        6

<PAGE>   7



pursuant to long-term or annual agreements. The other raw materials are
generally purchased in the open market from various sources. Certain of the
purchased raw materials are not covered by long-term contracts and, therefore,
availability and price are subject to world market conditions.

       Coke. Coke represents the Company's single largest raw material
expenditure. In 1997, approximately 62% of the Company's coke requirements was
provided by Bethlehem Steel Corporation ("Bethlehem") pursuant to a five-year
agreement. The Company acquired approximately 35% of its coke requirements
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.
High volatile coal is acquired at competitive prices pursuant to a contract with
Massey Coal Sales Company, Inc. which expires on January 1, 1999. The balance of
the Company's coke requirements for 1997 was purchased in the open market. The
Company does not produce coke and, as a consequence, relies upon outside
sources. During the past ten years, coke production capacity in the United
States has been reduced. Due to the environmental liabilities associated with
operating coke ovens, the Company expects coke production capacity to be reduced
further in the next ten years. The coke shortage that may result from the
reduction in capacity may cause the price that the Company pays for coke to
increase which may adversely affect the Company's results of operations.

       On December 29, 1997, Rouge Steel was notified that Bethlehem intends to
discontinue operations at its Bethlehem, Pennsylvania coke facility by the end
of the first quarter of 1998. Bethlehem has committed to provide coke to the
Company pursuant to the terms of the existing contract through June 1998. The
Company is currently seeking alternative suppliers for the remainder of its coke
requirements. The Company believes that the required coke can be acquired but at
a price that may be higher and could adversely affect the Company's results of
operations.

       Iron Ore Pellets. The Company has consumed an average of 2.8 million
gross tons of iron ore pellets annually over the three-year period ended
December 31, 1997. Approximately 75% of the Company's requirements for pellets
during this period was obtained under a trade arrangement. Under this
arrangement, Rouge Steel exchanged acid pellets purchased from its 45% owned
joint venture, EVTAC (or its predecessor Eveleth), for fluxed pellets or acid
pellets with a higher manganese content, which are used to enhance blast furnace
productivity. The Company is required to pay a cash premium indexed to inflation
factors, equal to the difference between the market price of the fluxed pellets
and the market price of EVTAC acid pellets, in addition to providing the EVTAC
acid pellets. During the three-year period ended December 31, 1997, the Company
traded an average of 2.2 million gross tons of Eveleth/EVTAC pellets annually,
which constituted 97% of the Company's share of the pellets produced by
Eveleth/EVTAC. The balance of the Company's pellet requirements was purchased
pursuant to a contract with The Cleveland-Cliffs Iron Company.

       The iron ore reserves of EVTAC are sufficient to provide the Company with
an estimated 25-year supply at the current level of production.

       Scrap. The price of steel scrap has increased dramatically since the end
of 1992. The price of #1 industrial bundles, the steel scrap which constitutes
the largest portion of the Company's scrap purchases, increased by 47% between
the end of 1992 and the end of 1997. The higher price reflects increased demand
for steel scrap, which is a result of higher production at integrated steel
mills and electric furnace based mini-mills. As long as the current industry
production level continues and new scrap intensive mini-mills come on line, the
Company does not expect any

                                        7

<PAGE>   8



relief from high steel scrap prices. The Company spent approximately $114
million to purchase steel scrap in 1997.

       Other Raw Materials and Energy Sources. During 1997, natural gas,
electricity and steam constituted 46%, 40% and 14%, respectively, of the
Company's total energy costs. Natural gas is acquired at prevailing market
prices from various producers. The Company purchases electricity from DTE Energy
for its ladle refining and electrogalvanizing facilities. The Company owns a 60%
interest in a 345 - megawatt powerhouse (the "Powerhouse") that is managed by
Ford (which owns the other 40%). Pursuant to an operating agreement with Ford
(the "Powerhouse Joint Operating Agreement") which expires December 31, 1999,
the Powerhouse provides the rest of the electricity consumed by the Company, as
well as all of its steam requirements. On December 15, 1996, the Company
provided written notice to Ford of its intention to terminate the Powerhouse
Joint Operating Agreement on December 15, 1999. Rouge Steel and Ford are
undertaking a joint study of the alternatives available to Rouge Steel and Ford
for utilities and services which are now provided by the Powerhouse.

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

COMPETITION

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

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

       Steel imports as a percentage of apparent domestic consumption, including
semifinished steel, averaged approximately 23% each year during the period from
1993 through 1997. The percentage peaked in 1994 at 25%. Although the domestic
steel industry has improved its international competitive position, imports in
1997 on an absolute basis were at a five-year high due to extremely strong steel
demand which could not be met with domestic capability. A significant adverse
change in world-wide steel demand, the value of the dollar or other world
economic conditions could result in an increase in steel imports.

       Domestic Steel Industry. The domestic steel industry is a cyclical
business that is highly competitive. In the United States, the Company competes
with many domestic integrated steel companies. The Company also competes with
mini-mills, which generally target regional markets, have reduced environmental
maintenance costs and liabilities and derive certain

                                        8

<PAGE>   9



competitive advantages by utilizing less capital intensive steel-making
processes. The capability of electric furnace based, thin slab mini-mills to
produce flat rolled steel products is increasing. In the future, these
mini-mills may provide increased competition in the higher quality, value-added
product lines now dominated by the integrated steel producers. New mini-mills
that produce flat rolled steel and improvements in the production efficiencies
of integrated mills have increased overall production capacity in the United
States, which has caused downward price pressure. The ability of mini-mill
producers to capture a significant percentage of the sheet steel markets, which
represented approximately half of domestic industry shipments in 1997, cannot
presently be determined due to operating cost and product quality issues
associated with thin-slab technology. In addition, the availability and
fluctuations in the cost of scrap, the primary raw material in the production of
steel by mini-mills, may influence the ability of mini-mills to compete with
domestic integrated producers.

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

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

EMPLOYEES

       At December 31, 1997, the work force of Rouge Steel was comprised of
2,503 hourly and 625 salaried personnel, including Rouge Steel employees working
at Double Eagle Steel Coating Company ("Double Eagle"). The Company's employment
cost per ton shipped in 1997 was $87, which the Company believes was one of the
lowest among integrated steel producers, and tons shipped per employee has grown
to more than 950 tons per year, which the Company believes is one of the highest
in the steel industry.

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



                                        9

<PAGE>   10



ENVIRONMENTAL CONTROL AND CLEANUP EXPENDITURES

       The Company's operations are subject to many federal, state and local
laws, regulations, permits and consent agreements relating to the protection of
human health and the environment. The Company believes that its facilities are
in material compliance with these provisions and does not believe that future
compliance with such provisions will have a material adverse effect on its
results of operations or financial condition. The Company has incurred capital
expenditures in connection with matters relating to environmental control of
approximately $1.5 million during the past four years. In addition, the Company
has planned approximately $2.0 million in capital expenditures for environmental
compliance for the years 1998 through 2001. Since environmental laws and
regulations are becoming increasingly more stringent, the Company's
environmental capital expenditures and costs for environmental compliance may
increase in the future. In addition, due to the possibility of unanticipated
regulatory or other developments, the amount and timing of future environmental
expenditures may vary substantially from those currently anticipated. The costs
for current and future environmental compliance may also place domestic steel
producers at a competitive disadvantage with respect to foreign steel producers,
which may not be required to undertake equivalent costs in their operations, and
manufacturers of steel substitutes, which are subject to less stringent
environmental requirements.

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

       In connection with the acquisition of the Company from Ford in 1989 (the
"Acquisition"), Ford has agreed to indemnify the Company (the "Ford Indemnity")
for any liability arising out of an environmental condition existing prior to
the Acquisition or a subsequent change in law relating to such condition that
results in an environmental claim under any federal or state environmental law,
including CERCLA, the Resource Conservation and Recovery Act, 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, as defined in the
Purchase and Sale Agreement, 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. In some instances, Ford has
acted proactively; in others, it has denied responsibility. The submitted claims
include asbestos removal, CERCLA liabilities, National Pollutant Discharge
Elimination System permit violations, underground storage tank removal,
transformer replacement and transformer removal and disposal. Rouge Steel does
not believe the rejection by Ford of any claims made under the Ford Indemnity
will have a material adverse effect on the Company.

       The Company has been identified as a potentially responsible party under
CERCLA and/or similar state statutes at the Carter Industrial, Inc., Wayne
County, Michigan site. The Company is subject to joint and several liability
imposed by CERCLA on potentially responsible parties.

                                       10

<PAGE>   11



Based upon available information, the Company does not anticipate that
assessment and response costs resulting from the Company being a potentially
responsible party will have a material adverse effect on the financial condition
or results of operations of the Company. However, as further information becomes
available, the Company will continue to reassess such evaluations. In addition,
pursuant to the Ford Indemnity, Ford has accepted liability for, and defense of,
the Carter Industrial, Inc. site.

       In late 1995, the existence of material containing polychlorinated
biphenyls ("PCBs") was noted within a containment area of an electrical
substation in the cold mills. Upon further investigation, the Company discovered
PCB contamination in four electrical manholes. The investigation and cleanup of
PCB contamination is proceeding. At this point, management believes costs
associated with this investigation will not have a material adverse effect on
the Company. As of December 31, 1997, the Company had spent approximately $1.1
million for the investigation and cleanup. The Company believes that the costs
associated with the contaminated substation are subject to the Ford Indemnity
and has filed a claim with Ford. Negotiations with Ford continue regarding this
indemnity claim. The Company has not recorded an asset in anticipation of
recovery pursuant to the Ford Indemnity.

       The Company is currently operating in compliance with a 1991 consent
judgment between the Company and the Michigan Department of Environmental
Quality ("DEQ") with respect to wastewater discharges at the Schaeffer Road
Wastewater Treatment Plant.

       The Company is also operating under a consent order with the DEQ in
connection with the federally mandated requirement to achieve the national
ambient air quality standards for particulate matter. This consent order defines
the Company's fugitive dust and particulate matter control programs. The consent
order does not impose any penalties on the Company or any significant production
restrictions on any of the Company's production facilities. The Company has not
incurred any costs associated with this issue, except those required to
negotiate the consent. Similarly, the Powerhouse is operating under a 1988
consent order with the DEQ in connection with the federally mandated requirement
to achieve the national ambient air quality standard for sulfur dioxide. The
Powerhouse is currently negotiating several proposed revisions to this consent
order with the DEQ. These revisions primarily involve sampling and analysis
issues, and to the Company's knowledge, do not involve significant production or
capital expenditure issues.

       In 1990, Congress passed amendments to the Clean Air Act which impose
more stringent standards on air emissions. Pursuant to Title V of the Clean Air
Act Amendments of 1990, the Company submitted an application for a facility
operating permit in January 1997. The Company was advised that the application
was administratively complete. It is expected to take approximately one to two
years for final approval.

       In December 1997, the Company reached an agreement in principal resolving
certain notices of violation with the Wayne County Air Pollution Control
Division (the "Division"). The proposed settlement agreement includes
performance of a supplemental environmental project for the installation of a
waste oxide dryer, a project not required by law. This dryer is intended to
secure significant additional environmental and public health improvements. The
settlement agreement imposes a $125,000 penalty, stipulated penalties for future
violations, a compliance program, and a five-year term.


                                       11

<PAGE>   12



       In January 1998, the Company and the Division commenced discussing
resolution of certain notices of violation for events which occurred in 1997.
While the initial penalty demand from the Division is in excess of $100,000, no
settlement agreement has been reached. Recent EPA- proposed penalties under the
Clean Air Act for other companies in Michigan with a smiliar number of NOVs were
less than $100,000.

       During meetings with the Division, the Company voluntarily disclosed its
failure to previously obtain a construction and operating permit for an
operational change previously thought to be exempt from the air permitting
requirements. A permit application has been submitted for that change to both
the Division and the DEQ. The preliminary nature of the discussion with the
Division regarding this issue makes it difficult to predict the nature of any
outcome or its impact on the Company.

       On November 4, 1997, the Company received a notice from the Corporation
Counsel of the City of Melvindale (the "City") of the City's intention to sue
the Company for alleged release of particulates into the air and violations of
the County of Wayne permit. The Company is currently in discussions with the
City in an attempt to resolve this matter prior to the filing of any lawsuit.
Management believes that the potential or probable impact of this matter will
not have a material adverse 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.

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

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

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



                                       12

<PAGE>   13



Item 2. Properties.

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

       Rouge Steel's facilities include three blast furnaces (one of which has
been idle since 1988), two basic oxygen furnaces, two electric arc furnaces
(which have been idle since 1992), two ladle refining facilities, a vacuum
degassing facility, one three-strand continuous caster, one hot strip mill,
three pickle lines, one tandem mill, two annealing facilities (one of which is a
hydrogen annealing facility), two temper mills, two slitters and one recoil
welder. In addition, Rouge Steel owns: a 60% interest in the Powerhouse that is
managed by Ford (which owns the other 40%); and a 50% interest in Double Eagle,
the world's largest electrogalvanizing facility. Along with Rouge Steel's
properties, Rouge Industries owns (i) a 48% interest in Spartan Steel, a cold
rolled hot dipped galvanizing facility which is being constructed; (ii) a 20%
interest in Shiloh of Michigan, an engineered steel blanking facility; (iii) a
45% interest in EVTAC, an iron ore mining and pelletizing facility; (iv) an
11.1% interest in TWB, a producer of laser welded blanks; (v) a 49% interest in
Delaco Steel Processing, a steel processor and (vi) a 19.75% interest in Bing
Blanking, a steel blanker and producer of roll formed parts. Spartan Steel,
Delaco Steel Processing and Bing Blanking are expected to become operational
during 1998.

Item 3. Legal Proceedings.

       From time to time, Rouge Industries is involved in routine litigation
incidental to its 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 condition.

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 1997.


                                       13

<PAGE>   14



                      EXECUTIVE OFFICERS OF THE REGISTRANT

       The following table sets forth, as of December 31, 1997, 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.

<TABLE>
<CAPTION>

NAME                                  AGE                          POSITION
----                                  ---                          --------
<S>                                    <C>      <C>                                     
Carl L. Valdiserri.................    61        Chairman and Chief Executive Officer
Louis D. Camino....................    60        President and Chief Operating Officer
Gary P. Latendresse................    54        Vice President and Chief Financial Officer
Dennis T. Crosby...................    54        Vice President, Engineering and Technology
William E. Hornberger..............    51        Vice President, Employee Relations and Public Affairs
George T. Kilavos..................    66        Vice President, Production Planning
Daniel A. Marion...................    59        Vice President, Purchasing and Transportation
Ronald J. Nock.....................    45        Vice President, Sales and Marketing
Michael A. Weiss...................    49        Secretary and General Counsel
</TABLE>


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 Company.  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 38 years of experience in the steel
manufacturing industry.  Mr. Valdiserri is also a director of Champion
Enterprises, Inc.

       Mr. Camino has served as President and Chief Operating Officer, as well
as a director of the Company, since 1990.  Mr. Camino was Vice President of
Operations for Acme Steel Company from 1986 to 1990.  Mr. Camino began his
career with Jones and Laughlin Steel Corporation as a supervisor in 1960, and
has 37 years of experience in the steel manufacturing industry.

       Mr. Latendresse has been Vice President and Chief Financial Officer and
a director of the Company since 1992.  Effective January 1, 1998, he became
Executive Vice President and Chief Financial Officer.  He was Vice President,
Finance and Controller from 1987 until 1992.  Mr. Latendresse has held various
financial positions with the Company and Ford for 29 years. Mr. Latendresse has
29 years of experience in the steel manufacturing industry. Mr. Latendresse is
also the Treasurer and Assistant Secretary of the Company.

       Mr. Crosby has been Vice President, Engineering and Technology since
1989. Mr. Crosby previously served as General Manager of Engineering and
Environmental Affairs at Inland Steel Company where he was employed between 1967
and 1989. Mr. Crosby has 30 years of experience in the steel manufacturing
industry.

                                       14

<PAGE>   15



       Mr. Hornberger has been Vice President, Employee Relations and Public
Affairs since 1992. 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 14 years of experience in the steel
manufacturing industry.

       Mr. Kilavos has been Vice President, Production Planning since 1990. From
1984 to 1990, Mr. Kilavos was Director, Production Planning at Weirton Steel
Company. He previously held various materials management positions at Weirton
Steel Company and National Steel Corporation. Mr. Kilavos has 36 years of
experience in the steel manufacturing industry.

       Mr. Marion has been Vice President, Purchasing and Transportation since
1995. From 1988 to 1995, Mr. Marion was Procurement Manager, Purchasing and
Supply Staff, Ford Motor Company. He previously held various purchasing
positions during his 34 years with Ford, including more than ten years of steel
purchasing experience.

       Mr. Nock has been Vice President, Sales and Marketing since 1988. Mr.
Nock held various positions at the Company since 1982, including Manager of
Sales and Sales Representative. He has 22 years of experience in the steel
manufacturing industry.

       Mr. Weiss served as Secretary and General Counsel from 1989 through 1997.
Mr. Weiss is a director and a shareholder of the Pittsburgh, Pennsylvania law
firm of Doepken Keevican & Weiss Professional Corporation ("DK&W"), which is
engaged in the practice of law. He has been a shareholder of DK&W since 1988.
Effective December 31, 1997, Mr. Weiss resigned as the Company's Secretary and
General Counsel and was subsequently replaced by Martin Szymanski of the
Company's Law Department.

       Mr. Szymanski became the Company's General Counsel and Secretary in
January 1998. Mr. Szymanski joined the Company in January 1997 as Associate
General Counsel. 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 19 years of corporate and private
practice legal experience.


                                       15

<PAGE>   16



                                     PART II

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

       As of December 31, 1997, there were (i) 14,428,219 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)
7,562,400 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 two stockholders of record. As of December
31, 1997, Carl L. Valdiserri and Worthington held 7,140,400 and 422,000 shares,
respectively, of Class B Common Stock. 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.

        Quarterly cash dividends of $0.03 per share of Common Stock were paid on
January 26, April 26, July 26, and October 25, 1996 and January 24, April 25,
July 25, and October 24, 1997, and January 23, 1998. Future dividends on the
Common Stock 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. The
holders of outstanding shares of Class A Common Stock and Class B Common Stock
are entitled to receive dividends out of assets legally available therefor at
such times and in such amounts as the Board of Directors may from time to time
determine.

       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
February 27, 1998 was $14.75.

<TABLE>
<CAPTION>
1997                                                               HIGH                       LOW
----                                                               ----                       ---
<S>                                                               <C>                       <C>   
First Quarter............................................         $21.50                    $14.88
Second Quarter...........................................          17.25                     14.38
Third Quarter............................................          19.00                     14.75
Fourth Quarter...........................................          16.50                     11.94
</TABLE>



                                       16

<PAGE>   17




<TABLE>
<CAPTION>

1996                                                               HIGH                      LOW
----                                                               ----                      ---
<S>                                                               <C>                       <C>   
First Quarter ...........................................         $25.13                    $22.00
Second Quarter...........................................          23.38                     21.13
Third Quarter............................................          23.13                     19.13
Fourth Quarter...........................................          22.75                     20.13
</TABLE>


                                       17

<PAGE>   18




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, 1997. 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 20.


<TABLE>
<CAPTION>
                                                                          Year Ended December 31
                                                        -------------------------------------------------------------
                                                        1997         1996         1995           1994            1993
                                                        ----         ----         ----           ----            ----
                                                             (dollars in millions, except per share amounts)
<S>                                                  <C>          <C>           <C>              <C>           <C>
STATEMENT OF OPERATIONS DATA:
Total Sales                                          $1,341.6      $1,307.4      $1,206.6         $1,236.1      $1,076.7
Operating Income                                         31.7          24.7         121.6(1)         103.0          62.3
Net Interest Income (Expense)                             0.8           4.8           5.4             (2.5)        (11.2)
Income Tax (Provision) Benefit                           (8.1)         (6.9)        (33.5)             8.3           6.7
Income Before Changes in Accounting Principles           22.4          23.4          94.7(1)         105.6          53.0
Net Income                                               22.4          23.4          94.7(1)         105.6          52.1

Per Share Data
  Income Before Changes in Accounting Principles        $1.02         $1.07         $4.37            $5.21         $3.31
  Net Income - Basic and Diluted                         1.02          1.07          4.37             5.21          3.26
  Cash Dividends Declared                                0.12          0.12          0.10             0.06            --
Weighted Average Shares Outstanding (000)              21,939        21,845        21,677           20,262        16,000

<CAPTION>
                                                                               December 31
                                                        ----------------------------------------------------------------
                                                        1997          1996         1995           1994            1993
                                                        ----          ----         ----           ----            ----
                                                                           (dollars in millions)
<S>                                                  <C>          <C>           <C>              <C>           <C>
BALANCE SHEET DATA:
Working Capital                                        $177.2        $216.6        $294.2           $268.3         $84.4
Property, Plant, and Equipment, Net                     268.6         209.2         135.7             80.4          69.0
Total Assets                                            728.5         682.0         672.5            616.8         464.9
Long-Term Debt and Capitalized Lease                                                                                    
  Obligation, Including Current Portion                  17.9            --            --               --          69.0
Stockholders' Equity                                    438.6         417.3         393.9            295.7          79.6

<CAPTION>
                                                                          Year Ended December 31
                                                        ----------------------------------------------------------------
                                                         1997         1996          1995             1994          1993
                                                         ----         ----          ----             ----          ----
<S>                                                  <C>          <C>           <C>              <C>           <C>
OTHER DATA:
Net Tons Shipped (000)                                  3,029         2,876         2,542            2,643         2,472   
Raw Steel Production (Mils) NT                            2.8           2.6           2.9              3.0           2.9   
Effective Capacity Utilization                             91%           84%           96%             102%          107%  
Continuously Cast Percentage                              100            95            92               88            89   
Purchased Slabs (000) NT                                  619           843            --               --            --   
Number of Employees at Year-End(2)                      3,128         3,119         3,167            3,194         3,225   
Average Hourly Labor Rate (3)                          $30.43        $30.81        $32.40           $30.02        $28.26   
Total Sales per Employee (000)(2)                         429           419           381              387           334   
Hours Worked per Net Ton Produced(2)                     2.81          2.89          3.14             2.92          3.10   
Operating Income per Net Ton Shipped                   $   10        $    9        $   48(1)        $   39        $   25   
Capital Expenditures (Mils)(4)                          112.4         101.5          69.4             29.2          11.8   

</TABLE>




                                       18

<PAGE>   19




--------------------------
(1)  Operating income, income before changes in accounting principles and net
     income for the year ended December 31, 1995 include the effect of a $30.0
     million (or $12 per net ton shipped) pre-tax gain from the settlement of
     certain litigation relating to property tax assessment matters.
(2)  Includes all hourly and salaried employees.
(3)  Includes $0.35 per hour in 1997, $0.49 per hour in 1996, $1.94 per hour in
     1995, $1.54 per hour in 1994 and $0.60 per hour in 1993 paid or accrued
     pursuant to the Rouge Steel Company Profit Sharing Plan for Hourly
     Employees.
(4)  Includes capital expenditures paid or accrued and investments in
     unconsolidated subsidiaries.

                                       19

<PAGE>   20



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 28.

       Rouge Steel Company ("Rouge Steel") and its subsidiaries were reorganized
into a holding company structure effective July 30, 1997. Pursuant to the
reorganization, Rouge Steel became a wholly-owned subsidiary of the new holding
company, Rouge Industries, Inc., a Delaware corporation (together with its
subsidiaries, "Rouge Industries" or the "Company"). Rouge Industries, which was
incorporated in 1996, is the issuer of all shares of Class A Common Stock and
Class B Common Stock outstanding. On the reorganization date, Rouge Industries
and its subsidiaries had the same consolidated net worth as Rouge Steel and its
subsidiaries prior to the reorganization.

       Rouge Steel is an integrated producer of high quality, flat rolled steel
products consisting of hot rolled, cold rolled and electrogalvanized steel. In
recent years, 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 which 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 are QS Steel Inc.
("QS Steel") and Eveleth Taconite Company ("Eveleth"). QS Steel holds minority
ownership interests in five Michigan-based joint ventures. Eveleth holds a 45%
interest in Eveleth Mines LLC ("EVTAC"), a Minnesota-based iron ore mining and
pellet producing operation.

       Since the acquisition of the Company from Ford Motor Company ("Ford") in
1989 (the "Acquisition"), Rouge Industries' current management has transformed
the Company from an adjunct to Ford's automotive manufacturing business into an
independent, market-driven business. In order to strengthen relationships with
existing customers and establish relationships with new customers, the Company
has focused on a number of strategies designed to improve the quality of its
products, increase the efficiency of its operations, reduce operating expenses
and improve its product mix, including increased sales of higher margin
value-added steel products. The Company has reported net income every year since
the Acquisition except 1992 when the impact of changes in accounting principles
resulted in a $5.1 million loss. In the eight years since the Acquisition, Rouge
Industries has undertaken a capital investment program designed to improve
quality, product mix and productivity. In 1995, the Company and United States
Steel Corporation expanded the capacity of Double Eagle Steel Coating Company
("Double Eagle"), which permits Rouge Industries to produce an additional 52,500
net tons of value-added electrogalvanized steel product annually. In 1996, the
Company partially relined its larger blast furnace and launched the second ladle
refining facility and the third strand of its continuous caster. These additions
permit the Company to refine and continuously cast 100% of its liquid steel,
eliminate the need to utilize the higher cost, lower quality ingot process and
produce a greater proportion of value-added steel. In 1997, the Company
installed a new raw material handling system, finished a major reline of its
smaller blast furnace and upgraded its hot and cold mill facilities.
Additionally, the Company invested in Spartan Steel Coating, L.L.C.
("Spartan Steel"), a 48%-owned joint venture with Worthington Industries, Inc.
(together with its subsidiaries, "Worthington").

                                       20

<PAGE>   21



       Rouge Steel's operations are subject to the cyclicality of the steel
industry and the domestic economy as a whole. During the last major downturn in
the steel industry, domestic steel industry production fell to approximately
87.9 million tons in 1991 from an annual average during the prior three-year
period of approximately 98.9 million tons, a decrease of approximately 11%. This
decrease was due primarily to a deterioration of general economic conditions and
decreased demand for durable goods. For instance, the production of domestic
cars and trucks in 1991 fell to 8.8 million units from an annual average during
the prior three-year period of 10.6 million units. Consistent with these trends
in the steel industry, the Company's raw steel production in 1991 fell to 2.5
million tons from an average of 2.9 million tons during the prior three-year
period. Commencing in December 1991, the steel industry experienced a recovery
in raw steel production and finished shipments. Production and shipments
continued an upward trend through 1997. The industry's domestic raw steel
production increased approximately 21% to approximately 106.7 million tons in
1997 from 87.9 million tons in 1991. Finished shipments increased over the same
period to approximately 104.7 million tons from 78.9 million tons, an increase
of approximately 33%. Given the inherent cyclicality of the domestic steel
industry, the Company believes it is important to maintain financial flexibility
in order to take advantage of opportunities to reduce costs and upgrade the
quality and mix of its products. Rouge Industries believes that its strong
balance sheet combined with its plan to reduce operating costs will position the
Company to continue to pursue its business strategy throughout the economic
cycle and to respond to the continually changing needs of its customers.

       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 1995 through 1997:

<TABLE>
<CAPTION>
                                                                        Year Ended December 31
                                                                -------------------------------------
                                                                1997             1996            1995
                                                                ----             ----            ----
                                                               (in millions of tons except utilization)
DOMESTIC INDUSTRY
<S>                                                             <C>             <C>             <C>  
        Raw Steel Capacity                                      121.1            116.1           112.5
        Raw Steel Production                                    106.7            105.3           104.9
        Utilization                                              88.1%            90.7%           93.3%
        Finished Shipments                                      104.7            100.9            97.5

ROUGE STEEL
        Raw Steel Capacity                                        3.1              3.0             3.0
        Raw Steel Production                                      2.8              2.6             2.9
        Utilization                                              91.2%            84.3%           96.2%
        Finished Shipments                                        3.0              2.9             2.5
</TABLE>

        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 approximately two
thirds of its steel products pursuant to fixed price contracts, under which
prices are typically set annually. In 1991, when domestic steel industry
production and shipments were low, the Company's steel product prices reached a
nine-year low. In 1993, prices began to rise and in 1994 they reached the
highest level since 1988. By mid-1995, however, prices began to soften despite
the continuing strong demand for the Company's products. During the second half
of 1995, the Company lost approximately one half of the pricing gains which it
realized in 1993 and 1994. Prices in 1996 made a modest recovery from late-1995
levels, but nevertheless remained lower than average 1995 prices. In 1997,
prices declined slightly from 1996 levels despite strong demand for the
Company's products.

                                       21

<PAGE>   22



        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 1995 through 1997:

<TABLE>
<CAPTION>
                                                                           Year Ended December 31
                                                                ------------------------------------------
                                                                1997               1996               1995
                                                                ----               ----               ----
<S>                                                            <C>                <C>               <C>
Hot Rolled                                                       49.4%              47.4%              49.8%
Cold Rolled                                                      29.8               30.6               28.4
Hot Dip Galvanized                                                0.6                  -                  -
Electrogalvanized                                                20.2               22.0               21.8
                                                                -----              -----              -----
        Total                                                   100.0%             100.0%             100.0%
                                                                =====              =====              =====
</TABLE>

        During periods of high demand, the Company ships all of the steel
products it has the capacity to produce. For the past two years, when demand for
the Company's products was high, the Company was able to supplement slabs
produced internally with purchased slabs. The Company has been, and intends to
continue, increasing its capacity so it will be positioned to take advantage of
any increased demand with only a limited number of purchased slabs. In order to
more fully utilize its hot strip mill and finishing facilities, the Company has
been increasing its steel slab production capability. In 1996, Rouge Steel
placed into service the third strand of its continuous caster, which allows the
Company to continuously cast 100% of its liquid steel and eliminates the need to
utilize the higher cost, lower quality ingot process. To maximize the continuous
caster's capability, the Company further increased blast furnace efficiency and
capacity by the addition of a new raw material handling system and the full
reline of its smaller "B" blast furnace during 1997. The relines of "B" and "C"
furnaces in 1997 and 1996, respectively, together with the addition of the raw
material handling system, are expected to increase annual blast furnace capacity
to approximately 3.0 million net tons or approximately 20% over the annualized
second quarter 1996 level before any of these improvements were made. As a
result of placing the third strand of the continuous caster into service and
increasing blast furnace capacity, the Company believes that its steel slab
production capacity will increase to approximately 3.4 million net tons
annually.

        In addition to increasing finished capacity, the Company intends to
continue to improve product mix by increasing the capacity of its value-added
facilities. For example, the expansion of Double Eagle in 1995 allowed Rouge
Steel to increase shipments of value-added electrogalvanized steel products.
Total shipments will not necessarily increase, but they are expected to include
a higher proportion of value-added products. Likewise, the Company's
expenditures on joint ventures will not necessarily allow total shipments to
increase, but by permitting the Company to produce additional coated and blanked
steel products, the joint ventures are expected to improve Rouge Industries'
product mix.

        Approximately two thirds of the Company's total sales are made pursuant
to fixed price contracts primarily with automotive customers, under which prices
are typically set annually. Sales to affiliates are comprised primarily of sales
to Worthington, Rouge Industries' second largest customer and shareholder.
Worthington owns approximately 27.3% of the Company's common stock which
represents a voting interest of 19.9%.

        Costs of Goods Sold. The principal elements constituting Rouge
Industries' costs of goods sold are raw materials, labor and energy. Outside
processing costs represent a growing element of the Company's costs of goods
sold. 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

                                       22

<PAGE>   23



nitrogen. Coke, coal, iron ore pellets, electricity, steam, oxygen and nitrogen
predominantly are purchased pursuant to long-term or annual agreements. The
other raw materials are generally purchased in the open market from various
sources and their availability and price are subject to market conditions.

        Iron ore pellets are purchased from EVTAC pursuant to a six-year pellet
purchase agreement. 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
Argicultrual Implement Workers of America, UAW and are working under a labor
contract which expires on August 1, 2000. The collective bargaining agreement,
which has a term of five years, contains no provision to renegotiate prior to
its expiration.

        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 joint
ventures involving Rouge Industries will increase the use of 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 will exceed such cost increases.

        A large component of the Company's costs of goods sold in 1996 and 1997
was the purchase of steel slabs to augment its own production as a result of
demand and blast furnace reline-related outages. In 1996, the Company purchased
approximately 843,000 net tons of steel slabs, and during 1997, the Company
purchased approximately 619,000 net tons of steel slabs. In 1998, assuming blast
furnace production improves as anticipated, the Company plans to purchase only a
limited number of steel slabs.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 1997 VERSUS YEAR ENDED DECEMBER 31, 1996

        Total Sales. Total sales increased 2.6% in 1997 to $1,341.6 million from
$1,307.4 million in 1996, an increase of $34.2 million. The increase in total
sales was caused principally by higher shipments. Shipments increased 5.3% in
1997 to 3,029,000 net tons from 2,876,000 net tons in 1996, an increase of
153,000 net tons. Shipments were higher in 1997 because the Company was able to
add new customers and increase sales to its existing customers. The Company
purchased approximately 619,000 net tons of slabs in 1997 to augment its own
production and accommodate the demand for its products. The higher revenue
caused by increased shipments was partially offset by lower steel product
selling prices. Total sales per net ton shipped decreased 2.6% in 1997 to $443
from $455 in 1996, a decrease of $12 per ton.

        Costs and Expenses. Total costs and expenses increased 2.1% in 1997 to
$1,309.9 million from $1,282.7 million in 1996, an increase of $27.2 million.
Costs of goods sold increased 2.2% in 1997 to $1,278.3 million from $1,251.1
million in 1996, an increase of $27.2 million. The increase in costs of goods
sold can be attributed primarily to the 5.3% increase in shipments discussed
above, higher purchased slab prices and increased project expense for blast
furnace stove repairs, the takeover of Rouge Steel's internal railroad from Ford
and demolition and site preparation expenses related to the new raw material
handling system. Several factors partially offset the costs of goods sold
increase: (i) non-capital expenditures associated with the reline of the smaller
"B" blast furnace were lower in 1997 than non-capital expenditures associated
with the reline of the "C" blast furnace in 1996, (ii) the "C"

                                       23

<PAGE>   24



furnace performed more efficiently in post-reline 1997 than it did when it was
nearing the end of its campaign in 1996, and (iii) the full-year effect of
efficiencies gained from the launch in mid-1996 of the third caster strand which
allowed the Company to eliminate the more costly ingot-slab process. Costs of
goods sold was 95.3% of total sales in 1997, down slightly from 95.7% of total
sales in 1996. Depreciation and amortization increased 19.2% in 1997 to $15.6
million from $13.1 million in 1996, an increase of $2.5 million. The higher
depreciation and amortization expense reflects the completion of major capital
projects, primarily the full year effect of the third strand of the Company's
continuous caster. Selling and administrative expenses decreased 10.6% in 1997
to $21.8 million from $24.3 million in 1996, a decrease of $2.5 million. The
decrease in selling and administrative expenses is primarily due to lower legal
expenses and Michigan single business tax.

        Operating Income. Primarily as a result of the efficiencies discussed
above, including costs related to the "B" furnace reline, the improved
productivity of "C" furnace and the full-year effect of the third strand of the
caster, offset partially by lower steel product selling prices, operating income
increased 28.3% in 1997 to $31.7 million from $24.7 million in 1996, an increase
of $7.0 million. Operating income represented 2.4% of total sales in 1997, up
from 1.9% of total sales in 1996.

        Interest Income. Interest income decreased 72.4% in 1997 to $1.4 million
from $5.1 million in 1996, a decrease of $3.7 million. The decrease in interest
income was the result of a lower cash and marketable securities balance in 1997.
The average cash and marketable securities balance in 1997 was $20 million
compared to $86 million in 1996.

        Equity in Income (Loss) of Unconsolidated Subsidiaries. Equity in loss
of unconsolidated subsidiaries was $718,000 in 1997 compared to equity in income
of unconsolidated subsidiaries of $50,000 in 1996. The loss in 1997 reflects the
after-tax effect of Rouge Industries' share of losses incurred by Shiloh of
Michigan and EVTAC as well as preproduction expenses recorded by Spartan Steel.
The income in 1996 reflects the after-tax effect of the Company's share of
Shiloh of Michigan's losses offset by one month's income generated by EVTAC.

YEAR ENDED DECEMBER 31, 1996 VERSUS YEAR ENDED DECEMBER 31, 1995

        Total Sales. Total sales increased 8.4% in 1996 to $1,307.4 million from
$1,206.6 million in 1995, an increase of $100.8 million. The increase in total
sales was caused principally by higher shipments. Shipments increased 13.1% in
1996 to 2,876,000 net tons from 2,542,000 net tons in 1995, an increase of
334,000 net tons. Shipments were higher in 1996 because the Company was able to
add new customers and increase sales to its existing customers. Rouge Steel
purchased 843,000 net tons of slabs in 1996 to augment its own production and
accommodate the demand for its products. The effect of higher shipments on total
sales was partially offset by lower steel prices in 1996. Total sales per net
ton shipped decreased 4.2% in 1996 to $455 from $475 in 1995, a decrease of $20
per ton.

        Costs and Expenses. Total costs and expenses increased 18.2% in 1996 to
$1,282.7 million from $1,085.0 million in 1995, an increase of $197.7 million.
Costs of goods sold increased 15.6% in 1996 to $1,251.1 million from $1,082.1
million in 1995, an increase of $169.0 million. The increase in costs of goods
sold can be attributed primarily to four elements: (i) increased shipments of
steel products, (ii) higher raw material, utility and labor costs, (iii) the
blast furnace reline and other blast furnace problems, and (iv) the purchased
slabs discussed above. In the first quarter of 1996, the larger of the Company's
two operating blast furnaces, "C" furnace, experienced lining-related operating
problems. A partial reline of "C" furnace was completed in the fourth quarter of
1996. The newly-relined blast furnace experienced start-up problems which
delayed production for several days and had a negative impact on the Company's
results of operations. Costs of goods sold was 95.7% of total sales in 1996

                                       24

<PAGE>   25



compared to 89.7% of total sales in 1995. Depreciation and amortization
increased 17.8% in 1996 to $13.1 million from $11.1 million in 1995, an increase
of $2.0 million. The higher depreciation and amortization expense reflects the
completion of major capital projects, primarily the third strand of the
Company's continuous caster. Selling and administrative expenses decreased 11.7%
in 1996 to $24.3 million from $27.6 million in 1995, a decrease of $3.3 million.
The decrease in selling and administrative expenses is primarily due to three
factors: (i) lower Michigan single business tax, which is a function of the
Company's lower taxable income in 1996, (ii) lower profit sharing paid to the
Company's administrative employees, which is also a function of the Company's
lower taxable income, and (iii) less expense recorded for the development of the
Company's customer order management system. In 1995, the Company reached an
agreement with the City of Dearborn, the Dearborn Public School Board and the
County of Wayne, Michigan which settled local property tax litigation for tax
years 1990 through 1995. As a result of the settlement, the Company recorded a
pre-tax benefit of $30.0 million in 1995, net of profit sharing and inventory
valuation costs.

        Operating Income. Primarily as a result of the lower steel prices, the
higher costs of goods sold discussed above, including costs related to the blast
furnace outages and related production problems, and the absence of the property
tax litigation settlement, which was recorded as a benefit in 1995, operating
income decreased 79.7% in 1996 to $24.7 million from $121.6 million in 1995, a
decrease of $96.9 million. Operating income represented 1.9% of total sales in
1996 compared to 10.1% of total sales in 1995. Excluding the impact of the
property tax litigation settlement in 1995, operating income represented 7.6% of
total sales. The margin deterioration in 1996 was attributable primarily to
three factors: (i) higher raw material, utility and labor costs, (ii) the blast
furnace outages and related blast furnace problems, and (iii) lower steel
prices. Operating income per net ton shipped was $9 in 1996 compared to $48 in
1995.

        Income Tax Provision. The income tax provision decreased 79.3% in 1996
to $6.9 million from $33.5 million in 1995, a decrease of $26.6 million. The
lower income tax provision was a function of lower taxable income in 1996.

        Minority Interest in Net Loss of Consolidated Subsidiary. Minority
interest in net loss of consolidated subsidiary decreased in 1996 to $37,000
from $639,000 in 1995, a change of $602,000. This change reflects lower costs
resulting from increased rail shipments directly from Eveleth. Until November
30, 1996, Eveleth was 85% owned by the Company and 15% owned by Oglebay Norton
Company ("Oglebay"). The minority interest reflects Oglebay's share of Eveleth's
earnings or losses. Effective December 1, 1996, under the terms of a
restructuring agreement, Eveleth became a wholly-owned subsidiary of the Company
and, in exchange for a 45% ownership interest in EVTAC, Eveleth assigned
substantially all of its operating assets and liabilities to EVTAC. In the
future, the impact of the Company's ownership interest in EVTAC will be
accounted for under the equity method and Rouge Industries' Consolidated
Statements of Operations will not show any minority interest relating to EVTAC.

        Equity in Income of Unconsolidated Subsidiaries. Equity in income of
unconsolidated subsidiaries was $50,000 in 1996 compared to $0 in 1995. The
amount in 1996 reflects the after-tax effect of the Company's share of Shiloh of
Michigan's losses offset by one month's income generated by EVTAC. There was no
income or loss from unconsolidated subsidiaries during 1995. The Company
acquired its interest in Shiloh of Michigan during 1996 and, as previously
discussed, treated Eveleth as a consolidated subsidiary until late 1996.

        Net Income. Net income decreased 75.3% in 1996 to $23.4 million from
$94.7 million in 1995, a decrease of $71.3 million. The lower net income in 1996
reflects lower steel prices, higher costs of

                                       25

<PAGE>   26



goods sold and the absence of the one-time property tax litigation settlement
that was recorded in 1995, partially offset by a lower income tax provision.

LIQUIDITY AND CAPITAL RESOURCES

       Rouge Industries' liquidity needs arise predominantly from capital
investments and working capital requirements. The Company meets these liquidity
needs primarily with cash provided by operating activities and funds provided by
borrowings.

       Cash, cash equivalents and marketable securities on December 31, 1997
totalled $12.6 million compared to $27.0 million on December 31, 1996, a
decrease of $14.4 million. This decrease was primarily due to cash used for
capital spending and investments in unconsolidated subsidiaries.

       Cash Flows from Operating Activities. Net cash provided by operating
activities increased in 1997 to $90.4 million from $19.0 million in 1996, an
increase of $71.4 million. This increase is primarily the result of lower
inventories. The decrease in inventories was primarily a result of a reduction
of steel product inventories. Late in 1997, production was low due to the blast
furnace outages and poor operating performance by "C" furnace. At the same time,
the Company was shipping a high level of steel products. The combination of low
production and high shipments caused the Company's inventories to decrease.
Additionally, the Company had stockpiled slabs at December 31, 1996 in
anticipation of the "B" blast furnace reline in 1997. Many of those slabs were
used in 1997 contributing further to the reduction in inventories.

       Credit Facility. Rouge Steel has a five-year, $100 million, unsecured
revolving loan commitment under a credit agreement (the "Credit Agreement")
among the Company, the banks named therein and NBD Bank, as administrative
agent. The commitments of the lenders under the Credit Agreement expire on
December 16, 2002. 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
0.5%, or (ii) the LIBOR rate plus an applicable margin, which varies with the
Company's debt to capitalization ratio and can range from 0.20% to 0.40%. The
Company had borrowings of $17.9 million under the facility as of December 31,
1997. The Company believes that net income and funds available under the Credit
Agreement will be adequate for its working capital and capital expenditure
requirements.

       Capital Expenditures. Cash used for capital expenditures, including
investments in unconsolidated subsidiaries, increased 33.9% in 1997 to $119.9
million from $89.6 million in 1996, an increase of $30.3 million. The most
significant of the expenditures made in 1997 were for the completion of an
automated raw material handling system and investment in Spartan Steel.
Additionally, the Company incurred capital expenditures in 1997 for the full
reline of its "B" blast furnace. The remaining expenditures were made primarily
to upgrade and modernize the Company's steel processing facilities. During the
five-year period commencing January 1, 1996, the Company anticipates spending
approximately $350 million on capital items and investment in unconsolidated
subsidiaries, including $101 million paid or accrued in 1996 and $112 million
paid or accrued in 1997. The planned capital expenditures are generally
directed at improving and maintaining plant efficiency and quality to position
the Company to improve its competitive position in the marketplace and, to a
lesser extent, to enter into strategic joint ventures. In 1998, the Company
plans to spend approximately $50 million on capital items and investment in
joint ventures including information systems upgrades and the completion of
Spartan Steel. During 1998, the Company expects to invest approximately $23
million in Spartan Steel, which is expected to be placed into service in
mid-1998.


                                       26

<PAGE>   27



       Waste Oxide Reclamation Facility Lease. Rouge Steel has committed to a
seven-year lease for a $35 million waste oxide reclamation facility. The
facility is presently being constructed, and it is expected to be completed in
the third quarter of 1998. Lease payments will commence at that time.

FUTURE ENVIRONMENTAL MATTERS

       The Company's operations are subject to many federal, state and local
laws, regulations, permits and consent agreements relating to the protection of
human health and the environment. The Company believes that its facilities are
in material compliance with these laws and provisions and does not believe that
liabilities arising out of existing environmental conditions or future
compliance with environmental laws, regulations, permits and consent
requirements will have a material adverse effect on its results of operations or
financial condition. The Company has incurred capital expenditures in connection
with matters relating to environmental control of approximately $1.5 million
during the past four years. In addition, the Company has planned approximately
$2.0 million in capital expenditures for environmental compliance for the years
1998 through 2001.

       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 which
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, the Resource Conservation and Recovery Act, the Clean
Water Act, the Safe Drinking Water Act, the Clean Air Act and the Occupational
Safety and Health Act of 1970. The Ford Indemnity, which terminates on December
15, 2009, provides that Ford shall pay the Company's liabilities, including any
penalties and attorney's fees, in connection with any environmental claim
relating to pre-Acquisition conditions.

       Since environmental laws and regulations are becoming increasingly more
stringent, the Company's environmental capital expenditures and costs for
environmental compliance may increase in the future. In addition, due to the
possibility of unanticipated regulatory or other developments, the amount and
timing of future environmental expenditures may vary substantially from those
currently anticipated.

YEAR 2000 COMPLIANCE

       The widespread use of computer programs that rely on two-digit date
programs to perform computations and decision-making functions may cause
computer systems to malfunction in the year 2000 which could lead to business
delays and manufacturing disruptions. Rouge Industries has not completed its
assessment of the extent of the year 2000 issue; however, management has
determined that it will be required to modify or replace significant portions of
its software so that its computer systems will property utilize dates beyond
December 31, 1999. The Company has begun modifying and replacing its computer
systems to address this issue and estimates that at least $10 million will be
spent to modify software and computer systems that are not year-2000 compliant.



                                       27

<PAGE>   28



Item 8.        Financial Statements and Supplementary Data.

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

<TABLE>
<CAPTION>
                                                                                                                     Page
                                                                                                                     ----
<S>                                                                                                                  <C>      
   
Report of Independent Accountants..................................................................................   29

Consolidated Balance Sheets as of December 31, 1997 and 1996.......................................................   30

Consolidated Statements of Operations for the Years Ended
    December 31, 1997, 1996 and 1995...............................................................................   32

Consolidated Statements of Changes in Stockholders' Equity for the Years Ended
    December 31, 1997, 1996 and 1995...............................................................................   33

Consolidated Statements of Cash Flows for the Years Ended
    December 31, 1997, 1996 and 1995...............................................................................   34

Notes to Consolidated Financial Statements.........................................................................   35

Schedule II - Valuation and Qualifying Accounts and Reserves.......................................................   48

</TABLE>


                                       28

<PAGE>   29



                        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, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.



PRICE WATERHOUSE LLP
Bloomfield Hills, Michigan
January 28, 1998


                                       29

<PAGE>   30



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

Assets


<TABLE>
<CAPTION>


                                                                    December 31
                                                              -----------------------
                                                                  1997       1996
                                                                  ----       ----
Current Assets
<S>                                                             <C>        <C>     
   Cash and Cash Equivalents                                    $ 12,570   $ 24,914
   Marketable Securities                                              --      2,039
   Accounts Receivable
     Trade and Other (Net of Allowances of $6,333 and $7,294)    101,590    102,593
     Affiliates                                                    9,876      9,995
   Inventories                                                   248,317    267,877
   Other Current Assets                                            8,562      7,483
                                                                --------   --------
     Total Current Assets                                        380,915    414,901
                                                                --------   --------

Property, Plant, and Equipment
   Buildings and Improvements                                     24,718     16,942
   Machinery and Equipment                                       275,489    186,851
   Construction in Progress                                       10,517     32,545
                                                                --------   --------
     Subtotal                                                    310,724    236,338
   Less:  Accumulated Depreciation                               (42,162)   (27,176)
                                                                --------   -------- 
     Net Property, Plant, and Equipment                          268,562    209,162
                                                                --------   --------

Investment in Unconsolidated Subsidiaries                         50,936     15,590
                                                                --------   --------   

Deferred Charges and Other                                        28,096     42,300
                                                                --------   --------   

     Total Assets                                               $728,509   $681,953
                                                                ========   ========

</TABLE>



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

                                       30

<PAGE>   31



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

Liabilities and Stockholders' Equity

<TABLE>
<CAPTION>

                                                                                        December 31
                                                                                     ------------------
                                                                                     1997          1996
                                                                                     ----          ----
Current Liabilities
   Accounts Payable
<S>                                                                              <C>           <C>
     Trade                                                                         $ 152,917    $ 154,338
     Affiliates                                                                       13,924        8,188
   Accrued Vacation Pay                                                               11,007       11,243
   Taxes Other than Income                                                             4,312        4,580
   Other Accrued Liabilities                                                          21,579       19,921
                                                                                   ---------    ---------
     Total Current Liabilities                                                       203,739      198,270
                                                                                   ---------    ---------

Long-Term Debt                                                                        17,900           --
                                                                                   ---------    ---------
Other Liabilities                                                                     56,969       49,342
                                                                                   ---------    ---------

Excess of Net Assets Acquired Over Cost                                               11,280       17,076
                                                                                   ---------    ---------

Commitments and Contingencies (Note 12)

Stockholders' Equity
   Common Stock
     Class A, 80,000,000 shares authorized with 14,428,219 and 14,341,136 issued
       and outstanding as of December 31, 1997
       and 1996, respectively                                                            144          143
     Class B, 8,690,400 shares authorized with 7,562,400
       issued and outstanding                                                             76           76
   Capital in Excess of Par Value                                                    128,517      127,096
   Retained Earnings                                                                 312,130      292,349
   Additional Minimum Pension Liability Adjustment                                    (2,246)      (2,399)
                                                                                   ---------    ---------
     Total Stockholders' Equity                                                      438,621      417,265
                                                                                   ---------    ---------
     Total Liabilities and Stockholders' Equity                                    $ 728,509    $ 681,953
                                                                                   =========    =========


</TABLE>


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

                                       31

<PAGE>   32


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



<TABLE>
<CAPTION>

                                                                           Years Ended December 31
                                                                --------------------------------------------
                                                                    1997              1996            1995
                                                                    ----              ----            ----
<S>                                                            <C>             <C>             <C>
Sales
   Unaffiliated Customers                                       $  1,158,218    $  1,125,722    $  1,019,914
   Affiliates                                                        183,342         181,676         186,652
                                                                ------------    ------------    ------------
      Total Sales                                                  1,341,560       1,307,398       1,206,566
                                                                ------------    ------------    ------------

Costs and Expenses
   Costs of Goods Sold                                             1,278,351       1,251,114       1,082,077
   Depreciation and Amortization                                      15,563          13,056          11,083
   Selling and Administrative Expenses                                21,760          24,339          27,569
   Amortization of Excess of Net Assets Acquired Over Cost            (5,796)         (5,796)         (5,796)
   Property Tax Litigation Settlement (Note 11)                           --              --         (29,974)
                                                                ------------    ------------    ------------
      Total Costs and Expenses                                     1,309,878       1,282,713       1,084,959
                                                                ------------    ------------    ------------

Operating Income                                                      31,682          24,685         121,607

Interest Income                                                        1,418           5,136           5,739
Interest Expense                                                        (630)           (329)           (326)
Other - Net                                                           (1,244)            728             459
                                                                ------------    ------------    ------------
Income Before Income Taxes, Minority Interest
   and Equity in Income (Loss) of Unconsolidated Subsidiaries         31,226          30,220         127,479
Income Tax Provision                                                  (8,094)         (6,915)        (33,455)
                                                                ------------    ------------    ------------
Income Before Minority Interest and Equity in Income (Loss)
   of Unconsolidated Subsidiaries                                     23,132          23,305          94,024
Minority Interest in Consolidated Subsidiary                              --              37             639
Equity in Income (Loss) of Unconsolidated Subsidiaries                  (718)             50              --
                                                                ------------    ------------    ------------

      Net Income                                                $     22,414    $     23,392    $     94,663
                                                                ============    ============    ============

Net Income Per Share - Basic and Diluted                        $       1.02    $       1.07    $       4.37
                                                                ============    ============    ============

Weighted-Average Shares Outstanding                               21,938,743      21,844,864      21,677,435
                                                                ============    ============    ============


</TABLE>


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

                                       32

<PAGE>   33



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


<TABLE>
<CAPTION>

                                                         Years Ended December 31
                                                     -------------------------------
                                                     1997         1996          1995
                                                     ----         ----          ----
<S>                                               <C>          <C>          <C>      
Class A and Class B Common Stock
   Beginning Balance                              $     219    $     218    $     216
   Common Stock Issued for Employee
     Benefit Plans                                        1            1            2
                                                  ---------    ---------    ---------
      Ending Balance                                    220          219          218
                                                  ---------    ---------    ---------

Capital in Excess of Par Value
   Beginning Balance                                127,096      124,246      120,212
   Common Stock Issued for Employee
     Benefit Plans                                    1,405        2,811        3,955
   Common Stock Issued for ODEP                          16           39           79
                                                  ---------    ---------    ---------
      Ending Balance                                128,517      127,096      124,246
                                                  ---------    ---------    ---------

Retained Earnings
   Beginning Balance                                292,349      271,580      179,089
   Net Income                                        22,414       23,392       94,663
   Cash Dividends Declared                           (2,633)      (2,623)      (2,172)
                                                  ---------    ---------    ---------
      Ending Balance                                312,130      292,349      271,580
                                                  ---------    ---------    ---------

Additional Minimum Pension Liability Adjustment
   Beginning Balance                                 (2,399)      (2,190)      (3,806)
   Required Minimum Liability Adjustment                153         (209)       1,616
                                                  ---------    ---------    ---------
      Ending Balance                                 (2,246)      (2,399)      (2,190)
                                                  ---------    ---------    ---------

Total Stockholders' Equity                        $ 438,621    $ 417,265    $ 393,854
                                                  =========    =========    =========

</TABLE>



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

                                       33

<PAGE>   34



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


<TABLE>
<CAPTION>

                                                                           Years Ended December 31
                                                                     ---------------------------------
                                                                       1997         1996         1995
                                                                       ----         ----         ----
<S>                                                              <C>           <C>          <C>
Cash Flows From Operating Activities
   Net Income                                                      $  22,414    $  23,392    $  94,663
   Adjustments to Reconcile Net Income to Net Cash
     Provided by Operating Activities:
       Deferred Taxes                                                  9,540        4,433        5,841
       Depreciation and Amortization                                  15,563       13,056       11,083
       Amortization of Capitalized Debt Costs                            113           36           36
       Equity in (Income) Loss of Unconsolidated Subsidiaries            718          (50)          --
       Amortization of Excess of Net Assets Acquired Over Cost        (5,796)      (5,796)      (5,796)
       Minority Interest in Consolidated Subsidiary                       --          (37)        (639)
       Common Stock Issued for Benefit Plans                           1,422        2,851        4,036
       Changes in Assets and Liabilities:
         Accounts Receivable                                          (3,878)       3,692        9,437
         Inventories                                                  21,164      (42,802)       5,799
         Prepaid Expenses                                                (47)       1,208       (7,252)
         Accounts Payable and Accrued Liabilities                     24,171       14,202      (14,124)
         Restricted Cash                                                  --           --        4,121
         Other - Net                                                       4         (182)         (96)
       Gain on Property Tax Settlement                                    --           --      (29,974)
       Proceeds from Property Tax Settlement                           5,000        5,000       15,000
                                                                   ---------    ---------    ---------
            Net Cash Provided by Operating Activities                 90,388       19,003       92,135
                                                                   ---------    ---------    ---------

   Cash Flows From Investing Activities
       Capital Expenditures                                          (82,359)     (80,339)     (65,797)
       Purchase of Marketable Securities                              (6,310)     (30,276)    (103,265)
       Sale of Marketable Securities                                   8,349       71,561       78,886
       Investment in Unconsolidated Subsidiaries                     (37,538)      (9,222)      (3,629)
       Other - Net                                                      (142)        (229)          45
                                                                   ---------    ---------    ---------
            Net Cash Used for Investing Activities                  (118,000)     (48,505)     (93,760)
                                                                   ---------    ---------    ---------

   Cash Flows From Financing Activities
       Drawdowns on Revolving Line                                   121,800           --           --
       Principal Payments on Revolving Line                         (103,900)          --           --
       Cash Dividend Payments                                         (2,632)      (2,620)      (1,952)
                                                                   ---------    ---------    ---------
            Net Cash Provided by (Used for) Financing Activities      15,268       (2,620)       (,952)
                                                                   ---------    ---------    ---------

   Net Decrease in Cash and Cash Equivalents                         (12,344)     (32,122)      (3,577)

   Cash and Cash Equivalents - Beginning of Year                      24,914       57,036       60,613
                                                                   ---------    ---------    ---------

   Cash and Cash Equivalents - End of Year                         $  12,570    $  24,914    $  57,036
                                                                   =========    =========    =========

</TABLE>

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

                                       34

<PAGE>   35



                             ROUGE INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES

Description of the Company

Rouge Steel Company ("Rouge Steel") and its subsidiaries were reorganized into a
holding company structure effective July 30, 1997. Pursuant to the
reorganization, Rouge Steel became a wholly-owned subsidiary of the new holding
company, Rouge Industries, Inc. ("Rouge Industries"), which is the issuer of all
shares of Class A Common Stock and Class B Common Stock outstanding. The
transaction was accounted for as a reorganization of entities under common
control. On the reorganization date, Rouge Industries and its subsidiaries had
the same consolidated net worth as Rouge Steel and its subsidiaries prior to the
reorganization.

Rouge Steel is the principal operating subsidiary of Rouge Industries. 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 are QS Steel Inc. ("QS Steel") and
Eveleth Taconite Company ("Eveleth"). QS Steel holds minority ownership
interests in five Michigan-based joint ventures. Eveleth holds a 45 percent
interest in Eveleth Mines LLC, a Minnesota-based iron ore mining and pellet
producing operation. For the purpose of these Notes to Consolidated Financial
Statements, "Rouge Industries" or "the Company" refers to Rouge Industries, Inc.
and its subsidiaries, unless the context requires otherwise.

Principles of Consolidation

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

Financial Instruments

The carrying amount of the Company's financial instruments, which include cash
equivalents, marketable securities, accounts receivable, accounts payable and
long-term debt, approximates their fair value at December 31, 1997 and 1996. 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, 1997.


                                       35

<PAGE>   36



NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued)

Significant Customers

The Company's significant customers are Ford Motor Company ("Ford") and
Worthington Industries, Inc. ("Worthington"). Sales to Ford, which are primarily
made pursuant to a ten-year steel purchase agreement, totaled $434,898,000 in
1997, $397,723,000 in 1996 and $376,605,000 in 1995. The steel purchase
agreement expires on December 15, 1999.

Sales are made to Worthington, a stockholder of the Company, pursuant to a
seven-year steel purchase agreement which expires on December 15, 2003. Sales to
affiliates include $157,307,000, $159,030,000 and $162,372,000 to Worthington
for 1997, 1996 and 1995, respectively.

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 (see Note 4) and applied manufacturing overhead.

Nonmonetary Transactions

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

Property, Plant, and Equipment

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

Depreciation and Amortization

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

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

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

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

                                       36

<PAGE>   37



NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued)

Environmental Accounting

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

Use of Estimates

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


NOTE 2 - MARKETABLE SECURITIES

Marketable securities are classified as follows (dollars in thousands):

<TABLE>
<CAPTION>
                                                                         December 31
                                                                 -------------------------------
                                                                 1997                       1996
                                                                 ----                       ----

<S>                                                           <C>                         <C>     
Marketable Securities Per Consolidated Balance Sheets         $        -                  $  2,039
Marketable Securities Classified as Cash Equivalents                  36                    10,805
                                                              ----------                  --------
     Total Marketable Securities                              $       36                  $ 12,844
                                                              ==========                  ========
</TABLE>


The Company has the positive intent and ability to hold all purchased securities
to maturity. As of December 31, 1997 and 1996, the Company did not own any
securities with a maturity greater than one year. The Company's investments in
marketable securities comprise money market funds, U.S. Treasury securities and
corporate debt securities.


NOTE 3 - INVENTORIES

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

<TABLE>
<CAPTION>
                                                                                December 31
                                                                         --------------------------
                                                                         1997                  1996
                                                                         ----                  ----
Production
<S>                                                                    <C>                    <C>      
   Raw Materials                                                       $  84,169              $  85,306
   Semifinished and Finished Steel Products                              160,017                174,746
                                                                       ---------              ---------
     Total Production at FIFO                                            244,186                260,052
   LIFO Reserves                                                         (17,285)               (14,390)
                                                                       ---------              ---------
     Total Production at LIFO                                            226,901                245,662
Nonproduction and Sundry                                                  21,416                 22,215
                                                                       ---------              ---------
     Total Inventories                                                 $ 248,317              $ 267,877
                                                                       =========              =========
</TABLE>



                                       37

<PAGE>   38



NOTE 3 - INVENTORIES (continued)

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

NOTE 4 - INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES

At December 31, 1997, the Company's investments in unconsolidated subsidiaries
consist of a 50 percent interest in Double Eagle Steel Coating Company ("Double
Eagle"), a 45 percent interest in Eveleth Mines LLC ("EVTAC"), a 20 percent
interest in Shiloh of Michigan, L.L.C. ("Shiloh of Michigan"), a 48 percent
interest in Spartan Steel Coating, L.L.C. ("Spartan Steel"), an 11.1 percent
interest in TWB Company, L.L.C. ("TWB"), a 19.75 percent interest in Bing
Blanking, L.L.C. ("Bing Blanking") and a 49 percent interest in Delaco
Processing, L.L.C. ("Delaco Steel Processing"). All of the Company's investments
in unconsolidated subsidiaries are accounted for under the equity method.

Double Eagle is an electrolytic galvanizing facility which is operated as a cost
center. Accordingly, Double Eagle records neither sales nor income. Rouge
Industries' proportionate share of Double Eagle's production costs of
$39,459,000, $37,618,000 and $34,976,000 for 1997, 1996 and 1995, respectively,
is included in the Company's costs and expenses and inventory. The Company is
committed to pay 50 percent of the fixed costs incurred and a pro rata share of
variable costs based on coatings applied to the Company's products. At December
31, 1997, the Company's share of the underlying net assets of Double Eagle
exceeded its investment by $44,550,000. This excess results from purchase
accounting adjustments made on the consolidated accounts of the Company at the
time of the Acquisition and relates primarily to property, plant, and equipment.
This excess is being amortized as a reduction of Rouge Industries' share of
Double Eagle's costs over the remaining lives of the property.

Until November 30, 1996, Eveleth was 85 percent owned by the Company and 15
percent owned by Oglebay Norton Company and produced iron ore pellets at Eveleth
Mines under collective operating agreements with Eveleth Expansion Company.
Effective December 1, 1996, under the terms of a restructuring agreement,
Eveleth became a wholly-owned subsidiary of the Company and, in exchange for a
45 percent ownership interest in EVTAC, Eveleth assigned substantially all of
its operating assets and liabilities to EVTAC. No gain or loss was recorded at
the time of the transaction and the impact of the transfer of approximately
$17,681,000 of assets and $30,253,000 of liabilities by Eveleth to EVTAC was
excluded from the Statement of Cash Flows. At December 31, 1997, the Company's
share of the underlying net assets of EVTAC exceeded its investment by
$10,976,000. This excess is being amortized into income over the estimated
remaining useful lives of the contributed assets.

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



                                       38

<PAGE>   39



NOTE 4 - INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES (continued)

Certain reclassifications have been made to the following information for 1996
to conform with the current year's presentation. The table below sets forth
summarized financial information for Rouge Industries' unconsolidated
subsidiaries (dollars in thousands):

<TABLE>
<CAPTION>
                                                                               December 31
                                                                          ----------------------
                                                                          1997              1996
                                                                          ----              ----
<S>                                                                    <C>              <C>      
Current Assets                                                         $  82,014        $  51,987
Noncurrent Assets                                                        308,047          210,690
Current Liabilities                                                      45,920            41,412
Noncurrent Liabilities                                                   120,012           65,823




<CAPTION>
                                                                              For the Years Ended December 31
                                                                     ---------------------------------------------
                                                                       1997                1996               1995
                                                                       ----                ----               ----

<S>                                                                     <C>              <C>              <C>    
Net Sales                                                               $193,463         $16,268          $     -
Gross Profit                                                               2,960             446                -
Net Income (Loss)                                                         (6,358)            498                -
</TABLE>

NOTE 5 - DEBT

The Company had borrowings of $17,900,000 outstanding as of December 31, 1997,
and had no long-term debt outstanding as of December 31, 1996.

On December 16, 1997, Rouge Steel and Rouge Industries entered into an agreement
for a $100,000,000, unsecured revolving loan facility (the "Credit Agreement")
which replaced a $100,000,000, unsecured revolving loan facility under a
different credit agreement. Rouge Steel is the borrower under the Credit
Agreement and Rouge Industries is a guarantor. Interest is calculated using one
of two methods. Loans under the base rate option are charged interest equal to
the higher of the prime rate or the federal funds rate plus 0.5%. Loans under
the LIBOR option are charged interest at the London Interbank Offered Rate plus
a margin ranging from 0.20% to 0.40%, depending on the Company's debt to
capitalization ratio at the time of borrowing. The interest rate option is
chosen by Rouge Steel at the time of each borrowing and is thereafter changeable
under certain specified conditions. The facility bears a fixed annual fee of
$20,000 and a fee on the entire amount of the facility which can vary from 0.1%
to 0.2%, depending on the Company's debt to capitalization ratio at the time.
The Credit Agreement, which expires on December 16, 2002, contains certain
financial covenants, with which the Company was in compliance on December 31,
1997.

Cash paid for interest was $462,000 in 1997, $350,000 in 1996 and $285,000 in
1995.

NOTE 6 - PENSIONS

Rouge Steel has retirement plans covering substantially all hourly and salaried
employees. The hourly plans are noncontributory and provide benefits, including
early retirement supplements, based on the length of employee service. The
salaried plans provide similar noncontributory benefits and, for employees who
elect to contribute, pay related benefits combined with early retirement
supplements.


                                       39

<PAGE>   40



NOTE 6 - PENSIONS  (continued)

Rouge Steel's funding policy is to contribute annually, at a minimum, amounts
required by applicable law, regulations and union agreements. Plan assets
consist principally of investments in common and preferred stock, government
securities and other fixed income securities.

The following schedule sets forth the funded status of the plans at December 31
using a September 30 measurement date (dollars in thousands):


<TABLE>
<CAPTION>

                                                                  Overfunded Plan(s)        Underfunded Plan(s)   
                                                                ----------------------      -------------------   
                                                                   1997        1996          1997          1996    
Actuarial Present Value of Benefit Obligations:                    ----        ----          ----          ----    
<S>                                                             <C>          <C>          <C>          <C>        
  Vested                                                        $ (58,684)   $ (15,850)   $  (6,233)   $ (38,710) 
  Nonvested                                                       (32,191)      (6,348)      (7,448)     (28,599) 
                                                                ---------    ---------    ---------    ---------  
  Accumulated Benefit Obligation                                $ (90,875)   $ (22,198)   $ (13,681)   $ (67,309) 
                                                                =========    =========    =========    =========  
                                                                                                                  
Projected Benefit Obligation                                    $ (93,601)   $ (24,648)   $ (13,681)   $ (67,309) 
Fair Value of Assets                                              109,097       24,583       12,262       63,146  
                                                                ---------    ---------    ---------    ---------  
Fair Value of Assets in Excess of                                                                                 
   (Less Than) Projected Benefit Obligation                        15,496          (65)      (1,419)      (4,163) 
Unrecognized Net Loss (Gain)                                      (15,071)       1,176        2,246          210  
Unrecognized Prior Service Cost                                     8,246        1,028           --        8,229  
Employer Contribution                                                  --        1,387           --        4,733  
Minimum Liability Adjustment                                           --           --       (2,246)      (2,399) 
                                                                ---------    ---------    ---------    ---------  
Prepaid Pension Cost (Unfunded Accrued)                         $   8,671    $   3,526    $  (1,419)   $   6,610  
                                                                =========    =========    =========    =========  

</TABLE>

The following schedule sets forth the net pension cost (dollars in thousands):

<TABLE>
<CAPTION>

                                                                   For the Years Ended December 31
                                                               ------------------------------------
                                                                   1997         1996         1995

<S>                                                            <C>          <C>          <C>      
Service Cost                                                    $   7,957    $   8,143    $   6,795 
Interest Cost                                                       7,440        6,541        4,952 
Actual Return on Assets                                           (23,111)      (9,325)      (8,460)
Net Amortization and Deferral                                      15,896        3,577        4,762 
                                                                ---------    ---------    --------- 
   Net Pension Cost                                             $   8,182    $   8,936    $   8,049 
                                                                =========    =========    ========= 
</TABLE>

The projected benefit obligation was determined using a discount rate of 7.25%
for 1997 and 7.5% for 1996, an expected rate of return on plan assets of 9.0%
for 1997 and 1996, and a rate of compensation escalation for salaried plans of
3.7% for 1997 and 1996.



                                       40

<PAGE>   41



NOTE 7 - POSTRETIREMENT BENEFIT AND OTHER PLANS

Postretirement Benefit Plans Other than Pensions

Rouge Steel provides certain health care and life insurance benefits for retired
employees. As part of the Acquisition, Ford assumed essentially all liability
for these benefits for Rouge Steel retirees and certain employees nearing
retirement as of December 15, 1989. Substantially all of Rouge Steel's employees
may become eligible for benefits, either at Rouge Steel's expense or, to the
extent indicated above, at Ford's expense, if they reach retirement age while
still working for Rouge Steel.

The accrued postretirement benefit cost is included in Other Liabilities. The
following schedule presents the funded status of the plans (dollars in
thousands):


<TABLE>
<CAPTION>

                                                                              December 31
                                                                  ---------------------------------
                                                                      1997                    1996
                                                                      ----                    ----
Accumulated Postretirement Benefit Obligation:
<S>                                                                 <C>                    <C>      
   Active Participants                                              $(46,287)              $(40,776)
   Fully Eligible Participants                                        (4,648)                (3,803)
   Retirees                                                           (3,595)                (2,610)
                                                                  ----------             ----------
     Total                                                           (54,530)               (47,189)
Benefit Payments and Contributions                                        49                     27
Unrecognized Prior Service Cost                                          284                    331
Unrecognized Net Loss                                                  7,743                  7,672
                                                                  ----------             ----------
     Accrued Postretirement Benefit Cost                            $(46,454)              $(39,159)
                                                                  ==========             ==========
</TABLE>


The following schedule presents the net periodic postretirement benefit cost
(dollars in thousands):

<TABLE>
<CAPTION>
                                                                         For the Years Ended December 31
                                                                   -----------------------------------------
                                                                      1997              1996           1995
                                                                      ----              ----           ----
<S>                                                                  <C>               <C>            <C>   
Service Cost                                                         $3,287            $2,992         $2,741
Interest Cost                                                         3,781             3,163          3,906
Actual Return on Assets                                                   -                 -             (6)
Net Amortization                                                        429               432           (112)
                                                                   --------          --------       --------
     Net Periodic Postretirement Benefit Cost                        $7,497            $6,587         $6,529
                                                                   ========          ========       ========
</TABLE>

Assumed health care trend rates of 6.0% and 7.0% were used to measure the
postretirement benefit obligation in 1997 and 1996, respectively. The assumed
health care trend rate will continue to be 6.0%. The discount rate used to
measure the postretirement benefit obligation was 7.25% in 1997 and 7.5% in
1996.

If the health care trend rates assumed were increased by 1.0%, the effect on the
accumulated postretirement benefit obligation at December 31, 1997 and the total
1997 service and interest cost components of net periodic postretirement benefit
cost would be increases of $12,081,000 and $1,947,000, respectively.




                                       41

<PAGE>   42



NOTE 7 - POSTRETIREMENT BENEFIT AND OTHER PLANS (continued)

Profit Sharing Plans

The Company maintains profit sharing plans for hourly and salaried employees
which cover substantially all employees. Hourly and salaried profit sharing
expense amounted to $3,031,000, $4,173,000 and $12,306,000 in 1997, 1996 and
1995, respectively.


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):


<TABLE>
<CAPTION>

                                           For the Years Ended December 31
                                           -------------------------------
                                         1997            1996           1995
                                         ----            ----           ----
<S>                                   <C>              <C>            <C>      
Current                                $  1,446        $ (2,482)       $(27,614)
Deferred                                 (9,540)         (4,433)         (5,841)
                                       --------        --------        --------
     Total Provision                   $ (8,094)       $ (6,915)       $(33,455)
                                       ========        ========        ========
</TABLE>

The Company's income tax provision is net of taxes related to the equity in the
income or loss of unconsolidated subsidiaries. The income tax benefit associated
with the loss of unconsolidated subsidiaries was $385,000 in 1997, which is
comprised of a current provision of $359,000 and a deferred benefit of $744,000.
The income tax provision associated with the income of unconsolidated
subsidiaries was $27,000 in 1996. There was no income or loss recorded for
unconsolidated subsidiaries in 1995.

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

<TABLE>
<CAPTION>
                                          For the Years Ended December 31
                                          -------------------------------
                                          1997        1996         1995
                                          ----        ----         ----

<S>                                    <C>          <C>          <C>      
Pre-Tax Income                         $  31,226    $  30,220    $ 127,479
                                       =========    =========    =========

Computed Provision                     $ (10,929)   $ (10,577)   $ (44,618)

Source of Difference:
   Amortization of Negative Goodwill       2,029        2,029        2,029
   Change in Valuation Allowance             774        1,800       12,000
   Other                                      32         (167)      (2,866)
                                       ---------    ---------    ---------
      Total Provision                  $  (8,094)   $  (6,915)   $ (33,455)
                                       =========    =========    =========
</TABLE>



                                       42

<PAGE>   43



NOTE 8 - INCOME TAXES (continued)


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

<TABLE>
<CAPTION>
                                                               December 31
                                                               -----------
                                                          1997           1996
                                                          ----           ----
              ASSETS
<S>                                                    <C>             <C>     
Basis of Consolidated Subsidiary                       $  8,810        $  8,065
Postretirement and Other Benefits                        18,734          14,929
Other                                                     6,854           6,810
Operating Loss and Alternative
     Minimum Tax Credit Carryforwards                    31,693          25,925
                                                       --------        --------
Gross Deferred Tax Assets                                66,091          55,729
Valuation Allowance                                     (13,856)        (14,630)
                                                       --------        --------
Gross Deferred Tax Assets
     After Valuation Allowance                           52,235          41,099
                                                       --------        --------


              LIABILITIES
Property, Plant, and Equipment                          (25,939)         (7,066)
Inventories                                             (12,388)        (11,331)
Other                                                       (34)            (32)
                                                       --------        --------
Gross Deferred Tax Liabilities                          (38,361)        (18,429)
                                                       --------        --------
     Total Net Deferred Tax Assets                     $ 13,874        $ 22,670
                                                       ========        ========

</TABLE>

Unused regular tax loss carryforwards were approximately $19,245,000 and
$4,116,000 at December 31, 1997 and December 31, 1996, respectively. The regular
tax loss carryforwards expire between 2011 and 2012. Alternative minimum tax
credit carryforwards amounted to $24,957,000 at December 31, 1997 and
$25,925,000 at December 31, 1996. The alternative minimum tax loss carryforwards
may be carried forward indefinitely.

A valuation allowance is recorded for deferred tax assets if it is more likely
than not that some or all of the deferred tax assets will not be realized. The
Company previously recorded a partial valuation allowance on certain deferred
tax assets. The reduction of the valuation allowance was primarily the result of
the utilization of temporary differences in the basis of Eveleth as a
consequence of the reorganization of EVTAC. Certain 1996 deferred tax balances
and the related valuation allowance pertaining to Eveleth were reclassified to
conform with the current year's presentation. Current deferred tax assets of
$1,819,000 and $788,000 in 1997 and 1996, respectively, are recorded in Other
Current Assets. The remaining deferred tax assets are included in Deferred
Charges and Other.

In 1997, the Company made estimated tax payments of $2,000,000 and received a
net cash refund of $4,704,000. Net cash paid for income taxes was $5,325,000 in
1996 and $24,200,000 in 1995.



                                       43

<PAGE>   44



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.

In 1996, Worthington converted 878,000 shares of the Company's Class B Common
Stock to Class A Common Stock, reducing its voting interest in the Company's
common stock from 22.8% to 19.9%.

The Company has an outside director equity plan ("ODEP") and a stock incentive
plan ("SIP") which 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 may grant options to its directors and employees for up
to 500,000 shares of common stock. These stock options generally vest over a
period of up to three years and are exercisable for a period not exceeding ten
years from the date of grant. The stock options may be exercised subject to
continued employment and certain other conditions.

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


<TABLE>
<CAPTION>                                                                  
                                                                                      Year Ended December 31
                                                                          ------------------------------------------
                                                                          1997               1996               1995
                                                                          ----               ----               ----

<S>                                                                     <C>               <C>               <C>    
Net Income (dollars in thousands)          As Reported                  $  22,414         $  23,392         $  94,663
                                           Pro Forma                       21,523            22,357            93,638

Net Income Per Share                       As Reported                  $    1.02         $    1.07         $    4.37
                                           Pro Forma                         0.98              1.02              4.32
</TABLE>

The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions for grants in 1997, 1996 and 1995:

<TABLE>
<CAPTION>
                                                   1997                       1996                      1995
                                                   ----                       ----                      ----

<S>                                             <C>                        <C>                       <C>
Dividend Yield                                     0.57%                      %.51                      %.42
Risk-Free Interest Rate                            6.35                       5.56                      7.76
Expected Volatility                               33.26                      32.74                     32.74
Expected Life                                   7 years                    7 years                   7 years
</TABLE>



                                       44

<PAGE>   45



NOTE 9 - COMMON STOCK (continued)

A summary of the status of the Company's two stock-based compensations plans as
of December 31, 1997, 1996 and 1995 and changes during the years then ended is
presented below:

<TABLE>
<CAPTION>
                                               1997                 1996                 1995
                                        --------------------  ------------------   ------------------        
                                                   Weighted-           Weighted-            Weighted-
                                                   Average             Average              Average
                                         Shares     Price     Shares    Price      Shares    Price
                                         ------     -----     ------    -----      ------    -----

<S>                                     <C>        <C>       <C>        <C>         <C>      <C>   
Outstanding at January 1                207,325    $26.04    106,500    $28.33      4,000    $22.00
Granted                                 105,800     20.92    109,200     23.70    107,000     28.56
Exercised                                    --        --         --        --       (500)    22.00
Forfeited                               (15,875)    24.69     (8,375)    24.77     (4,000)    28.88
                                       --------             --------             --------
Outstanding at December 31              297,250    $24.29    207,325    $26.04    106,500    $28,33
                                       ========    ======   ========    ======   ========    ======

Options Exercisable at Year-End         222,175    $25.11    130,694    $26.46     54,000    $28.24
Weighted-Average Fair Value of
     Options Granted During the Year               $ 9.57               $10.43               $14.17

</TABLE>

The following table presents summarized information about stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>

                                        Options Outstanding                                 Options Exercisable
                     ----------------------------------------------------------      ---------------------------------
                          Number           Weighted-Average         Weighted-             Number           Weighted-
Range of              Outstanding at           Remaining             Average          Exercisable at        Average
Exercise Prices      December 31, 1997     Contractual Life      Exercise Price      December 31, 1997  Exercise Price
---------------      -----------------     ----------------      --------------      -----------------  --------------

<S>                         <C>                <C>                  <C>                  <C>             <C>    
$15.13                         1,500            9.3 years            $15.13                  750           $ 15.13
$21.00 to 23.00              105,050            8.9 years             21.10               55,150             21.16
$23.01 to 24.00              102,200            8.0 years             23.73               77,775             23.72
$28.88                        88,500            7.0 years             28.88               88,500             28.88
</TABLE>


NOTE 10 - EARNINGS PER SHARE

During 1997, the Company adopted SFAS No. 128, "Earnings per Share." The
adoption of this statement had no impact on previously reported earnings per
share.

The calculation of diluted net income per share for the years ended December 31,
1997, 1996 and 1995 did not require an adjustment to net income for the effect
of dilutive securities. The weighted-average shares outstanding were adjusted
for the effect of 37, 51 and 543 shares of dilutive securities which were
outstanding as of December 31, 1997, 1996 and 1995, respectively.

The dilutive securities represent stock options which were granted to members of
management or the board of directors and which had exercise prices lower than
the average market price of the Company's Class A Common Stock. Options to
purchase 295,750 shares at $21.00 to $28.88 per share in 1997, 204,325 shares at
$22.88 to $28.88 per share in 1996 and 97,000 shares at $28.88 per share in 1995
were outstanding but were not included in the computation of diluted earnings
per share because the exercise prices of these options were greater than the
average market price of the Company's Class A Common Stock. These options will
expire between 2005 and 2007.


                                       45

<PAGE>   46



NOTE 11 - PROPERTY TAX LITIGATION SETTLEMENT

In 1995, Rouge Steel reached an agreement with the City of Dearborn, the
Dearborn Public School Board and the County of Wayne, Michigan which settled
local property tax litigation for tax years 1990 through 1995. The local taxing
authorities agreed to refund $25,000,000 to Rouge Steel for overpayment of
property taxes for tax years 1990 through 1993. In addition, the taxing
authorities reduced Rouge Steel's property tax assessment with respect to the
1994 and 1995 tax years. As a result of the settlement, the Company recorded a
pre-tax benefit in 1995 of $29,974,000, net of profit sharing and inventory
valuation costs.

NOTE 12  -  COMMITMENTS AND CONTINGENCIES

Commitments to Ford

The Company purchases various services including environmental, heavy equipment
repair, construction and transportation from Ford. In addition, the Company
leases certain land, office space and production support facilities from Ford
under cancelable operating leases with terms ranging from 1 to 99 years. The
costs of these services were approximately $18,469,000 in 1997, $25,643,000 in
1996 and $29,791,000 in 1995. Since 1996, the Company has assumed some of the
services which had previously been provided by Ford resulting in the decline in
payments to Ford since 1995.

The Company also jointly owns a powerhouse facility with Ford, under a renewable
ten-year agreement expiring December 31, 1999. The powerhouse generates
electricity, steam and other utilities. The fixed assets of the powerhouse are
owned 60 percent by the Company and 40 percent by Ford, with each party
receiving a portion of the power generated. The costs of operating the facility
are allocated between the Company and Ford based on the consumption of
utilities. The Company's share of the costs of this facility was approximately
$78,499,000 in 1997, $74,005,000 in 1996 and $71,176,000 in 1995. In 1996, the
Company provided written notice to Ford of its intention to terminate the
powerhouse agreement on December 15, 1999. The Company and Ford are undertaking
a joint study of the alternatives available for utilities and services which are
now provided by the powerhouse.

In connection with its operation of the powerhouse, Ford purchases a portion of
the gas produced by the Company's blast furnaces for use at the powerhouse based
on a negotiated formula. Ford purchased $26,497,000, $23,638,000 and $22,251,000
worth of blast furnace gas in 1997, 1996 and 1995, respectively. Of these
amounts, between 60 and 70 percent has been charged back to the Company for its
proportionate share of the cost of such gas.

During 1997, 1996 and 1995, the Company purchased scrap from Ford at a cost of
$40,496,000, $31,401,000 and $27,122,000, respectively. These purchases were
made under a supply agreement that expires in automotive model year 2000.

Spartan Steel Commitment

During 1996, the Company entered a joint venture with Worthington to construct
and operate Spartan Steel. The entire project is expected to cost approximately
$106,400,000. Rouge Industries will be responsible for 48 percent of the total,
or approximately $51,100,000. Through December 31, 1997, the Company had
invested $28,344,000 in Spartan Steel. Construction of the facility is expected
to be complete by mid-1998.



                                       46

<PAGE>   47



NOTE 12 - COMMITMENTS AND CONTINGENCIES (continued)

Other Commitments

Pursuant to a purchase and sale agreement executed in connection with the
restructuring of EVTAC described in Note 4, Rouge Steel is required to purchase
45 percent of the first 5.0 million natural gross tons of pellets produced each
year by EVTAC at world market prices. The Company also has the right of first
refusal with respect to 45 percent of any pellets produced by EVTAC in excess of
5.0 million natural gross tons.

Rouge Steel has committed to a seven-year lease for a $35,000,000 waste oxide
reclamation facility. The facility is presently being constructed, and it is
expected to be completed in the third quarter of 1998.
Lease payments will commence at that time.

The Company has a ten-year contract for the supply of oxygen and nitrogen which
expires in 2005. The contract contains annual minimum oxygen and nitrogen
purchases of $8,300,000 and $550,000, respectively. Oxygen and nitrogen
purchases aggregated approximately $15,124,000 in 1997, $11,707,000 in 1996 and
$9,769,000 in 1995.

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

Rouge Steel executed a guaranty of payment in favor of certain banks to induce
them to extend a $28,000,000 line of credit to Shiloh of Michigan, an engineered
steel blanking joint venture between the Company and Shiloh Industries, Inc.
Rouge Industries guaranteed 20 percent of the line of credit. As of December 31,
1997, Shiloh of Michigan had borrowings of $28,000,000 outstanding under its
line of credit.

Environmental Matters

The Company is indemnified through December 15, 2009 for environmental
obligations relating to conditions arising prior to the Acquisition on December
15, 1989. It is the Company's practice to coordinate the resolution of such
obligations with Ford. Management believes that disputed or unresolved
obligations are immaterial in relation to the Company's Consolidated Statement
of Operations. The Company's environmental obligations relating to conditions
arising after the Acquisition, in the opinion of management, will not have a
materially adverse effect on the Company's consolidated financial position or
results of operations.

Litigation

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



                                       47

<PAGE>   48



SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

Accounts Receivable Allowances (amounts in thousands):

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

       <S>                    <C>                <C>                <C>                       <C>   
       1997                    $7,294             $ (815)            $   (146)                 $6,333
       1996                     6,118              1,248                  (72)                  7,294
       1995                     6,790              1,804               (2,476)                  6,118


</TABLE>


                                       48

<PAGE>   49

                SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>


                                                     First            Second            Third          Fourth
                                                    Quarter           Quarter          Quarter         Quarter
                                                    -------           -------          -------         -------
                                                                (in thousands, except per share amounts)
1997

<S>                                                  <C>              <C>               <C>             <C>     
Total Sales                                          $334,172         $355,205          $320,707        $331,476

Gross Margin                                           17,022           18,724            12,935          (1,035)

Net Income (Loss)                                       9,284           10,622             6,979          (4,471)

Net Income (Loss) Per Share                              0.42             0.48              0.32           (0.20)



1996

Total Sales                                          $320,185         $348,967          $320,153        $318,093

Gross Margin                                           11,418           20,757            22,016         (10,963)

Net Income (Loss)                                       6,668           11,805            13,387          (8,468)

Net Income (Loss) Per Share                              0.31             0.54              0.61           (0.39)


</TABLE>




                                       49

<PAGE>   50



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

None.

                                       50

<PAGE>   51



                                    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 1998 Proxy Statement (the "Proxy
Statement"), which will be filed with the Securities and Exchange Commission not
later than April 30, 1998. 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, 1998.


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, 1998.


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, 1998.

       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.


                                       51

<PAGE>   52



                                     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 28.
                (2)   A list of financial statement schedules required to be
                      filed by Item 8 is located on page 28.
                (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+     Credit Agreement dated as of December 16, 1997 (the "Credit
                 Agreement"), among the Registrant, Rouge Steel Company, the
                 banks named therein and NBD Bank.

       10.2      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")).



                                       52

<PAGE>   53




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

       10.3      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) (the "1994 Form 10-K")).

       10.4      Steel Purchase Agreement dated as of December 15, 1989, between
                 the Registrant and Ford (incorporated herein by reference to
                 Exhibit 10.16 to the S-1 Registration Statement).

       10.5      Steel Products Purchase Agreement dated as of December 15,
                 1989, between the Registrant and Worthington (the "Worthington
                 Agreement") (incorporated herein by reference to Exhibit 10.17
                 to the S-1 Registration Statement).

       10.6      Letter dated February 20, 1996 confirming Exercise of Option to
                 Extend Term of Worthington Agreement (incorporated herein by
                 reference to Exhibit 10.8 to the Registrant's 1995 Annual
                 Report on Form 10-K (Commission File Number 1-12852) (the "1995
                 Form 10-K")).

       10.7      Technical and Transportation Services Agreement dated as of
                 December 15, 1989, between the Registrant and Ford
                 (incorporated herein by reference to Exhibit 10.18 to the S-1
                 Registration Statement).

       10.8      Railroad Services Agreement dated as of December 15, 1989,
                 between the Registrant and Ford (incorporated herein by
                 reference to Exhibit 10.19 to the S-1 Registration Statement).

       10.9      Scrap Sale Agreement dated as of December 15, 1989, between the
                 Registrant and Ford (incorporated herein by reference to
                 Exhibit 10.20 to the S-1 Registration Statement).

       10.10     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).

       10.11     Transitional Services Agreement dated as of December 15, 1989,
                 between the Registrant and Ford (incorporated herein by
                 reference to Exhibit 10.22 to the S-1 Registration Statement).

       10.12     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 Registrant Statement).

       10.13     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).


                                       53

<PAGE>   54



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


       10.14     Amendment to Joint Venture Agreement (incorporated herein by
                 reference to Exhibit 10.24 to the S-1 Registrant Statement).

       10.15     Operating Agreement for Shiloh of Michigan, L.L.C. dated as of
                 January 2, 1996 by and among Shiloh of Michigan, L.L.C., the
                 Registrant and Shiloh Industries, Inc. (incorporated herein by
                 reference to Exhibit 10.16 to the 1995 Form 10-K).

       10.16     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")).

       10.17     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).

       10.18+    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.

       10.19+    Operating Agreement for Bing Blanking, L.L.C. dated as of
                 November 26, 1997 by and among Bing Blanking, L.L.C., QS Steel
                 Inc., Shiloh Corporation and Bing Management II, L.L.C.

       10.20     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 1996
                 Form 10-K).

       10.21     Eveleth Mines Exit Agreement dated as of November 25, 1996
                 among Oglebay Norton Company, ONCO Eveleth Company, Eveleth
                 Taconite Company, Eveleth Expansion Company, AK Steel
                 Corporation, Virginia Horn Taconite Company, Rouge Steel
                 Company, Stelco, Inc., Ontario Eveleth Company and Eveleth
                 Mines LLC (incorporated herein by reference to Exhibit 10.19 to
                 the 1996 Form 10-K).

       10.22     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).

       10.23     Member Control Agreement of Eveleth Mines LLC dated as of
                 December 2, 1996 between Virginia Horn Taconite Company, Rouge
                 Steel Company and Ontario Eveleth Company (incorporated herein
                 by reference to Exhibit to 10.21 to the 1996 Form 10-K).


                                       54

<PAGE>   55




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


       10.24     Letter Agreement dated as of October 25, 1996 between
                 Worthington Industries and Rouge Steel Company (incorporated
                 herein by reference to Exhibit 10.22 to the 1996 Form 10-K).

       10.25     Furnace Coke Supply Agreement dated as of October 31, 1996
                 between Rouge Steel Company and Bethlehem Steel Corporation
                 (incorporated herein by reference to the Exhibit 10.23 to the
                 1996 Form 10-K).

       10.26     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).

       10.27     Agreement for Production, Sale and Purchase of Coal dated as of
                 January 15, 1975 ("Coal Purchase Agreement") by and among Ford,
                 Blackberry Creek Coal Company ("Blackberry") and A.T. Massey
                 Coal Company, Inc. ("Massey") (incorporated herein by reference
                 to Exhibit 10.32 to the S-1 Registration Statement).

       10.28     Coke Tolling Agreement dated December 22, 1993 between U.S.S.
                 Subsidiary of USX Corporation and the Registrant (incorporated
                 herein by reference to Exhibit 10.34 to the S-1 Registration
                 Statement).

       10.29     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).

       10.30     Purchase Agreement among Rouge Steel Company, Stelco Inc. and
                 Ontario Eveleth Company dated March 1, 1993 (incorporated
                 herein by reference to Exhibit 10.36 to the S-1 Registration
                 Statement).

       10.31**   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")).

       10.32**   Amendment to Rouge Steel Company Savings Plan for Salaried
                 Employees (incorporated herein by reference to Exhibit 10.3 to
                 the Form 8-B).

       10.33     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).

       10.34     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).

       10.35     Rouge Steel Company Profit Sharing Plan for Salaried Employees
                 (incorporated herein by reference to Exhibit 10.38 to the S-1
                 Registration Statement).

                                       55

<PAGE>   56




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


       10.36**   Rouge Steel Company Incentive Compensation Plan (incorporated
                 herein by reference to Exhibit 10.39 to the S-1 Registration
                 Statement).

       10.37**   Rouge Steel Company Amended and Restated Stock Incentive Plan
                 (incorporated herein by reference to Exhibit 10.1 to the Form
                 8-B).

       10.38**   Rouge Steel Company Retirement Plan for Salaried Employees
                 (incorporated herein by reference to Exhibit 10.41 to the S-1
                 Registration Statement).

       10.39+**  Rouge Steel Company Supplemental Executive Retirement Plan.

       10.40+**  Rouge Steel Company Benefit Restoration Plan.

       10.41**   Rouge Steel Company Amended and Restated Outside Director
                 Equity Plan (incorporated herein by reference to Exhibit 10.2
                 to the Form 8-B).

       10.42     Lease between Ford and Registrant dated January 1, 1982 (the
                 "Lease") (incorporated herein by reference to Exhibit 10.42 to
                 the S-1 Registration Statement).

       10.43     First Amendment to the Lease dated as of July 1, 1991
                 (incorporated herein by reference to Exhibit 10.43 to the S-1
                 Registration Statement).

       10.44     Second Amendment to the Lease dated as of January 1, 1992
                 (incorporated herein by reference to Exhibit 10.44 to the S-1
                 Registration Statement).

       10.45     Third Amendment to the Lease dated as of June 27, 1994
                 (incorporated herein by reference to Exhibit 10.39 to the 1995
                 Form 10-K).

       21+       List of Subsidiaries.

       23+       Consent of Price Waterhouse 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 1997.

          (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.


                                       56

<PAGE>   57



                                   SIGNATURES

    Pursuant to the requirements of Section 13 of 15(a) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, on the
6th day of March 1998.

                                                  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
Registrant in the capacities and on the dates indicated.


<TABLE>
<CAPTION>

        Signatures                                     Title                                  Date
        ----------                                     -----                                  ----
<S>                                <C>                                                    <C>
/s/ Carl L. Valdiserri             Chief Executive Officer and Chairman of                March 6, 1998
------------------------------     the Board
                                   


/s/ Louis D. Camino                President, Chief Operating Officer and                 March 6, 1998
---------------------------        Director
                                   


/s/ Gary P. Latendresse            Executive Vice President,                              March 6, 1998
---------------------------        Chief Financial Officer and Director
                                   


/s/ Dominick C. Fanello            Director                                               March 6, 1998
-------------------------


/s/ John E. Lobbia                 Director                                               March 6, 1998
-----------------------------


/s/ Peter J. Pestillo              Director                                               March 6, 1998
--------------------------------


/s/ Clayton P. Shannon             Director                                               March 6, 1998
--------------------------
</TABLE>


                                       57