##### Table of Contents



(Mark One)

| |  |                                                                                                    
| |  | ---------------------------------------------------------------------------------------------------
| |  | 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, 2000

| |  |                                                                                                           
| |  | ----------------------------------------------------------------------------------------------------------
| |  | 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



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

|                                                                                             |  |                      
|-------------------------------------------------------------------------------------------- |  | ---------------------
|3001 Miller Road, P.O. Box 1699, Dearborn, Michigan
(Address of principal executive offices) |  | 48121-1699
(Zip Code)



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

|                                      |  |                                          
|------------------------------------- |  | -----------------------------------------
|Title of each class                   |  | Name of each exchange
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:



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 |  | 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 28,
2001, 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
$31,981,160.

The number of shares of common stock issued and outstanding as of February
28, 2001 was 22,237,859. This amount includes 15,097,459 shares of Class A
Common Stock and 7,140,400 shares of Class B Common Stock.



Selected portions of the 2001 Proxy Statement of Rouge Industries, Inc. are incorporated by reference into Part III of
this Form 10-K to the extent provided herein.





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TABLE OF CONTENTS



|                                                                                               |  |  |  |  |  |  |  | 
|---------------------------------------------------------------------------------------------- |  |  |  |  |  |  |  | 
|Part I                                                                                        
|Item      1. Business.                                                                        
|Item 2. Properties.                                                                           
|Item 3. Legal Proceedings.                                                                    
|Item 4. Submission of Matters to a Vote of Security Holders.                                  
|Part II                                                                                       
|Item 5. Market for Registrant's Common Stock and Related Stockholder Matters.                 
|Item 6. Selected Financial Data.                                                              
|Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
|Item 8. Financial Statements and Supplementary Data.                                          
|Part III                                                                                      
|Item 10.        Directors and Executive Officers of the Registrant.                           
|Item 11.        Executive Compensation.                                                       
|Item 12.        Security Ownership of Certain Beneficial Owners and Management.               
|Item 13.        Certain Relationships and Related Transactions.                               
|Part IV                                                                                       
|Item 14.        Exhibits, Financial Statement Schedules, and Reports on Form 8-K.             
|2nd Amendment to Credit Agreement                                                             
|3rd Amendment to Credit Agreement                                                             
|4th Amendment to Credit Agreement                                                             
|5th Amendment to Credit Agreement                                                             
|6th Amendment to Credit Agreement                                                             
|Loan & Security Agreement                                                                     
|Amendment #1 to Oxygen Agreement                                                              
|Amendment #2 to Oxygen Agreement                                                              
|Electricity Sales Agreement                                                                   
|Steam Sales Agreement                                                                         
|Ground Lease                                                                                  
|Purchase Option Agreement                                                                     
|Agreement for Easements                                                                       
|Blast Furnace Gas Agreement                                                                   
|Amend & Restated Information Serv. Agr.                                                       
|Master Lease                                                                                  
|Subsidiaries                                                                                  
|Consent of Accountants                                                                        



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|PART I                                                                                               |  |  | Page | 
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|Item 1.        Business                                                                              |  |  | 3    | 
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|Item 2.        Properties                                                                            |  |  | 15   | 
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|Item 3.        Legal Proceedings                                                                     |  |  | 15   | 
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|Item 4.        Submission of Matters to a Vote of Security Holders                                   |  |  | 16   | 
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|PART II                                                                                             
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|Item 5.        Market for Registrants Common Stock and Related Stockholder Matters                  |  |  | 19   | 
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|Item 6.        Selected Financial Data                                                               |  |  | 20   | 
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|Item 7.        Managements Discussion and Analysis of Financial Condition and Results of Operations |  |  | 22   | 
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|Item 8.        Financial Statements and Supplementary Data                                           |  |  | 37   | 
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|Item 9.        Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure  |  |  | 62   | 
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|PART III                                                                                            
|                                                                                                    
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|Item 10.        Directors and Executive Officers of the Registrant                                   |  |  | 63   | 
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|Item 11.        Executive Compensation                                                               |  |  | 63   | 
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|Item 12.        Security Ownership of Certain Beneficial Owners and Management                       |  |  | 63   | 
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|Item 13.        Certain Relationships and Related Transactions                                       |  |  | 63   | 
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|PART IV                                                                                             
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|Item 14.        Exhibits, Financial Statement Schedules, and Reports on Form 8-K                     |  |  | 64   | 

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Item 1.     Business.

General

Rouge Industries, Inc., a Delaware corporation (together with its
subsidiaries, Rouge Industries or the Company), incorporated in 1996, is
primarily engaged through its wholly-owned subsidiary, Rouge Steel Company
(Rouge Steel) in the production of high quality, flat rolled carbon steel
products consisting of hot rolled, cold rolled and galvanized steel. The
Companys products generally command higher margins than commodity flat rolled
carbon steel products. The Companys products generally, and its value-added
products specifically, are sold primarily to customers in the automotive
industry. These customers have exacting quality, delivery and service
requirements. The Companys ability to meet these requirements and its
participation in the development of new products designed for automotive
applications have enabled it to expand its sales to automotive customers. The
Company also sells its products to steel converters, service centers and other
end users.

Other wholly-owned subsidiaries of Rouge Industries include QS Steel Inc.
(QS Steel) and Eveleth Taconite Company (Eveleth). QS Steel holds minority
ownership interests in 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.

On February 1, 1999, an explosion and fire at the Rouge Complex
Powerhouse (the Powerhouse) resulted in the interruption of the supply of
electricity, process and heating steam, turbo air, mill water and other
utilities to virtually all of the facilities of Rouge Steel. The loss of power
resulted in a 93-day shutdown of Rouge Steels steel making facilities. During
the shutdown, the Company processed purchased slabs and coils, but the
production interruption had a significant impact on Rouge Steels shipments,
sales and costs and expenses. Comparisons between 2000 and 1999 may not be
meaningful; therefore, 1998 information will be presented in discussions in the
Business section of this Annual Report on Form 10-K for comparative purposes.

The Company is presently facing the most difficult market conditions
since it became an independent steel producer in 1989. During 2000, there was
intense downward pressure on prices caused by high levels of imports and a
softening of demand for steel by the Companys customers. The lower prices, the
unprecedented increase in the cost of natural gas and the cash strain caused by
the Powerhouse explosion have resulted in considerable pressure on the Companys
liquidity. The Company has responded to the liquidity stress by refinancing its
long-term debt.

Products

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

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automotive
customers; and (iv) hot dip galvanized, which is cold rolled steel that is
coated on both sides with zinc to make the steel more corrosion resistant and is
sold to automotive and service center customers and other end users such as
commercial and residential door manufacturers.

The following table sets forth the percentage of Rouge Industries steel
product revenues from hot rolled, cold rolled, electrogalvanized and hot dip
galvanized steel for the years from 1998 through 2000.

|                   |       |                         |      |       |   |      |      |       |      |  |      |       |  
|------------------ | ----- | ----------------------- | ---- | ----- | - | ---- | ---- | ----- | ---- |  | ---- | ----- | -
|                  
|                   |       | Years Ended December 31
|                   |       |                         |     
|                   |       |                         | 2000 |       |   | 1999 |      |       | 1998 | 
|                   |       |                         |      |       |   |      |      |       |      | 
|Hot Rolled         |       |                         | 37.5 | %     |   |      | 37.3 | %     |      |  | 44.6 | %    
|                  
|                  
|                  
|                  
|Cold Rolled        |       |                         | 25.5 |       |   |      | 27.4 |       |      |  | 30.5 |      
|                  
|                  
|                  
|                  
|Electrogalvanized  |       |                         | 20.5 |       |   |      | 21.9 |       |      |  | 21.0 |      
|                  
|                  
|                  
|                  
|Hot Dip Galvanized |       |                         | 16.5 |       |   |      | 13.4 |       |      |  | 3.9  |      
|                   |       |                         |      |       |   |      |      |       |     
|                   | Total |                         |      | 100.0 | % |      |      | 100.0 | %    |  |      | 100.0 | %
|                   |       |                         |      |       |   |      |      |       |     

Approximately one-half of the Companys sales of hot rolled steel have
been to the automotive market for wheels and structural components such as
suspension arms, frames and seat frames. Rouge Steel also sells hot rolled steel
in the non-automotive end user markets for the manufacture of roof decking,
grating, guard rails and pipes and to converters and service centers to be
further processed or sold directly to other end users. Cold rolled steel is sold
by the Company for use in automotive parts, lighting fixtures, room dividers and
doors, and for unexposed applications such as the manufacture of floor pans and
tubing. Electrogalvanized products are sold to automotive customers for use as
major automotive body panels such as doors, quarter panels and fenders. Hot dip
galvanized products are sold to automotive, construction and service center
customers for use in unexposed automotive parts, residential and commercial
doors, duct work, computer chassis, grain bins and access flooring. The
Companys sales of hot dip galvanized steel have increased dramatically since
1998 as a result of its participation in Spartan Steel (as defined below).
Spartan Steel began processing hot dip galvanized steel in mid-1998. The Company
has replaced sales of hot rolled and cold rolled steel with hot dip galvanized
steel. In 2000, approximately 16.5% of the Companys shipments were hot dip
galvanized steel. The Company does not expect that percentage to differ
materially in the future.

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

|    |  |                                                                                                                                                                                                                                                                                                                                  
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i) |  | Double Eagle Steel Coating Company (Double Eagle), a joint
venture with USX Corporation (USX), which produces
electrogalvanized steel sold primarily to the automotive industry.
The Double Eagle joint venture agreement is scheduled to expire in
2001, but the Company and USX are in discussions regarding its
extension;

|     |  |                                                                                                                                                                                                      
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(ii) |  | 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;

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|      |  |                                                                                                                                                                                                                                        
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(iii) |  | Spartan Steel Coating, L.L.C. (Spartan Steel), a joint venture with Worthington Industries, Inc.
(together with its subsidiaries, Worthington) which produces hot dip galvanized steel primarily for
automotive applications;      
|     
|     
|     
|     
|(iv)  |  | 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 and other end
use applications;
|     
|     
|     
|     
|(v)   |  | Delaco Processing, L.L.C. (Delaco Steel Processing), a joint venture with Delaco Supreme Tool & Gear Co.
which slits steel coils to be sold to automotive customers and other end users; and                                         
|     
|     
|     
|     
|(vi)  |  | Bing Blanking, L.L.C. (Bing Blanking), a joint venture with Bing
Management II, L.L.C. which produces first operation blanks and
roll formed parts primarily for the automotive industry.                                            

The Company has invested approximately $52.1 million in Spartan Steel and
$6.5 million in TWB. In addition to small capital contributions (amounts less
than $40,000 each), the Company guarantees loans for Shiloh of Michigan, Delaco
Steel Processing and Bing Blanking. The guaranteed amounts at December 31, 2000
were $6.0 million, $2.4 million and $2.7 million, respectively.

The objective of the Companys joint ventures is to permit the Company to
process a larger portion of its steel into higher margin, value-added coated and
blanked products and, to a lesser extent, to provide it with an additional
outlet for its hot rolled and cold rolled steel. Rouge Industries participation
in joint ventures responds to the demand by its customers for increasingly
complex products and is intended to mitigate the erosion in sales that might
occur if the Company were unable to provide these products to its current
customers. In addition, participation in these joint ventures may provide
opportunities for the Company to supply new customers. Each of the Companys
joint ventures processes the Companys steel and passes charges along to Rouge
Industries. The Company records these charges as a component of costs of goods
sold.

During 2000, the Companys joint venture partner in Bing Blanking
indicated a desire to exit the arrangement. The Company and a significant
customer of the joint venture are continuing discussions regarding the future of
Bing Blankings operations and activities. As a result of financial difficulties
experienced by Bing Blanking and at the request of Bing Blankings lender, the
Company placed $2.7 million on deposit with the bank as collateral against its
guarantee of Bing Blankings loan. The Company also has a $3.0 million loan
outstanding to Bing Blanking which is subordinated to Bing Blankings bank debt.
During 2000, the Company recorded a reserve against its $3.0 million note
receivable from Bing Blanking. The Company does not presently anticipate the
need to fund the guarantees of Shiloh of Michigan or Delaco Steel Processing.

Markets and Customers

Consistent with the Companys goal to strengthen long-term customer
relationships, customer service is a key component of Rouge Industries strategy
and significant resources have been devoted toward that end. The Company has
approximately 200 steel customers, virtually all of which are located within 350
miles of Rouge Steels integrated facility. The Company believes its proximity
to its customers allows it to provide focused customer service and resources.
The

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primary goal in this respect is to maintain and improve the Companys
responsiveness to customer needs in a continually changing competitive
environment.

Ford Motor Company (Ford), General Motors Corporation (GM) and
DaimlerChrysler AG (DaimlerChrysler), the Companys three largest customers,
accounted for approximately 38%, 9% and 9%, respectively, of total sales in
2000. Sales to Ford, GM and DaimlerChrysler were 40%, 6% and 10%, respectively,
of total sales in 1999 and 36%, 6% and 10%, respectively, of total sales in
1998. While the loss of Ford as a customer could have a materially adverse
effect on the Companys business, the Company believes that its relationship
with Ford provides a stable sales base and the ability to expand its product
capability and concentrate on increasing margins through more efficient
production. No single customer, other than Ford or DaimlerChrysler, has
accounted for more than 10% of the Companys total sales over the past three
years. The Companys ten largest customers in the aggregate accounted for
approximately 74% of total sales in 2000 and approximately 72% of total sales in
1999. For 2000, the Company estimates that its share of the domestic flat rolled
steel market, as measured by shipments, was approximately 4.3%.

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, 1998 through 2000.

|                |       |                         |       |   |  |      |      |       |   |  |  |  |      |  |      |       |   |  |  |  | 
|--------------- | ----- | ----------------------- | ----- | - |  | ---- | ---- | ----- | - |  |  |  | ---- |  | ---- | ----- | - |  |  |  | 
|                |       | Years Ended December 31 |      
|                |       |                         |      
|                |       | 2000                    |       |   |  | 1999 |      |       |   |  |  |  | 1998 | 
|                |       |                         |       |   |  |      |      |       |   |  |  |  |      | 
|Automotive      |       | 61.7                    | %     |   |  |      | 63.0 | %     |   |  |  |  |      |  | 67.0 | %     |   |  |  | 
|               
|               
|               
|               
|Converters      |       | 9.3                     |       |   |  |      | 7.5  |       |   |  |  |  |      |  | 13.5 |      
|               
|               
|               
|               
|Service Centers |       | 28.2                    |       |   |  |      | 27.2 |       |   |  |  |  |      |  | 16.7 |      
|               
|               
|               
|               
|Other End Users |       | 0.8                     |       |   |  |      | 2.3  |       |   |  |  |  |      |  | 2.8  |      
|                |       |                         |       |   |  |      |      |       |   |  |  |  |      | 
|                | Total |                         | 100.0 | % |  |      |      | 100.0 | % |  |  |  |      |  |      | 100.0 | % |  |  |  | 
|                |       |                         |       |   |  |      |      |       |   |  |  |  |      | 

Automotive.The Company is a significant supplier of hot rolled, cold
rolled, electrogalvanized and hot dip galvanized steel to the automotive
industry. Car and truck manufacturers and their parts suppliers require sheet
steel with exact dimensions, enhanced formability and defect-free surfaces. The
Companys steel products have been used in a variety of automotive applications
including exposed and unexposed panels and high strength parts for safety
applications and to achieve weight reduction. The automotive market comprised
61.7% of the Companys steel product revenues in 2000 down from 63.0% in 1999.

Sales to Ford, the Companys largest customer, accounted for
approximately 38% of total sales in 2000, 40% of total sales in 1999 and 36% of
total sales in 1998. 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 DaimlerChrysler and had no direct sales to
GM. Sales to GM, the Companys second largest customer, were approximately 9% of
total sales in 2000 and 6% of total sales in 1999 and 1998. Sales to
DaimlerChrysler, the Companys third largest customer, were approximately 9% of
total sales in 2000 and 10% of total sales in 1999 and 1998. The Company
believes that its ability to provide the sophisticated grades of steel required
for automotive applications combined with its ability to provide competitive
pricing, quality and delivery prompted DaimlerChrysler and GM to begin
purchasing significant quantities of hot rolled, cold rolled and galvanized
steel from the Company.

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

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

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

Order Status.The order load was 330,000 net tons at December 31, 2000,
compared to 617,000 net tons at December 31, 1999. All orders related to the
order load at December 31, 2000 are expected to be shipped during the first half
of 2001. The order load represents orders received but not yet filled. The
decrease in the order load reflects weak demand for the Companys products late
in 2000 caused by difficult steel market conditions discussed above. See 
General.

Raw Materials and Energy Sources

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

Coke.Coke represents the Companys single largest raw material
expenditure. The Company does not produce coke and, as a consequence, relies
upon outside sources. In 2000, approximately 65% of the Companys coke was
provided by USX. The Company acquired approximately 30% of its coke through a
tolling agreement with New Boston Coke Corporation (New Boston), whose total
productive capacity is dedicated to the Company. Under the tolling agreement,
the Company provides coal to New Boston for processing into coke. Approximately
5% of the Companys coke was purchased in the open market. During the past ten
to fifteen years, coke production capacity in the United States has been
reduced. Due to the environmental issues associated with operating coke ovens,
the Company expects coke production capacity to be reduced further in the next
ten years. The coke shortage that may result from the reduction in capacity may
cause the price that the Company pays for coke to increase which may adversely
affect the Companys results of operations.

Iron Ore Pellets.The Company has consumed an average of 3.6 million
gross tons of iron ore pellets annually over the three-year period ended
December 31, 2000. Approximately 69% of the Companys requirements for pellets
during this period was obtained under a trade arrangement with Stelco, Inc.
Under this arrangement, the Company exchanged acid pellets purchased from its

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45% owned joint venture, EVTAC, 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 equal to the difference between the
market price of the fluxed pellets and the contract price of EVTAC acid pellets
in addition to providing the EVTAC acid pellets. During the three-year period
ended December 31, 2000, the Company traded an average of 2.5 million gross tons
of EVTAC pellets annually, which constituted 100% of the Companys share of the
pellets produced by EVTAC. The balance of the Companys pellet requirements was
purchased pursuant to a contract with The Cleveland-Cliffs Iron Company.

The iron ore reserves of EVTAC are sufficient to provide the Company with
an estimated 20 to 25-year supply at the current level of production. The
Company and the other owners of EVTAC continue discussions regarding EVTACs
operations and activities. These discussions and any subsequent resulting
actions may affect, among other things, the cost and availability of iron ore
pellets, the timing of EVTAC employee benefit liability recognition and funding
requirements and recognition of other obligations relating to the mining
operations.

Scrap.The price of steel scrap decreased slightly during 2000. The
Company spent approximately $80 million to purchase steel scrap in 2000 compared
to $60 million in 1999 and $99 million in 1998. The amount in 1999 was lower
because of the 93-day production disruption caused by the Powerhouse explosion.

Other Raw Materials and Energy Sources.During 2000, natural gas,
electricity and steam constituted 50%, 30% and 20%, respectively, of the
Companys total energy costs. Natural gas is acquired at prevailing market
prices from various producers. The cost of natural gas increased dramatically
during 2000. Rouge Industries was protected from the large price increases for a
portion of its natural gas requirements because of fixed price contracts.
However, one supplier of natural gas defaulted on its contract with the Company
late in 2000 leaving the Company with no insulation from the extremely high
market prices. The average natural gas prices paid by the Company in 2000 were
approximately $0.70 per MMBTU higher than the Companys 1999 average. The
Company used 17 million MMBTUs of natural gas in 2000. The additional cost to
the Company in 2000 of the 24% increase in the natural gas price was
approximately $12 million. Because of its exposure to market prices in 2001, the
Company expects its average cost of natural gas to be higher than that
experienced in 2000.

The Company has purchased electricity from DTE Energy Company since the
Powerhouse explosion. The Powerhouse is owned 60% by the Company and 40% by
Ford. Prior to the explosion, the Powerhouse provided electricity for all of the
Companys steel-making facilities except its ladle refining facility, as well as
all of its steam requirements pursuant to an operating agreement with Ford (the
Powerhouse Joint Operating Agreement). The Powerhouse Joint Operating
Agreement expired December 31, 1999, but has been extended on a rolling 30-day
basis until it is terminated by either party upon 30 days notice. The Powerhouse
Joint Operating Agreement governs the utility distribution and cost sharing
arrangements for the Rouge Complex. The Company installed temporary package
steam boilers to provide heating and processing steam after the Powerhouse
explosion. In December 1998, Rouge Steel and Ford signed an agreement for
long-term energy services with CMS Energy Corporation (together with its
subsidiaries, CMS) which has commenced to build and will operate a
co-generation power plant. The new power plant is expected to be in operation by
mid-2001. See Managements Discussion and Analysis of Financial Condition and
Results of Operations  Powerhouse Explosion and Insurance Claims.

8



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The Company has a long-term contract for the supply of oxygen and
nitrogen with Praxair, Inc. which expires in 2005. The contract contains minimum
oxygen and nitrogen purchase levels of $14.1 million and $816,000 per year,
respectively. If the Companys production does not return to normal levels, the
monthly minimum oxygen purchase level may not be met, but the Company does not
expect the adverse effect of the oxygen contract to be material.

Competition

The Company competes directly with domestic and foreign flat rolled
carbon steel producers and producers of plastics, aluminum and other materials
which can be used in place of flat rolled carbon steel in manufactured products.
The Company competes principally on the basis of service, quality, price and the
ability to meet customers product specifications and delivery schedules. The
domestic steel industry is highly competitive. This competition affects the
prices that the Company can charge for its products, the utilization levels at
its production facilities, and, ultimately, its profitability. The Company
believes, however, that its competitive position in the steel industry is
strengthened by, among other things, (i) substantially reduced postretirement
expenses resulting from certain agreements with Ford, (ii) environmental
indemnifications from Ford until 2009, (iii) substantial capital investments
during the past several years in steel-making equipment and downstream joint
ventures, (iv) a single-site, geographically strategic location, and (v)
relatively low debt levels.

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

Steel imports in 2000 are estimated to have been 39 million tons, a 9%
increase from 1999 levels. Imports as a percentage of apparent domestic
consumption, including semifinished steel, averaged approximately 32% in 2000
compared to 29% in 1999. In 1998, steel imports were 42 million tons, or 32% of
apparent domestic consumption.

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

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

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

Employees

At December 31, 2000, the work force of Rouge Steel was comprised of
2,224 hourly and 657 salaried personnel, including Rouge Steel employees working
at Double Eagle. In 2000, the Companys employment cost per ton shipped was $96
and tons shipped per employee was approximately 892.

Hourly employees of Rouge Steel are represented by the International
Union, United Automobile, Aerospace and Agricultural Implement Workers of
America, UAW (the UAW). Most of the hourly employees of the Companys
competitors are represented by the United Steelworkers of America (the USWA)
and are subject to USWA-patterned agreements. Rouge Steel and the UAW negotiated
a new labor agreement in 2000 with a four-year term which expires August 1,
2004. The new contract provides for, among other things, improved work force
utilization, more flexible maintenance schedules, base wage increases in each
year of the contract, improvements in retirement, medical, life and disability
benefits and lump-sum bonuses. 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, 2004.

Environmental Control and Cleanup Expenditures

General.The Companys operations are subject to many federal, state and
local laws, regulations, permits and consent agreements relating to the
protection of human health and the environment. Except as set forth below, the
Company believes that its facilities are in material compliance with these
provisions and does not believe that future compliance with such provisions will
have a materially adverse effect on its results of operations or financial
position. The Company has incurred capital expenditures in connection with
matters relating to environmental control of approximately $2 million during the
past four years. In addition, the Company has planned an aggregate of
approximately $5 million in capital expenditures for environmental compliance
for the years 2001 through 2004. Since environmental laws and regulations are
becoming increasingly stringent, the Companys environmental capital
expenditures and costs for environmental compliance may increase in the future.
In addition, due to the possibility of unanticipated regulatory or other
developments, the amount and timing of future environmental expenditures may
vary substantially from those currently anticipated. The costs for current and
future environmental compliance may also place domestic steel producers at a
competitive disadvantage with respect to foreign steel producers, which may not
be required to undertake equivalent costs in their operations, and manufacturers
of steel substitutes which are subject to less stringent environmental
requirements.

In connection with the acquisition of the Company from Ford in 1989 (the
Acquisition), Ford has agreed to indemnify the Company (the Ford Indemnity)
for any liability arising out of an environmental condition existing prior to
the Acquisition or a subsequent change in law relating to such condition that
results in an environmental claim under any federal or state

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environmental law,
including the Comprehensive Environmental Response Compensation and Liability
Act of 1980, as amended, (CERCLA), the Resource Conservation and Recovery Act
(RCRA), the Clean Water Act, the Safe Drinking Water Act, the Clean Air Act
and the Occupational Safety and Health Act of 1970 or an environmental claim
based upon a release of a material of environmental concern. An environmental
claim includes, among other things, the costs associated with the release of any
pollutants, contaminants, toxic substances and hazardous substances into the
environment. The Ford Indemnity provides that Ford shall pay the Companys
liabilities, including any penalties and attorneys fees, in connection with any
environmental claim relating to a pre-Acquisition condition. The Ford Indemnity
terminates on December 15, 2009. With respect to previously submitted claims, in
some instances Ford has accepted responsibility; in others, it has denied
responsibility. The submitted claims include asbestos removal, CERCLA
liabilities, National Pollutant Discharge Elimination System permit violations,
underground storage tank removal, transformer replacement and transformer
removal and disposal. Rouge Steel does not believe the rejection by Ford of any
claims made under the Ford Indemnity will have a materially adverse effect on
the Companys results of operations or financial position.

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

In 1990, Congress passed amendments to the Clean Air Act which impose
more stringent standards on air emissions. Pursuant to Title V of the Clean Air
Act Amendments of 1990, the Company submitted an application for a facility
operating permit (a Title V Permit) in 1997 with amendments in 1998. The
Michigan Department of Environmental Quality (the MDEQ) advised the Company
that the application and the amendments were administratively complete. The
Company expects to receive a draft Title V Permit during 2001.

Settled.In 1997, the Company voluntarily disclosed its failure to obtain
a construction and operating permit for an operational change previously thought
to be exempt from the air permitting requirements. The Company discovered the
error through an environmental self-audit. Disclosure was made under a Michigan
statute that provides immunity from state enforcement for environmental
violations discovered through self-audits if they are voluntarily and promptly
reported and corrected. The MDEQ subsequently issued the permit for the change.

In 1997, the Company received a notice from the Corporation Counsel of
the City of Melvindale (the City) of the Citys intention to sue the Company
for alleged release of particulates into the air and violations of the County of
Wayne permit. In 1998, a class action lawsuit was filed against the Company on
behalf of residents allegedly injured by dust. In 2000, discussions among the
Company, the City, and the class action plaintiffs resulted in a final
settlement wherein the Company agreed to pay approximately $1.5 million for
distribution to plaintiff class members and their attorneys. The settlement also
formalized the Companys intention to undertake specified abatement measures.
All of the abatement measures have now been implemented and the damages paid.

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

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compliance
program and a five-year term. The Company paid the penalty in 1998, and the
compliance program has been implemented.

In 1999, the Company and the Division executed a consent order resolving
certain NOVs for events which occurred in 1997 and 1998. The consent order
required the Company to pay a penalty of $140,000.

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

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

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

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

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U.S. EPA regarding the alleged violations, potential penalties and other relief.
Based on those discussions, the Company presently believes that the agency will
seek penalties between $500,000 and $750,000, not including any penalties for
economic benefit.

In December 2000, the County of Wayne (the County) filed a complaint
against the Company in the United States District Court for the Eastern District
of Michigan, County of Wayne v. Rouge Steel Company and Rouge Industries, Inc.
CV-00-75454. The complaint alleges violations of the opacity emission standards
of the Wayne County Air Pollution Control Ordinance during 1998 and 1999. These
allegations parallel those in the U.S. EPAs complaint that arose from the
Multimedia Investigation. The County complaint also alleges claims under the
Michigan Environmental Protection Act for the creation of a public nuisance. The
Company anticipates that the opacity emissions allegation will be resolved in
conjunction with the U.S. EPAs parallel allegations. The County has not made a
monetary demand, but has requested entry of an order abating the alleged public
nuisance. The Company has accrued $1.2 million with respect to the U.S. EPA and
the County lawsuits which it believes will be adequate to cover any penalties
arising from them.

The Division issued several NOVs to the Company regarding opacity
emissions and fallout during 2000 that are not included in the Countys
litigation against the Company. To date, the County has not demanded any
penalties for the alleged violations or taken other enforcement action against
the Company with respect to this matter. However, the Company is aware that the
County is contemplating enforcement action for these NOVs. It is unclear at this
point whether such enforcement action will be consolidated with the Countys
lawsuit for alleged violations in 1998 and 1999, discussed above, or handled as
a separate matter. The Companys disclosure of this matter (or any other
litigation disclosed herein) does not indicate the Companys acknowledgment of
the validity of any claims made in connection therewith. The preliminary nature
this matter makes it difficult for the Company to predict the nature of its
outcome or its impact on the Company.

Research and Development

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

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

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products in the Companys markets, (iv) potential environmental
liabilities, (v) the availability and prices associated with raw materials,
supplies, utilities and other services and items required by the Companys
operations, (vi) uncertainty related to the Companys ability to resolve the
Powerhouse explosion insurance claim and (vii) higher than expected operating
costs.

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Item 2.     Properties.

Rouge Steels integrated single-site facility is located on a 457-acre
industrial site adjacent to Fords stamping, engine, frame and assembly plants
in Dearborn, Michigan. 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, one waste oxide reclamation
facility (which is leased), two electric arc furnaces (which have been idle
since 1992), two ladle refining facilities, a vacuum degassing facility, one
three-strand continuous caster, one hot strip mill, three pickle lines, one
tandem mill, two annealing facilities (one of which is a hydrogen annealing
facility), two temper mills, two slitters and one recoil welder. In addition,
Rouge Steel owns a 50% interest in Double Eagle, the worlds largest
electrogalvanizing facility and a 60% interest in the Powerhouse that was
managed, operated and maintained by Ford (which owns the other 40%). On February
1, 1999, an explosion and fire at the Powerhouse curtailed the supply of
utilities which resulted in the temporary idling of the Companys steel making
facilities. It is considered unlikely that the Powerhouse will be operational in
the future. See Managements Discussion and Analysis of Financial Condition and
Results of Operations  Powerhouse Explosion and Insurance Claim. Prior to the
Powerhouse explosion, Ford and Rouge Steel had entered an agreement for
long-term energy services with CMS which has commenced to build and will operate
a co-generation power plant scheduled to begin operating in mid-2001. Along with
Rouge Steels properties, Rouge Industries owns (i) a 48% interest in Spartan
Steel, a cold rolled hot dip galvanizing facility; (ii) a 20% interest in Shiloh
of Michigan, an engineered steel blanking facility; (iii) a 45% interest in
EVTAC, an iron ore mining and pellet producing facility; (iv) an 11.1% interest
in TWB, a producer of laser welded blanks; (v) a 49% interest in Delaco Steel
Processing, a steel processor and (vi) a 40% interest in Bing Blanking, a steel
blanker and producer of roll formed parts.




Item 3.     Legal Proceedings.

Environmental Lawsuit

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

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

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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 2000.

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The following table sets forth, as of December 31, 2000, certain
information with respect to the executive officers of the Company. Executive
officers are chosen by the Board of Directors of the Company at the first
meeting of the Board after each annual meeting of stockholders. Officers of the
Company serve at the discretion of the Board of Directors and are subject to
removal at any time. There is no family relationship among any of the officers
or directors.



|                      |  |     |    |  |          |                                                                
|--------------------- |  | --- | -- |  | -------- | ---------------------------------------------------------------
|Name                  |  | Age |    |  | Position
|                      |  |     |    |  |         
|Carl L. Valdiserri    |  |     | 64 |  |          | Chairman and Chief Executive Officer                           
|                     
|                     
|                     
|                     
|Louis D. Camino       |  |     | 63 |  |          | President and Chief Operating Officer                          
|                     
|                     
|                     
|                     
|Gary P. Latendresse   |  |     | 57 |  |          | Vice Chairman and Chief Financial Officer                      
|                     
|                     
|                     
|                     
|William E. Hornberger |  |     | 54 |  |          | Senior Vice President, Corporate Relations and External Affairs
|                     
|                     
|                     
|                     
|Ronald J. Nock        |  |     | 48 |  |          | Senior Vice President, Commercial and Strategic Planning       
|                     
|                     
|                     
|                     
|Martin Szymanski      |  |     | 47 |  |          | Vice President, General Counsel and Secretary                  

Business Experience

Mr. Valdiserri has been Chairman and Chief Executive Officer of the Company since 1989. From 1987 until 1989 he
was an independent consultant regarding the steel industry, principally to The Chase Manhattan Bank, N.A. From 1982
until 1987, Mr. Valdiserri was Executive Vice President of Weirton Steel Corporation. Mr. Valdiserri joined the Weirton
Division of National Steel Corporation in 1978. He was Chief Engineer in the Great Lakes Division of National Steel
Corporation from 1973 to 1978 and held various other engineering positions from 1964 to 1972. He began his career with
Wheeling-Pittsburgh Steel Corporation in 1958. Mr. Valdiserri has 42 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 40 years of experience in the steel
manufacturing industry.

Mr. Latendresse has been Vice Chairman and Chief Financial Officer since July 1999. From January 1998 to July
1999, he was Executive Vice President and Chief Financial Officer. Mr. Latendresse was Vice President and Chief
Financial Officer from 1992 to 1997. He became a director of the Company in 1992. He was Vice President, Finance and
Controller from 1987 until 1992. Mr. Latendresse has held various financial positions with the Company and Ford for 32
years. Mr. Latendresse has 32 years of experience in the steel manufacturing industry. Mr. Latendresse is also the
Treasurer and Assistant Secretary of the Company.

Mr. Hornberger has been Senior Vice President, Corporate Relations and External Affairs since October 1999. He
was Vice President, Employee Relations and Public Affairs from 1992 to 1999. From 1987 to 1992, he was Vice President,
Employee Relations. Mr. Hornberger has held various employee relations positions at Rouge Steel and Ford since 1973.
He has 17 years of experience in the steel manufacturing industry.

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Mr. Nock has been Senior Vice President, Commercial and Strategic Planning since January 2000. He served as Vice
President, Sales and Marketing from 1988 through 1999. Mr. Nock held various positions at the Company since 1982,
including Manager of Sales and Sales Representative. He has 25 years of experience in the steel manufacturing industry.

Mr. Szymanski has been Vice President, General Counsel and Secretary
since October 1999. He served as Secretary and General Counsel from January 1998
to October 1999. From January 1997 to December 1997, he was Associate General
Counsel of the Company. From 1990 through 1996, he served as General Counsel and
Assistant Secretary of Modern Engineering, Inc., a Warren, Michigan-based tier
one automotive technical services, prototype and assembly tooling supplier.
Prior to that, he held key legal assignments at Stroh Brewery Company and
Fruehauf Corporation. Mr. Szymanski has over 22 years of corporate and private
practice legal experience.

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

As of December 31, 2000, there were (i) 15,087,577 shares of class A
common stock, par value $0.01 per share (the Class A Common Stock), issued and
outstanding and held by approximately 7,000 stockholders of record, and (ii)
7,140,400 shares of class B common stock, par value $0.01 per share (the Class
B Common Stock and together with the Class A Common Stock, the Common Stock),
issued and outstanding and held by one stockholder of record, Carl L.
Valdiserri. In February 1997, Worthington, the Companys second largest
stockholder at the time, issued debt securities (DECS) which, upon maturity,
could be redeemed for shares of Common Stock or cash. On March 1, 2000,
Worthington relinquished its shares of Common Stock to satisfy its obligations
with respect to the DECS. Worthington no longer owns any 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 22, April 23, July 23 and October 22, 1999, January 21, April 21, July
21 and October 20, 2000 and January 19, 2001. 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 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 28, 2001 was $2.21.



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



|               |  |      |       |     |      |   |      | 
|-------------- |  | ---- | ----- | --- | ---- | - | ---- | 
|
|               |  |      |       |     | 1999
|               |  |     
|               |  | High |       | Low
|               |  |      |       |    
|First Quarter  |  | $    | 14.00 |     |      | $ | 8.00 | 
|              
|              
|              
|              
|Second Quarter |  |      | 11.94 |     |      |   | 8.25 | 
|              
|              
|              
|              
|Third Quarter  |  |      | 9.75  |     |      |   | 6.63 | 
|              
|              
|              
|              
|Fourth Quarter |  |      | 8.50  |     |      |   | 5.63 | 

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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, 2000. This
information should be read in conjunction with the historical consolidated
financial statements of the Company and related notes thereto and Managements
Discussion and Analysis of Financial Condition and Results of Operations
beginning on page 22.



|                                          |                                       |   |                                                 |       |   |      |        |       |      |   |         |      |  |   |         |      |  |   |         |      | 
|----------------------------------------- | ------------------------------------- | - | ----------------------------------------------- | ----- | - | ---- | ------ | ----- | ---- | - | ------- | ---- |  | - | ------- | ---- |  | - | ------- | ---- | 
|                                          |                                       |   | Years Ended December 31                        
|                                          |                                       |   |                                                
|                                          |                                       |   | 2000                                            |       |   | 1999 |        |       | 1998 |   |         | 1997 |  |   | 1996    |     
|                                          |                                       |   |                                                 |       |   |      |        |       |      |   |         |      |  |   |         |     
|                                          |                                       |   | (dollars in millions, except per share amounts) |      
|Statement of Operations Data             
|                                         
|                                         
|                                         
|                                         
|Total Sales1                              |                                       | $ | 1,099.8                                         |       |   | $    | 995.6  |       |      | $ | 1,193.0 |      |  | $ | 1,341.6 |      |  | $ | 1,307.4 |     
|                                         
|                                         
|                                         
|                                         
|Operating Income (Loss)                   |                                       |   | (166.8                                          | )2    |   |      | (254.1 | )2    |      |   | 35.1    |      |  |   | 31.7    |      |  |   | 24.7    |     
|                                         
|                                         
|                                         
|                                         
|Net Interest Income (Expense)             |                                       |   | (4.3                                            | )     |   |      | (2.1   | )     |      |   | 0.7     |      |  |   | 0.8     |      |  |   | 4.8     |     
|                                         
|                                         
|                                         
|                                         
|Income Tax (Provision) Benefit            |                                       |   | (37.3                                           | )     |   |      | 30.5   |       |      |   | (8.7    | )    |  |   | (8.1    | )    |  |   | (6.9    | )   
|                                         
|                                         
|                                         
|                                         
|Net Income (Loss)                         |                                       |   | (117.3                                          | )2    |   |      | (47.8  | )2    |      |   | 23.4    |      |  |   | 22.4    |      |  |   | 23.4    |     
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|Per Share Data                           
|                                          | Net Income (Loss)  Basic and Diluted |   | $                                               | (5.29 | ) |      | $      | (2.16 | )    |   | $       | 1.06 |  |   | $       | 1.02 |  |   | $       | 1.07 | 
|                                         
|                                         
|                                         
|                                         
|                                          | Cash Dividends Declared               |   |                                                 | 0.12  |   |      |        | 0.12  |      |   |         | 0.12 |  |   |         | 0.12 |  |   |         | 0.12 | 
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|Weighted-Average Shares Outstanding (000) |                                       |   | 22,158                                          |       |   |      | 22,122 |       |      |   | 22,025  |      |  |   | 21,939  |      |  |   | 21,845  |     



|                                          |  |             |       |  |      |                       |       |      |  |   |       |  |  |      |       |  |  |   |       | 
|----------------------------------------- |  | ----------- | ----- |  | ---- | --------------------- | ----- | ---- |  | - | ----- |  |  | ---- | ----- |  |  | - | ----- | 
|                                          |  | December 31
|                                          |  |            
|                                          |  | 2000        |       |  | 1999 |                       |       | 1998 |  |   | 1997  |  |  | 1996 |      
|                                          |  |             |       |  |      |                       |       |      |  |   |       |  |  |      |      
|                                          |  |             |       |  |      | (dollars in millions) |      
|Balance Sheet Data                       
|                                         
|                                         
|                                         
|                                         
|Working Capital                           |  | $           | 117.8 |  |      | $                     | 198.3 |      |  | $ | 212.4 |  |  | $    | 177.2 |  |  | $ | 216.6 | 
|                                         
|                                         
|                                         
|                                         
|Property, Plant, and Equipment, Net       |  |             | 244.4 |  |      |                       | 278.6 |      |  |   | 258.1 |  |  |      | 268.6 |  |  |   | 209.2 | 
|                                         
|                                         
|                                         
|                                         
|Total Assets                              |  |             | 741.0 |  |      |                       | 867.6 |      |  |   | 768.9 |  |  |      | 728.5 |  |  |   | 682.0 | 
|                                         
|                                         
|                                         
|                                         
|Long-Term Debt, Including Current Portion |  |             | 66.5  |  |      |                       | 104.8 |      |  |   | 29.0  |  |  |      | 17.9  |  |  |   |      | 
|                                         
|                                         
|                                         
|                                         
|Stockholders Equity                      |  |             | 292.8 |  |      |                       | 409.8 |      |  |   | 459.6 |  |  |      | 438.6 |  |  |   | 417.3 | 



|                                            |  |                         |       |    |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|------------------------------------------- |  | ----------------------- | ----- | -- | ---- | - | ----- | ---- |  | - | ----- | - |  | ---- | ----- | - |  | - | ----- | -
|                                            |  | Years Ended December 31
|                                            |  |                        
|                                            |  | 2000                    |       |    | 1999 |   |       | 1998 |  |   | 1997  |   |  | 1996 |      
|                                            |  |                         |       |    |      |   |       |      |  |   |       |   |  |      |      
|Other Data                                 
|                                           
|                                           
|                                           
|                                           
|Net Tons Shipped (000)                      |  |                         | 2,570 |    |      |   | 2,320 |      |  |   | 2,630 |   |  |      | 3,029 |   |  |   | 2,876 |  
|                                           
|                                           
|                                           
|                                           
|Raw Steel Production (Mils) NT              |  |                         | 2.9   |    |      |   | 2.2   |      |  |   | 3.1   |   |  |      | 2.8   |   |  |   | 2.6   |  
|                                           
|                                           
|                                           
|                                           
|Effective Capacity Utilization              |  |                         | 85    | %  |      |   | 66    | %    |  |   | 94    | % |  |      | 91    | % |  |   | 84    | %
|                                           
|                                           
|                                           
|                                           
|Continuously Cast Percentage                |  |                         | 100   |    |      |   | 100   |      |  |   | 100   |   |  |      | 100   |   |  |   | 95    |  
|                                           
|                                           
|                                           
|                                           
|Purchased Slabs (000) NT                    |  |                         | 91    |    |      |   | 351   |      |  |   | 76    |   |  |      | 619   |   |  |   | 843   |  
|                                           
|                                           
|                                           
|                                           
|Number of Employees at Year-End3            |  |                         | 2,881 |    |      |   | 3,006 |      |  |   | 3,108 |   |  |      | 3,128 |   |  |   | 3,119 |  
|                                           
|                                           
|                                           
|                                           
|Average Hourly Labor Rate4                  |  | $                       | 31.26 |    |      | $ | 31.28 |      |  | $ | 30.25 |   |  | $    | 30.43 |   |  | $ | 30.81 |  
|                                           
|                                           
|                                           
|                                           
|Total Sales per Employee (000)1 3           |  |                         | 382   |    |      |   | 331   |      |  |   | 384   |   |  |      | 429   |   |  |   | 419   |  
|                                           
|                                           
|                                           
|                                           
|Hours Worked per Net Ton Produced3          |  |                         | 2.67  |    |      |   | 2.94  |      |  |   | 2.81  |   |  |      | 2.81  |   |  |   | 2.89  |  
|                                           
|                                           
|                                           
|                                           
|Operating Income (Loss) per Net Ton Shipped |  | $                       | (65   | )2 |      | $ | (110  | )2   |  | $ | 13    |   |  | $    | 10    |   |  | $ | 9     |  
|                                           
|                                           
|                                           
|                                           
|Capital Expenditures (Mils)5                |  |                         | 21.4  |    |      |   | 80.5  |      |  |   | 31.8  |   |  |      | 112.4 |   |  |   | 101.5 |  

20



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##### Table of Contents





|1 |  | During 2000, the Company adopted the requirements of Emerging Issues Task Force Issue 00-10, Accounting for
Shipping and Handling Fees and Costs, which requires all
amounts billed to customers related to shipping and handling
to be classified as revenue. Historically, the Company had
included all freight charges to customers as a component of
revenue, however, the cost of certain types of freight was
recorded as a reduction of revenue. The Company has
reclassified such freight cost for 1998, 1999 and 2000. As
a result, reported sales and cost of sales have increased
approximately $26.2 million, $27.9 million and $29.8
million, respectively. The reclassification had no impact on
operating income (loss) or net income (loss). Freight cost
was not reclassified in 1997 and 1996 because of the
impracticality of obtaining the data.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| 
| 
| 
|2 |  | Operating loss and net loss for the year ended December 31, 2000
include the pre-tax effect of business interruption and property damage
losses and other claim-related expenses of $74.9 million (or $29 per
net ton shipped) resulting from the February 1, 1999 explosion at the
Powerhouse. Net loss for the year ended December 31, 2000 also includes
the offsetting impact of $84.3 million of pre-tax insurance recovery.
Operating loss and net loss for the year ended December 31, 1999
include the pre-tax effect of business interruption and property damage
losses and other claim-related expenses of $221.4 million (or $95 per
net ton shipped) resulting from the Powerhouse explosion. Net loss for
the year ended December 31, 1999 also includes the offsetting impact of
$177.4 million of pre-tax insurance recovery.                         
| 
| 
| 
| 
|3 |  | Includes all hourly and salaried employees.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| 
| 
| 
| 
|4 |  | Includes $0.21 per hour in 2000, $0.29 per hour in 1998, $0.35 per hour
in 1997, $0.49 per hour in 1996 and $1.94 per hour in 1995 paid or
accrued pursuant to the Rouge Steel Company Profit Sharing Plan for
Hourly Employees. Due to losses sustained in 1999, no amounts were paid
or accrued. The amount paid with respect to 2000 was the result of the
favorable impact of the partial settlement of the Powerhouse explosion
insurance claim in the second quarter.                                                                                                                                                                                                                                                                                                                                                                                           
| 
| 
| 
| 
|5 |  | Includes capital expenditures paid or accrued and investments in unconsolidated subsidiaries.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

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##### Table of Contents






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

Overview

The following discussion should be read in conjunction with, and is
qualified in its entirety by reference to, the Consolidated Financial Statements
which begin on page 37.

Rouge Steel Company (Rouge Steel) is the primary operating subsidiary
of Rouge Industries, Inc., a Delaware corporation (together with its
subsidiaries, Rouge Industries or the Company). Rouge Steel is an integrated
producer of high quality, flat rolled steel products consisting of hot rolled,
cold rolled and galvanized steel. 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. These customers have exacting quality, delivery and service
requirements. The Company also sells its products to steel converters, service
centers and other end users.

Other wholly-owned subsidiaries of Rouge Industries include QS Steel Inc.
(QS Steel) and Eveleth Taconite Company (Eveleth). QS Steel holds minority
ownership interests in 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.

On February 1, 1999, an explosion and fire at the Rouge Complex
Powerhouse (the Powerhouse) resulted in the interruption of the supply of
electricity, process and heating steam, turbo air, mill water and other
utilities to virtually all of the facilities of Rouge Steel. The loss of power
resulted in a 93-day shutdown of Rouge Steels steel making facilities. During
the shutdown, the Company processed purchased slabs and coils, but the
production interruption had a significant impact on Rouge Steels shipments,
sales and costs and expenses. Comparisons between 2000 and 1999 may not be
meaningful.

The Company is presently facing the most difficult market conditions
since it became an independent steel producer in 1989. During 2000, there was
intense downward pressure on prices caused by high levels of imports and a
softening of demand for steel by the Companys customers. The lower prices, the
unprecedented increase in the cost of natural gas and the cash strain caused by
the Powerhouse explosion have resulted in considerable pressure on the Companys
liquidity. The Company has responded to the liquidity stress by refinancing its
long-term debt.

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##### Table of Contents



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 1998 through 2000:



|                  |                      |  |                                          |       |   |      |       |    |      |  |       |  
|----------------- | -------------------- |  | ---------------------------------------- | ----- | - | ---- | ----- | -- | ---- |  | ----- | -
|                  |                      |  | Years Ended December 31                 
|                  |                      |  |                                         
|                  |                      |  | 2000                                     |       |   | 1999 |       |    | 1998
|                  |                      |  |                                          |       |   |      |       |    |     
|                  |                      |  | (in millions of tons except utilization)
|Domestic Industry
|                 
|                 
|                 
|                 
|                  | Raw Steel Capacity   |  |                                          | 129.8 |   |      | 128.2 |    |      |  | 125.4 |  
|                 
|                 
|                 
|                 
|                  | Raw Steel Production |  |                                          | 111.8 |   |      | 105.9 |    |      |  | 108.7 |  
|                 
|                 
|                 
|                 
|                  | Utilization          |  |                                          | 86.2  | % |      | 82.6  | %  |      |  | 86.7  | %
|                 
|                 
|                 
|                 
|                  | Finished Shipments   |  |                                          | 108.5 |   |      | 105.1 |    |      |  | 102.4 |  
|                 
|                 
|                 
|                 
|                 
|                 
|                 
|                 
|                 
|                 
|                 
|                 
|                 
|                 
|                 
|                 
|Rouge Steel      
|                 
|                 
|                 
|                 
|                  | Raw Steel Capacity   |  |                                          | 3.2   |   |      | 3.3   |    |      |  | 3.3   |  
|                 
|                 
|                 
|                 
|                  | Raw Steel Production |  |                                          | 2.9   |   |      | 2.2   |    |      |  | 3.1   |  
|                 
|                 
|                 
|                 
|                  | Utilization          |  |                                          | 92.1  | % |      | 65.7  | %1 |      |  | 94.3  | %
|                 
|                 
|                 
|                 
|                  | Finished Shipments   |  |                                          | 2.6   |   |      | 2.3   |    |      |  | 2.6   |  



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

The cyclicality of the steel industry and the domestic economy affects
the Companys steel product prices. To protect itself from the volatile nature
of prices in the domestic steel industry, the Company sells approximately two
thirds of its steel products pursuant to fixed price contracts, under which
prices are typically set annually. The Companys financial results are
significantly affected by relatively small (on a percentage basis) variations in
the realized prices for its products. For example, Rouge Industries shipped 2.6
million net tons of steel products and recorded total sales of $1.1 billion
during 2000, implying an average realized price per ton of $428. A one percent
increase or decrease in this implied average realized price during 2000 would,
on a pro forma basis, have resulted in an increase or decrease in total sales
and pre-tax income of approximately $11 million. The competitive pressures in
the domestic steel industry affect the prices that the Company can charge for
its products and, ultimately, its profitability. These pressures could limit the
Companys ability to obtain price increases or could lead to a further decline
in prices which could have a material adverse effect on Rouge Industries.

Prices in the domestic steel industry have been volatile for a number of
years. In 1994, prices reached the highest level since 1988. By mid-1995,
however, prices began to soften despite the strong demand for steel. In 1996,
there was some strengthening of prices but in 1997, prices declined. When
unprecedented levels of imports arrived in 1998, prices declined dramatically.
In late 1999 and early 2000, prices made a modest recovery, but never reached
the early-1998 levels. By the second half of 2000, prices again declined
considerably. Despite operating losses by nearly all of the domestic integrated
steel producers, the Company is not expecting significant strengthening of
prices in 2001.

23



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##### Table of Contents



Total Sales.The Companys total sales are a function of net tons
shipped, prices and mix of products. The following table sets forth the
percentage of the Companys steel product revenues represented by each of its
product types for each of the years from 1998 through 2000:

|                   |       |  |                         |       |   |      |      |       |      |  |      |       |  
|------------------ | ----- |  | ----------------------- | ----- | - | ---- | ---- | ----- | ---- |  | ---- | ----- | -
|                   |       |  | Years Ended December 31 |      
|                   |       |  |                         |      
|                   |       |  | 2000                    |       |   | 1999 |      |       | 1998 | 
|                   |       |  |                         |       |   |      |      |       |      | 
|Hot Rolled         |       |  | 37.5                    | %     |   |      | 37.3 | %     |      |  | 44.6 | %    
|                  
|                  
|                  
|                  
|Cold Rolled        |       |  | 25.5                    |       |   |      | 27.4 |       |      |  | 30.5 |      
|                  
|                  
|                  
|                  
|Electrogalvanized  |       |  | 20.5                    |       |   |      | 21.9 |       |      |  | 21.0 |      
|                  
|                  
|                  
|                  
|Hot Dip Galvanized |       |  | 16.5                    |       |   |      | 13.4 |       |      |  | 3.9  |      
|                   |       |  |                         |       |   |      |      |       |     
|                   | Total |  |                         | 100.0 | % |      |      | 100.0 | %    |  |      | 100.0 | %
|                   |       |  |                         |       |   |      |      |       |     

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

Sales to Ford Motor Company (Ford), the Companys largest customer,
were primarily made pursuant to a ten-year steel purchase agreement which
expired after model-year 2000. Under the terms of the steel purchase agreement,
Ford agreed to purchase steel from the Company contingent upon the Companys
ability to meet Fords requirements for quality, delivery and price. The Company
does not believe that the expiration of the steel purchase agreement will have a
materially adverse effect on its results of operations or financial position.

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 nitrogen. Iron ore pellets are purchased from EVTAC pursuant
to a pellet purchase agreement which expires in 2002. The Companys wholly-owned
subsidiary, Eveleth, holds a 45% interest in EVTAC.

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

The Company uses between 17 million and 19 million MMBTUs of natural gas
per year in its blast furnaces, hot strip mill and cold mills. The cost of
natural gas increased dramatically in 2000. The Company was protected from the
large price increases for a portion of its natural gas requirements because of
fixed price contracts. However, one supplier of natural gas defaulted on

24



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##### Table of Contents



its
contract with the Company late in 2000 leaving the Company with no insulation
from the extremely high market prices. The Company does not expect significant
relief from the high cost of natural gas in 2001. In fact, because it no longer
has fixed low-priced contracts, the Company expects the impact in 2001 of the
natural gas price to be more unfavorable than 2000.

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

Powerhouse Explosion and Insurance Claims

On February 1, 1999, an explosion and fire at the Rouge Complex
Powerhouse (the Powerhouse) resulted in the interruption of the supply of
electricity, process and heating steam, turbo air, mill water and other
utilities to virtually all of the facilities of Rouge Steel. The loss of power
resulted in the temporary shutdown of Rouge Steels steel making facilities. The
Powerhouse is owned 60% by Rouge Steel and 40% by Ford. Ford was responsible for
the day-to-day management, operation and maintenance of the Powerhouse.

Rouge Industries insurance program provides coverage for damage to
property destroyed, interruption of business operations, including profit
recovery, and expenditures incurred to minimize the period and total cost of
disruption to operations. The Company continues to evaluate its potential
insurance recoveries in three areas:



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

During the second quarter of 2000, the Company received cash proceeds
representing a partial settlement with its insurers regarding Rouge Steel
first-party property damage and business interruption costs through March 31,
2000. The partial settlement covers all of the first-party

25



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##### Table of Contents



property damage and
substantially all aspects of the business interruption claim, including profit
on lost sales, operating inefficiencies caused by the loss and costs to mitigate
the claim. Three significant business interruption issues remain open for
subsequent settlement. The Company and its insurers are presently discussing the
period of indemnity for the Powerhouse claim. The Companys insurers have
indicated that coverage for business interruption costs incurred after December
31, 2000 will be denied, a position the Company is vigorously contesting. The
business interruption issues that remain open for the subsequent settlement are
listed below.



| | 1) |  | Excess utility costs  During the period of indemnity, the
Companys insurers agreed to pay any excess utility costs above the
costs that would have been incurred under the Powerhouse
configuration. Rouge Steel expects to incur excess utility costs
until the new co-generation power plant, which is being constructed
by CMS Energy Corporation (CMS), begins to provide the Company
with electricity and steam. The insurers have paid $16.4 million of
excess utility costs incurred through March 31, 2000 and have
agreed to settle any additional excess utility costs as the costs
are incurred, through the end of the indemnity period.                                                                                                                                                                                                                                                              
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2) |  | Blast furnace gas  The Companys blast furnaces produce a by-product fuel (blast furnace gas) which, before
the explosion, was used by the Powerhouse to produce steam and served to reduce the Companys production
costs. When the new co-generation power plant begins operating its steam boilers, the blast furnace gas
will be used by CMS. Until such time, however, the blast furnace gas, with a value of approximately $3
million per month, is being flared. The Companys insurers have agreed to reimburse the Company for the
value of the blast furnace gas, flared during the period of indemnity, which the insurers assert ends on
December 31, 2000. The part of the claim related to blast furnace gas is still open and will be settled as
the costs are incurred, through the end of the indemnity period.                                                                                     
|
| | 3) |  | Temporary facilities  During the first quarter of 1999, the
Company installed temporary package steam boilers to provide
heating and processing steam after the Powerhouse explosion.
Additionally, temporary electrical facilities were installed.
Although the temporary steam and electrical facilities have been in
use for nearly two years, all of the invoices have not been
received by Rouge Steel and reviewed by the insurers. The partial
settlement included payments of $58.9 million for the temporary
boilers against a claim which is expected to be approximately $60.4
million and payments of $7.6 million for the temporary electrical
distribution system against a claim which is expected to be
approximately $12.2 million. When all the invoices have been
received by Rouge Steel and reviewed by the insurers, the part of
the claim related to the temporary facilities will be settled.

During the second quarter of 2000, the partial first-party settlement
resulted in net recoveries of $21.6 million in excess of amounts previously
recognized. During the third and fourth quarters of 2000, the Company received
cash advances of $18.4 million related to the open business interruption issues.

Pursuant to the accounting methodology described above, during 2000 the
Company recorded recoverable insurance proceeds with respect to the Powerhouse
explosion of $84.3 million. During 2000, the Company received advances totaling
$44.0 million related to Powerhouse property damage, which have been deferred
and will be recognized as income in future periods as certain costs are incurred
or when the claim is settled. At December 31, 2000,

26



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##### Table of Contents



the Company has a receivable
with respect to the Powerhouse explosion of $20.0 million, which is net of
reserves of $27.9 million and advances from the insurance carriers of $115.9
million. Total cash proceeds through December 31, 2000 amount to $286.4 million
of which $127.4 million were received during 2000.

With respect to the unsettled matters in the Powerhouse insurance claim
discussed above, the Company continues to discuss the determination of the total
claim with its insurers. The Companys assessment of probability with respect to
the receivable was made based on discussions with insurers and legal and
financial experts retained to assist in the claims process. The estimates will
change as additional information becomes available with respect to actual costs
and as the insurers perform their review of claims information submitted by the
Company. Based on the magnitude and complexity of the insurance claim, the
Company is currently unable to reasonably estimate the amount of actual costs to
be incurred in the future as well as the extent of the Companys exposure for
amounts not covered by its insurance program.

In addition to costs discussed above, the Company is currently evaluating
ancillary costs relating to the explosion, including cleanup and abatement
activities. Such amounts could be material to the Companys results of
operations, cash flows and financial position during future periods. Based on
the available information, during 1999, the Company recorded a $3.0 million
reserve for its share of the minimum estimated cost to mitigate further
environmental contamination at the Powerhouse. If the abatement costs exceed
$3.0 million, those costs will be recorded as incurred if they relate to future
operations. If they do not result in future benefit to the Company, additional
abatement costs will be recorded in the period during which losses become
probable and reasonably estimable.

BOF Incident.On January 7, 2000, a mechanical system failure occurred at
Rouge Steels basic oxygen furnace facility (the BOF) which required
approximately seven weeks to repair. The BOF operated at approximately 85% of
its normal production capacity during the repair. A $2.5 million deductible and
$6.7 million of recoverable insurance proceeds were recorded in 2000. The
Company settled the BOF claim in the third quarter.

Results of Operations

On February 1, 1999, an explosion and fire at the Rouge Complex Powerhouse (the
Powerhouse) resulted in the interruption of the supply of electricity, process
and heating steam, turbo air, mill water and other utilities to virtually all of
the facilities of Rouge Steel. The loss of power resulted in a 93-day shutdown
of Rouge Steels steel making facilities. During the shutdown, the Company
processed purchased slabs and coils, but the production interruption had a
significant impact on Rouge Steels shipments, sales and costs and expenses.
Comparisons between 2000 and 1999 and between 1999 and 1998 may not be
meaningful.

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

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

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made up by processing semi-finished
inventories and purchased slabs and coils. See  Powerhouse Explosion and
Insurance Claims and  Overview.

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

Operating Loss.The operating loss decreased 34.3% in 2000 to $166.8
million from $254.1 million in 1999, a decrease of $87.3 million. The decrease
is primarily the result of the $145.3 million reduction in Powerhouse related
costs and expenses in 2000. These lower costs were offset by higher costs
resulting from the BOF incident, unfavorable manufacturing efficiencies, and the
new UAW labor contract. The impact of volume and mix on the operating loss was
not significant. Likewise, the effect of the higher cost of natural gas was
essentially offset by the lower cost of utilities, coke and scrap.

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

Insurance Recovery.The Company recorded insurance recovery for actual and
anticipated insurance proceeds related to the Powerhouse explosion of $84.3
million in 2000 compared to $177.4 million in 1999, a decrease of $93.1 million.
The Company has an insurance program that provides coverage for damage to
property destroyed, interruption of business operations and expenses incurred to
minimize the period of disruption incurred as a result of the Powerhouse
explosion. Consequently, the Company has recorded a reserve with respect to its
anticipated insurance proceeds, which has the effect of reducing income
recognized. Additionally, the Company recorded $6.7 million of recoverable
insurance proceeds related to the January 2000 BOF incident. See  Powerhouse
Explosion and Insurance Claims.

Other  Net.Other  net expense increased 56.9% in 2000 to $1.9 million
from $1.2 million an increase of $700,000. The amount in 2000 was comprised
primarily of a $3.0 million reserve recorded against the Companys note
receivable from its joint venture, Bing Blanking. During 2000, the Companys
joint venture partners indicated a desire to exit Bing Blanking. The

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Company and
a significant customer of the joint venture are continuing discussions regarding
the future of Bing Blankings operations and activities. As a result of the
financial difficulties experienced by Bing Blanking, the Company has recorded a
reserve against its entire $3.0 million note receivable. In addition, at the
request of Bing Blankings lender, the Company placed $2.7 million on deposit
with the bank as collateral against its guarantee of Bing Blankings term loan.
Other  net expense in 1999 was comprised primarily of $1.0 million of insurance
deductibles and the writeoff of $1.6 million of Powerhouse assets related to the
Powerhouse explosion.

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

Powerhouse Explosion Insurance Claim.The insurance claim related to the
February 1, 1999 explosion and fire at the Powerhouse includes the effect of a
93-day outage in 1999 and the corresponding reduction in shipments, total sales
and costs of goods sold. Costs of goods sold includes property damage and
business interruption expenses of $41.7 million and $172.8 million in 2000 and
1999, respectively, related to the temporary steam boilers, electrical
distribution equipment and other temporary facilities. The aggregate effect of
Powerhouse explosion-related items on operating loss was $72.1 million in 2000
and $217.4 million in 1999. Other income includes $84.3 million and $177.4
million in 2000 and 1999, respectively, of insurance recoveries. See 
Powerhouse Explosion and Insurance Claims.

Year Ended December 31, 1999 versus Year Ended December 31, 1998

Total Sales.Total sales decreased 16.5% in 1999 to $995.6 million from
$1,193.0 million in 1998, a decrease of $197.4 million. The decrease in total
sales in 1999 was caused principally by lower steel product shipments. Steel
product shipments decreased 11.8% in 1999 to 2,320,000 net tons from 2,630,000
net tons in 1998, a decrease of 310,000 net tons. Rouge Industries shipments
were lower in 1999 because of the disruption of production resulting from the
February 1, 1999 explosion and fire at the Powerhouse. The Company lost
approximately 900,000 tons of slab production in the first half of 1999. A
portion of the lost production was made up by processing semi-finished
inventories and purchased slabs and coils. The effect on the Company of the
decrease in total sales resulting from lower shipments was magnified by lower
steel product selling prices in 1999. See  Overview and  Powerhouse
Explosion and Insurance Claims.

Costs and Expenses.Total costs and expenses increased 7.9% in 1999 to
$1,249.6 million from $1,157.9 million in 1998, an increase of $91.7 million.
Costs of goods sold increased 4.0% in 1999 to $1,165.1 million from $1,119.8
million in 1998, an increase of $45.3 million. The increase in costs of goods
sold was primarily due to additional costs related to the Powerhouse explosion.
Rouge Steel recorded continuing expenses associated with its steelmaking plant
despite the entire plant being shut down for 11 days and primary operations,
which includes the blast furnaces, basic oxygen furnaces and continuous caster,
not resuming production until May. Additionally, the Company recorded expenses
for non-capital repairs to its damaged property. The higher costs associated
with the Powerhouse explosion were partially offset by lower steel product
shipments in 1999 resulting from the lost production discussed above. Costs of
goods

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sold in 1999 was 117.0% of total sales compared to 93.9% in 1998.
Depreciation and amortization increased 216.4% in 1999 to $63.3 million from
$20.0 million in 1998, an increase of $43.3 million. The higher depreciation and
amortization expense reflects the completion of major capital projects as well
as the amortization of the cost of the temporary steam boilers and electrical
facilities installed to provide the Company with steam and electricity until the
co-generation power plant is placed into service. These temporary facilities,
which were placed into service in the second quarter of 1999, are being
amortized over their estimated useful lives, at which time they will be replaced
by the co-generation power plant. See  Powerhouse Explosion and Insurance
Claims.

Selling and Administrative Expenses.Selling and administrative expenses in
1999 were $26.8 million compared to $23.9 million in 1998, an increase of $2.9
million. The increase in selling and administrative expense is primarily
comprised of legal and other professional services relating to the Powerhouse
explosion insurance claim. See  Powerhouse Explosion and Insurance Claims.

Operating Income (Loss).The operating loss in 1999 was $254.1 million
compared to operating income of $35.1 million in 1998, a change of $289.2
million. The decrease in operating income was primarily due to the Powerhouse
explosion and weak steel product prices.

Interest Expense.Interest expense increased 266.8% in 1999 to $2.8 million
from $775,000 in 1998, an increase of $2.0 million. The increase in interest
expense was the result of higher debt in 1999. The average debt balance in 1999
was $44.7 million compared to $10.2 million in 1998.

Insurance Recovery.The Company recognized $177.4 million of income in 1999
for anticipated insurance proceeds related to the Powerhouse explosion. The
Company has recorded a reserve with respect to its anticipated insurance
proceeds which has the effect of reducing income recognized. See  Powerhouse
Explosion and Insurance Claims.

Income Tax (Provision) Benefit.The income tax benefit in 1999 was $30.5
million compared to an income tax provision of $8.7 million in 1998. The income
tax benefit in 1999 was a function of the loss incurred.

Equity in Unconsolidated Subsidiaries.Equity in unconsolidated
subsidiaries increased in 1999 to $1.7 million from a loss of $1.0 million in
1998, a change of $2.7 million. The improvements in income from unconsolidated
subsidiaries came mostly from EVTAC and Spartan Steel Coating, L.L.C.

Net Income (Loss).The net loss in 1999 was $47.8 million compared to net
income of $23.4 million in 1998. The net loss was primarily due to the
Powerhouse explosion and weak steel product prices.

Powerhouse Explosion Insurance Claim.The insurance claim related to the
February 1, 1999 explosion and fire at the Powerhouse includes the effect of a
93-day outage and the corresponding reduction in shipments, Total Sales and
Costs of Goods Sold. Costs of Goods Sold includes property damage expenses of
$57.5 million and estimated business interruption expenses of $111.2 million
related to the Powerhouse explosion. Depreciation and Amortization Expense
includes an additional $40.4 million related to the temporary steam boilers and
electrical distribution equipment. The aggregate effect of Powerhouse
explosion-related items on

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Operating Loss was $217.4 million. Other income
includes $177.4 million of insurance recoveries. See  Powerhouse Explosion and
Insurance Claims.

Liquidity and Capital Resources

Rouge Industries liquidity needs arise predominantly from capital
investments and working capital requirements. As a result of the explosion and
fire at the Powerhouse on February 1, 1999, the Company incurred increased
levels of expenditures to restore its operations to normal levels. Additionally,
operating losses sustained in 2000 have increased the Companys liquidity needs.
The Company expects to meet its liquidity needs with cash provided by operating
activities, funds provided by borrowings and anticipated insurance recoveries.
See  Powerhouse Explosion and Insurance Claims.

Cash and cash equivalents on December 31, 2000 totaled $2.7 million
compared to $1.9 million on December 31, 1999, an increase of $800,000. The
Company also has restricted cash of $2.7 million at December 31, 2000. Cash
provided by operating activities was offset by cash used for investing and
financing activities during 2000.

Cash Flows from Operating Activities.Net cash provided by operating
activities was $69.6 million in 2000 compared to net cash used for operating
activities of $3.7 million in 1999. The increase of $73.3 million was primarily
attributable to insurance proceeds from the Powerhouse explosion insurance claim
and a reduction of trade receivables resulting from unusually low shipments at
the end of 2000.

Capital Expenditures.Cash used for capital expenditures, including
investments in unconsolidated subsidiaries, decreased 56.5% in 2000 to $30.4
million from $70.0 million in 1999, a decrease of $39.6 million. The
expenditures made in 2000 were primarily for partial payment of the temporary
and permanent electrical distribution system and temporary steam boilers which
were installed after the Powerhouse explosion. Other expenditures were made to
modernize and expand the Companys facilities. In 2001, the Company plans to
spend approximately $25 million on capital items, which will be generally
directed at maintaining plant efficiency and product quality.

Credit Facility.Rouge Steel has a $250 million revolving loan commitment
under a credit agreement (the Credit Agreement) among the Company, the banks
named therein and Congress Financial Corporation, as administrative agent. The
commitments of the banks under the Credit Agreement will expire on March 13,
2004. Rouge Steel is the borrower under the Credit Agreement and Rouge
Industries is a guarantor. The Credit Agreement is secured by substantially all
the assets of the Company. Borrowings under the Credit Agreement are limited to
specified percentages of receivables and inventories. There is only one
financial covenant in the Credit Agreement, Minimum Net Worth, which will be
tested only when excess availability under the Credit Agreement is under $25
million. The Credit Agreement bears an unused line fee of 0.375%. The revolving
loans provided for under the Credit Agreement bear interest, at the option of
the Company, at a rate equal to either (i) the base rate, which is the higher of
the prime rate or the federal funds rate, plus a margin ranging from 0.25% to
1.00% depending on excess availability under the Credit Agreement during the
prior quarter, or (ii) the LIBOR rate plus a margin ranging from 2.25% to 3.00%
depending on the Companys excess availability under the Credit Agreement during
the prior quarter.

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The Company is presently facing the most difficult market conditions
since it became an independent steel producer in 1989. During 2000 and early
2001, the Company was required to seek amendments to the $100 million, unsecured
credit facility it had in place since 1997 ( the Original Credit Facility).
Among other things, these amendments changed financial covenants with which the
Company would have been out of compliance.

The difficult market conditions facing the Company, along with the cash
strain caused by the Powerhouse explosion, have resulted in considerable
pressure on the Companys liquidity causing it to refinance the $100 million,
unsecured credit facility it had place since 1997 (the Original Credit
Facility). Interest on loans under the Credit Agreement will be 125 to 250
basis points higher than loans under the Original Credit Facility. The Company
believes that, despite operating losses, the Credit Agreement, along with cash
flows from operations and anticipated insurance proceeds will be adequate for
its working capital and capital expenditure requirements during the term of the
Credit Agreement.

Environmental Matters

General. The Companys operations are subject to many federal, state and
local laws, regulations, permits and consent agreements relating to the
protection of human health and the environment. Except as set forth below, the
Company believes that its facilities are in material compliance with these
provisions and does not believe that future compliance with such provisions will
have a materially adverse effect on its results of operations or financial
position. The Company has incurred capital expenditures in connection with
matters relating to environmental control of approximately $2 million during the
past four years. In addition, the Company has planned an aggregate of
approximately $5 million in capital expenditures for environmental compliance
for the years 2001 through 2004. Since environmental laws and regulations are
becoming increasingly stringent, the Companys environmental capital
expenditures and costs for environmental compliance may increase in the future.
In addition, due to the possibility of unanticipated regulatory or other
developments, the amount and timing of future environmental expenditures may
vary substantially from those currently anticipated. The costs for current and
future environmental compliance may also place domestic steel producers at a
competitive disadvantage with respect to foreign steel producers, which may not
be required to undertake equivalent costs in their operations, and manufacturers
of steel substitutes, which are subject to less stringent environmental
requirements.

In connection with the acquisition of the Company from Ford in 1989 (the
Acquisition), Ford has agreed to indemnify the Company (the Ford Indemnity)
for any liability arising out of an environmental condition existing prior to
the Acquisition or a subsequent change in law relating to such condition that
results in an environmental claim under any federal or state environmental law,
including the Comprehensive Environmental Response Compensation and Liability
Act of 1980, as amended, (CERCLA), the Resource Conservation and Recovery Act
(RCRA), the Clean Water Act, the Safe Drinking Water Act, the Clean Air Act
and the Occupational Safety and Health Act of 1970 or an environmental claim
based upon a release of a material of environmental concern. An environmental
claim includes, among other things, the costs associated with the release of any
pollutants, contaminants, toxic substances and hazardous substances into the
environment. The Ford Indemnity provides that Ford shall pay the Companys
liabilities, including any penalties and attorneys fees, in connection with any
environmental claim relating to a pre-Acquisition condition. The Ford Indemnity
terminates on December 15, 2009. With respect to previously submitted claims, in
some instances Ford has accepted responsibility; in others, it has denied
responsibility. The submitted claims include

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asbestos removal, CERCLA liabilities, National Pollutant Discharge Elimination
System permit violations, underground storage tank removal, transformer replacement
and transformer removal and disposal. Rouge Steel does not believe the rejection by
Ford of any claims made under the Ford Indemnity will have a materially adverse effect
on the Companys results of operations or financial position.

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

In 1990, Congress passed amendments to the Clean Air Act which impose
more stringent standards on air emissions. Pursuant to Title V of the Clean Air
Act Amendments of 1990, the Company submitted an application for a facility
operating permit (a Title V Permit) in 1997 with amendments in 1998. The
Michigan Department of Environmental Quality (the MDEQ) advised the Company
that the application and the amendments were administratively complete. The
Company expects to receive a draft Title V Permit during 2001.

Settled. In 1997, the Company voluntarily disclosed its failure to obtain
a construction and operating permit for an operational change previously thought
to be exempt from the air permitting requirements. The Company discovered the
error through an environmental self-audit. Disclosure was made under a Michigan
statute that provides immunity from state enforcement for environmental
violations discovered through self-audits if they are voluntarily and promptly
reported and corrected. The MDEQ subsequently issued the permit for the change.

In 1997, the Company received a notice from the Corporation Counsel of
the City of Melvindale (the City) of the Citys intention to sue the Company
for alleged release of particulates into the air and violations of the County of
Wayne permit. In 1998, a class action lawsuit was filed against the Company on
behalf of residents allegedly injured by dust. In 2000, discussions among the
Company, the City, and the class action plaintiffs resulted in a final
settlement wherein the Company agreed to pay approximately $1.5 million for
distribution to plaintiff class members and their attorneys. The settlement also
formalized the Companys intention to undertake specified abatement measures.
All of the abatement measures have now been implemented and the damages paid.

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

In 1999, the Company and the Division executed a consent order resolving
certain NOVs for events which occurred in 1997 and 1998. The consent order
required the Company to pay a penalty of $140,000.

Recent Events. In January 2000, the EPA promulgated regulations limiting
air emissions of nitrogen oxides (NOx), and establishing a cap and trade
program and allocation scheme for allowable NOx emissions. The regulations
identified specific emissions sources. The regulations

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treated the Companys blast furnaces as affected sources and established a NOx
emissions allocation for them. The Company appealed the regulation to the United
States Circuit Court of Appeals and was successful in obtaining a letter from the
EPA acknowledging that the blast furnaces were not intended to be subject to the
NOx emissions allocation scheme. In December 2000, the EPA proposed amendments to its
regulations that would delete the identification of the Company as an affected
source. Those amendments have not been finalized, but the Company anticipates
that the blast furnaces will remain outside the scope of the regulations.

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

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

In December 2000, the U.S. EPA filed a complaint against the Company in
the United States District Court for the Eastern District of Michigan, U.S. vs.
Rouge Steel Company, CV-00-75452. The complaint arose out of a 1998
investigation of Rouge Steels air, water and solid waste storage and disposal
(the Multimedia Investigation). The complaint alleges
violations of the Clean
Air Act and the State of Michigans at the blast opacity emissions standards
furnaces and the BOF during 1998 and 1999. The complaint also alleges violations
of RCRA. Prior to the filing of the complaint, the U.S. EPA informed the Company
that it would seek $1.0 million in penalties, not including any economic benefit
component. Through subsequent negotiations and discussions, the agency agreed to
drop its demand for approximately $300,000 in penalties under the Emergency
Planning and Community Right-to-Know Act and CERCLA. Accordingly, the federal
complaint did not include those claims. At this point, the U.S. EPA has not made
a specific demand for penalties based on any economic benefit allegedly realized
by the Company as a result of the alleged violations. The Company is presently
engaging in discussions with the U.S. EPA regarding the alleged violations,
potential penalties and other relief. Based on those discussions, the Company
presently believes that the agency will seek penalties between $500,000 and
$750,000, not including any penalties for economic benefit.

In December 2000, the County of Wayne (the County) filed a complaint
against the Company in the United States District Court for the Eastern District
of Michigan, County of Wayne v. Rouge Steel Company and Rouge Industries, Inc.
CV-00-75454. The complaint alleges

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violations of the opacity emission standards
of the Wayne County Air Pollution Control Ordinance during 1998 and 1999. These
allegations parallel those in the U.S. EPAs complaint that arose from the
Multimedia Investigation. The County complaint also alleges claims under the
Michigan Environmental Protection Act for the creation of a public nuisance. The
preliminary nature of this litigation makes it difficult to predict its outcome.
The Company anticipates that the opacity emissions allegation will be resolved
in conjunction with the U.S. EPAs parallel allegations. The County has not made
a monetary demand, but has requested entry of an order abating the alleged
public nuisance. The Company has accrued $1.2 million with respect to the U.S.
EPA and the County lawsuits, which it believes will be adequate to cover any
penalties arising from them.

The Division issued several NOVs to the Company regarding opacity
emissions and fallout during 2000 that are not included in the Countys
litigation against the Company. To date, the County has not demanded any
penalties for the alleged violations or taken other enforcement action against
the Company with respect to this matter. However, the Company is aware that the
County is contemplating enforcement action for these NOVs. It is unclear at this
point whether such enforcement action will be consolidated with the Countys
lawsuit for alleged violations in 1998 and 1999, discussed above, or handled as
a separate matter. The Companys disclosure of this matter (or any other
litigation disclosed herein) does not indicate the Companys acknowledgment of
the validity of any claims made in connection therewith. The preliminary nature
this matter makes it difficult for the Company to predict the nature of its
outcome or its impact on the Company.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

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

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

Other Events

UAW Contract. In August 2000, Rouge Steel and the UAW concluded contract
negotiations on a new four-year agreement which expires on August 1, 2004. The
new contract provides for, among other things, improved work force utilization,
more flexible maintenance schedules, base wage increases in each year of the
contract, improvements in retirement, medical, life and disability benefits and
lump-sum bonuses. The effect of the benefit improvements will be higher costs to
the Company.

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B Blast Furnace Shutdown. From January to early March 2001, Rouge Steel
idled the smaller of its two operating blast furnaces due to weak demand for the
Companys products resulting from the deteriorating domestic steel market. The
Company believed this action was necessary to balance production with sales.

New Accounting Pronouncement. During the first quarter of 2001, the Company
will adopt Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities. This pronouncement is not expected
to have a significant impact on the Companys results of operations or financial position.

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Item 8. Financial Statements and Supplementary Data.

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

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|Consolidated Balance Sheets as of December 31, 2000 and 1999                                                         |  |      | 39 | 
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|Consolidated Statements of Operations for the Years Ended
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|                                                                                                                    
|                                                                                                                    
|Consolidated Statements of Changes in Stockholders Equity for the Years Ended
     December 31, 2000, 1999 and 1998 |  |      | 42 | 
|                                                                                                                    
|                                                                                                                    
|                                                                                                                    
|                                                                                                                    
|Consolidated Statements of Cash Flows for the Years Ended
     December 31, 2000, 1999 and 1998                      |  |      | 43 | 
|                                                                                                                    
|                                                                                                                    
|                                                                                                                    
|                                                                                                                    
|Notes to Consolidated Financial Statements                                                                           |  |      | 44 | 
|                                                                                                                    
|                                                                                                                    
|                                                                                                                    
|                                                                                                                    
|Schedule II  Valuation and Qualifying Accounts and Reserves                                                         |  |      | 60 | 

37



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##### Table of Contents



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, 2000 and 1999, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2000 in conformity with accounting principles
generally accepted in the United States of America. In addition, in our opinion,
the financial statement schedule listed in the accompanying index presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Companys management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP
Detroit, Michigan
February 2, 2001, except as to Note 5
      which is as of March 13, 2001

38



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##### Table of Contents



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

Assets

|                                          |                                |                                                           |        |             |         |  |        |          |         | 
|----------------------------------------- | ------------------------------ | --------------------------------------------------------- | ------ | ----------- | ------- |  | ------ | -------- | ------- | 
|                                          |                                |                                                           |        | December 31 |        
|                                          |                                |                                                           |        |             |        
|                                          |                                |                                                           |        | 2000        |         |  | 1999   |         
|                                          |                                |                                                           |        |             |         |  |        |         
|Current Assets                           
|                                         
|                                         
|                                         
|                                         
|                                          | Cash and Cash Equivalents      |                                                           | $      | 2,733       |         |  | $      | 1,861    |        
|                                         
|                                         
|                                         
|                                         
|                                          | Restricted Cash                |                                                           |        | 2,700       |         |  |        |         |        
|                                         
|                                         
|                                         
|                                         
|                                          | Accounts Receivable            |                                                           |        |             |         |  |        |          |        
|                                         
|                                         
|                                         
|                                         
|                                          |                                | Trade and Other (Net of Allowances of $9,823 and $15,997) |        | 108,708     |         |  |        | 135,588  |        
|                                         
|                                         
|                                         
|                                         
|                                          |                                | Insurance Recovery                                        |        |             | 20,007  |  |        |          | 43,085  | 
|                                         
|                                         
|                                         
|                                         
|                                          |                                | Affiliates                                                |        |             | 1,822   |  |        |          | 2,643   | 
|                                         
|                                         
|                                         
|                                         
|                                          | Inventories                    |                                                           |        | 269,245     |         |  |        | 269,808  |        
|                                         
|                                         
|                                         
|                                         
|                                          | Other Current Assets           |                                                           |        | 8,499       |         |  |        | 27,530   |        
|                                          |                                |                                                           |        |             |         | 
|                                          |                                | Total Current Assets                                      |        |             | 413,714 |  |        |          | 480,515 | 
|                                          |                                |                                                           |        |             |         | 
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|Property, Plant, and Equipment           
|                                          | Land                           |                                                           |        | 360         |         |  |        | 360      |        
|                                         
|                                         
|                                         
|                                         
|                                          | Buildings and Improvements     |                                                           |        | 23,122      |         |  |        | 23,000   |        
|                                         
|                                         
|                                         
|                                         
|                                          | Machinery and Equipment        |                                                           |        | 379,460     |         |  |        | 363,406  |        
|                                         
|                                         
|                                         
|                                         
|                                          | Construction in Progress       |                                                           |        | 18,338      |         |  |        | 13,145   |        
|                                          |                                |                                                           |        |             |         | 
|                                          |                                | Subtotal                                                  |        |             | 421,280 |  |        |          | 399,911 | 
|                                         
|                                         
|                                         
|                                         
|                                          | Less: Accumulated Depreciation |                                                           |        | (176,912    | )       |  |        | (121,301 | )      
|                                          |                                |                                                           |        |             |         | 
|                                          |                                | Net Property, Plant, and Equipment                        |        |             | 244,368 |  |        |          | 278,610 | 
|                                          |                                |                                                           |        |             |         | 
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|Investment in Unconsolidated Subsidiaries |                                |                                                           | 66,918 |             |         |  | 71,258 |         
|                                          |                                |                                                           |        |             |         | 
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|Deferred Taxes                            |                                |                                                           |       |             |         |  | 23,108 |         
|                                          |                                |                                                           |        |             |         | 
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|Deferred Charges and Other                |                                |                                                           | 16,018 |             |         |  | 14,115 |         
|                                          |                                |                                                           |        |             |         | 
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                          |                                | Total Assets                                              |        | $           | 741,018 |  |        | $        | 867,606 | 
|                                          |                                |                                                           |        |             |         | 

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

39



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##### Table of Contents



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

Liabilities and Stockholders Equity

|                                                |              |                                               |                                                                                                                                            |  |             |         |         |      |         |         | 
|----------------------------------------------- | ------------ | --------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------- | ------- | ------- | ---- | ------- | ------- | 
|                                                |              |                                               |                                                                                                                                            |  | December 31 |        
|                                                |              |                                               |                                                                                                                                            |  |             |        
|                                                |              |                                               |                                                                                                                                            |  | 2000        |         |         | 1999 |        
|                                                |              |                                               |                                                                                                                                            |  |             |         |         |      |        
|Current Liabilities                            
|                                                |              | Accounts Payable                             
|                                                |              |                                               | Trade                                                                                                                                      |  | $           | 188,626 |         |      | $       | 191,737 | 
|                                               
|                                               
|                                               
|                                               
|                                                |              |                                               | Affiliates                                                                                                                                 |  |             | 11,149  |         |      |         | 9,890   | 
|                                               
|                                               
|                                               
|                                               
|                                                |              | Deferred Insurance Recovery                   |                                                                                                                                            |  | 44,000      |         |         |      | 24,671  |        
|                                               
|                                               
|                                               
|                                               
|                                                |              | Current Portion of Long-Term Debt             |                                                                                                                                            |  |            |         |         |      | 4,800   |        
|                                               
|                                               
|                                               
|                                               
|                                                |              | Accrued Vacation Pay                          |                                                                                                                                            |  | 10,087      |         |         |      | 10,484  |        
|                                               
|                                               
|                                               
|                                               
|                                                |              | Taxes Other than Income                       |                                                                                                                                            |  | 6,128       |         |         |      | 4,506   |        
|                                               
|                                               
|                                               
|                                               
|                                                |              | Other Accrued Liabilities                     |                                                                                                                                            |  | 35,964      |         |         |      | 36,129  |        
|                                                |              |                                               |                                                                                                                                            |  |             |        
|                                                |              |                                               | Total Current Liabilities                                                                                                                  |  |             | 295,954 |         |      |         | 282,217 | 
|                                                |              |                                               |                                                                                                                                            |  |             |        
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|Long-Term Debt                                  |              |                                               | 66,500                                                                                                                                     |  |             |         | 100,000 |     
|                                                |              |                                               |                                                                                                                                            |  |             |        
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|Other Postretirement Benefits                   |              |                                               | 73,288                                                                                                                                     |  |             |         | 63,936  |     
|                                                |              |                                               |                                                                                                                                            |  |             |        
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|Other Liabilities                               |              |                                               | 12,430                                                                                                                                     |  |             |         | 11,678  |     
|                                                |              |                                               |                                                                                                                                            |  |             |        
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|Commitments and Contingencies (Notes 10 and 11)
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|Stockholders Equity                           
|                                               
|                                               
|                                               
|                                               
|                                                | Common Stock
|                                                |              |                                               | Class A, 80,000,000 shares authorized with 15,087,577 and
14,570,511 issued and outstanding as of December 31, 2000
and 1999, respectively |  |             | 151     |         |      |         | 146     | 
|                                               
|                                               
|                                               
|                                               
|                                                |              |                                               | Class B, 8,690,400 shares authorized with 7,140,400 and
7,562,400 issued and outstanding as of December 31, 2000
and 1999, respectively    |  |             | 72      |         |      |         | 76      | 
|                                               
|                                               
|                                               
|                                               
|                                                |              | Capital in Excess of Par Value                |                                                                                                                                            |  | 130,233     |         |         |      | 129,943 |        
|                                               
|                                               
|                                               
|                                               
|                                                |              | Retained Earnings                             |                                                                                                                                            |  | 162,430     |         |         |      | 282,409 |        
|                                               
|                                               
|                                               
|                                               
|                                                |              | Accumulated Other Comprehensive Income (Loss) |                                                                                                                                            |  | (40         | )       |         |      | (2,799  | )      
|                                                |              |                                               |                                                                                                                                            |  |             |        
|                                                |              |                                               | Total Stockholders Equity                                                                                                                 |  |             | 292,846 |         |      |         | 409,775 | 
|                                                |              |                                               |                                                                                                                                            |  |             |        
|                                                |              |                                               | Total Liabilities and Stockholders Equity                                                                                                 |  | $           | 741,018 |         |      | $       | 867,606 | 
|                                                |              |                                               |                                                                                                                                            |  |             |        

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

40



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##### Table of Contents



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

|                                                                            |                                                         |                          |            |                         |           |   |            |           |           |      |            |           |           | 
|--------------------------------------------------------------------------- | ------------------------------------------------------- | ------------------------ | ---------- | ----------------------- | --------- | - | ---------- | --------- | --------- | ---- | ---------- | --------- | --------- | 
|                                                                            |                                                         |                          |            | Years Ended December 31 |          
|                                                                            |                                                         |                          |            |                         |          
|                                                                            |                                                         |                          |            | 2000                    |           |   | 1999       |           |           | 1998 |           
|                                                                            |                                                         |                          |            |                         |           |   |            |           |           |      |           
|Sales                                                                      
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Unaffiliated Customers                                  |                          | $          | 1,070,031               |           |   | $          | 950,148   |           |      | $          | 1,079,913 |          
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Affiliates                                              |                          |            | 29,780                  |           |   |            | 45,434    |           |      |            | 113,045   |          
|                                                                            |                                                         |                          |            |                         |           |   |            |           |          
|                                                                            |                                                         | Total Sales              |            |                         | 1,099,811 |   |            |           | 995,582   |      |            |           | 1,192,958 | 
|                                                                            |                                                         |                          |            |                         |           |   |            |           |          
|Costs and Expenses                                                         
|                                                                            | Costs of Goods Sold                                     |                          |            | 1,183,215               |           |   |            | 1,165,091 |           |      |            | 1,119,801 |          
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Depreciation and Amortization                           |                          |            | 56,711                  |           |   |            | 63,267    |           |      |            | 19,993    |          
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Selling and Administrative Expenses                     |                          |            | 26,699                  |           |   |            | 26,772    |           |      |            | 23,875    |          
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Amortization of Excess of Net Assets Acquired Over Cost |                          |            |                        |           |   |            | (5,484    | )         |      |            | (5,796    | )        
|                                                                            |                                                         |                          |            |                         |           |   |            |           |          
|                                                                            |                                                         | Total Costs and Expenses |            |                         | 1,266,625 |   |            |           | 1,249,646 |      |            |           | 1,157,873 | 
|                                                                            |                                                         |                          |            |                         |           |   |            |           |          
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Operating Income (Loss)                                                     |                                                         |                          | (166,814   | )                       |           |   | (254,064   | )         |           |      | 35,085     |          
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Interest Income                                                             |                                                         |                          | 949        |                         |           |   | 750        |           |           |      | 1,473      |          
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Interest Expense                                                            |                                                         |                          | (5,240     | )                       |           |   | (2,843     | )         |           |      | (775       | )        
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Insurance Recovery                                                          |                                                         |                          | 91,006     |                         |           |   | 177,414    |           |           |      |           |          
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Other  Net                                                                 |                                                         |                          | (1,905     | )                       |           |   | (1,214     | )         |           |      | (2,722     | )        
|                                                                            |                                                         |                          |            |                         |           |   |            |           |          
|Income (Loss) Before Income Taxes
and Equity in Unconsolidated Subsidiaries |                                                         |                          | (82,004    | )                       |           |   | (79,957    | )         |           |      | 33,061     |          
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Income Tax (Provision) Benefit                                              |                                                         |                          | (37,262    | )                       |           |   | 30,494     |           |           |      | (8,705     | )        
|                                                                            |                                                         |                          |            |                         |           |   |            |           |          
|Income (Loss) Before Equity in Unconsolidated Subsidiaries                  |                                                         |                          | (119,266   | )                       |           |   | (49,463    | )         |           |      | 24,356     |          
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Equity in Unconsolidated Subsidiaries                                       |                                                         |                          | 1,947      |                         |           |   | 1,652      |           |           |      | (964       | )        
|                                                                            |                                                         |                          |            |                         |           |   |            |           |          
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Net Income (Loss)                                                           |                                                         | $                        | (117,319   | )                       |           | $ | (47,811    | )         |           | $    | 23,392     |          
|                                                                            |                                                         |                          |            |                         |           |   |            |           |          
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Net Income (Loss) Per Share  Basic and Diluted                             |                                                         | $                        | (5.29      | )                       |           | $ | (2.16      | )         |           | $    | 1.06       |          
|                                                                            |                                                         |                          |            |                         |           |   |            |           |          
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Weighted-Average Shares Outstanding                                         |                                                         |                          | 22,157,980 |                         |           |   | 22,121,701 |           |           |      | 22,025,430 |          
|                                                                            |                                                         |                          |            |                         |           |   |            |           |          

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

41



---



##### Table of Contents



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

|                                              |                                                 |                             |                         |          |          |   |         |         |         |      |         |         |         |  
|--------------------------------------------- | ----------------------------------------------- | --------------------------- | ----------------------- | -------- | -------- | - | ------- | ------- | ------- | ---- | ------- | ------- | ------- | -
|                                              |                                                 |                             | Years Ended December 31 |          |          |   |         |         |        
|                                              |                                                 |                             |                         |          |          |   |         |         |        
|                                              |                                                 |                             |                         | 2000     |          |   | 1999    |         |         | 1998 |        
|                                              |                                                 |                             |                         |          |          |   |         |         |         |      |        
|Class A and Class B Common Stock             
|                                              | Beginning Balance                               |                             | $                       | 222      |          |   | $       | 221     |         |      | $       | 220     |        
|                                             
|                                             
|                                             
|                                             
|                                              | Common Stock Issued for Benefit Plans           |                             |                         | 1        |          |   |         | 1       |         |      |         | 1       |        
|                                              |                                                 |                             |                         |          |          |   |         |         |        
|                                              |                                                 | Ending Balance              |                         |          | 223      |   |         |         | 222     |      |         |         | 221     |  
|                                              |                                                 |                             |                         |          |          |   |         |         |        
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|Capital in Excess of Par Value               
|                                              | Beginning Balance                               |                             |                         | 129,943  |          |   |         | 129,458 |         |      |         | 128,517 |        
|                                             
|                                             
|                                             
|                                             
|                                              | Common Stock Issued for Benefit Plans           |                             |                         | 256      |          |   |         | 410     |         |      |         | 932     |        
|                                             
|                                             
|                                             
|                                             
|                                              | Common Stock Issued for ODEP                    |                             |                         | 34       |          |   |         | 55      |         |      |         | 9       |        
|                                             
|                                             
|                                             
|                                             
|                                              | Exercise of Stock Options                       |                             |                         |         |          |   |         | 20      |         |      |         |        |        
|                                              |                                                 |                             |                         |          |          |   |         |         |        
|                                              |                                                 | Ending Balance              |                         |          | 130,233  |   |         |         | 129,943 |      |         |         | 129,458 |  
|                                              |                                                 |                             |                         |          |          |   |         |         |        
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|Retained Earnings                            
|                                              | Beginning Balance                               |                             |                         | 282,409  |          |   |         | 332,876 |         |      |         | 312,130 |        
|                                             
|                                             
|                                             
|                                             
|                                              | Net Income (Loss)                               |                             |                         | (117,319 | )        |   |         | (47,811 | )       |      |         | 23,392  |        
|                                             
|                                             
|                                             
|                                             
|                                              | Cash Dividends Declared                         |                             |                         | (2,660   | )        |   |         | (2,656  | )       |      |         | (2,646  | )      
|                                              |                                                 |                             |                         |          |          |   |         |         |        
|                                              |                                                 | Ending Balance              |                         |          | 162,430  |   |         |         | 282,409 |      |         |         | 332,876 |  
|                                              |                                                 |                             |                         |          |          |   |         |         |        
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|Accumulated Other Comprehensive Income (Loss)
|                                              | Beginning Balance                               |                             |                         | (2,799   | )        |   |         | (2,933  | )       |      |         | (2,246  | )      
|                                             
|                                             
|                                             
|                                             
|                                              | Additional Minimum Pension Liability Adjustment |                             |                         | 2,759    |          |   |         | 134     |         |      |         | (687    | )      
|                                              |                                                 |                             |                         |          |          |   |         |         |        
|                                              |                                                 | Ending Balance              |                         |          | (40      | ) |         |         | (2,799  | )    |         |         | (2,933  | )
|                                              |                                                 |                             |                         |          |          |   |         |         |        
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|Total Stockholders Equity                    |                                                 | $                           | 292,846                 |          |          | $ | 409,775 |         |         | $    | 459,622 |        
|                                              |                                                 |                             |                         |          |          |   |         |         |        
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|Comprehensive Income (Loss)                  
|                                              | Net Income (Loss)                               |                             | $                       | (117,319 | )        |   | $       | (47,811 | )       |      | $       | 23,392  |        
|                                             
|                                             
|                                             
|                                             
|                                              | Additional Minimum Pension Liability Adjustment |                             |                         | 2,759    |          |   |         | 134     |         |      |         | (687    | )      
|                                              |                                                 |                             |                         |          |          |   |         |         |        
|                                              |                                                 | Comprehensive Income (Loss) |                         | $        | (114,560 | ) |         | $       | (47,677 | )    |         | $       | 22,705  |  
|                                              |                                                 |                             |                         |          |          |   |         |         |        

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

42



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##### Table of Contents



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

|                                                     |                                                                                                    |                                                         |                                                      |                         |        |         |       |          |         |         |         |          |        |         |  
|---------------------------------------------------- | -------------------------------------------------------------------------------------------------- | ------------------------------------------------------- | ---------------------------------------------------- | ----------------------- | ------ | ------- | ----- | -------- | ------- | ------- | ------- | -------- | ------ | ------- | -
|                                                     |                                                                                                    |                                                         |                                                      | Years Ended December 31 |        |         |       |          |         |        
|                                                     |                                                                                                    |                                                         |                                                      |                         |        |         |       |          |         |        
|                                                     |                                                                                                    |                                                         |                                                      |                         | 2000   |         |       | 1999     |         |         | 1998    |         
|                                                     |                                                                                                    |                                                         |                                                      |                         |        |         |       |          |         |         |         |         
|Cash Flows From Operating Activities                
|                                                     | Net Income (Loss)                                                                                  |                                                         | $                                                    | (117,319                | )      |         | $     | (47,811  | )       |         | $       | 23,392   |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by(Used for) Operating Activities:
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                    | Deferred Taxes                                          |                                                      |                         | 42,386 |         |       |          | (31,434 | )       |         |          | 3,193  |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                    | Depreciation and Amortization                           |                                                      |                         | 56,711 |         |       |          | 63,267  |         |         |          | 19,993 |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                    | Equity in Unconsolidated Subsidiaries                   |                                                      |                         | (1,947 | )       |       |          | (1,652  | )       |         |          | 964    |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                    | Amortization of Excess of Net Assets Acquired Over Cost |                                                      |                         |       |         |       |          | (5,484  | )       |         |          | (5,796 | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                    | Common Stock Issued for Benefit Plans                   |                                                      |                         | 291    |         |       |          | 466     |         |         |          | 942    |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                    | Changes in Assets and Liabilities:                     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                    |                                                         | Accounts Receivable                                  |                         |        | 50,779  |       |          |         | (48,048 | )       |          |        | (17,465 | )
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                    |                                                         | Inventories                                          |                         |        | 2,319   |       |          |         | 4,723   |         |          |        | (25,108 | )
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                    |                                                         | Prepaid Expenses                                     |                         |        | (7,092  | )     |          |         | 3,696   |         |          |        | (288    | )
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                    |                                                         | Accounts Payable and Accrued Liabilities             |                         |        | 20,981  |       |          |         | 31,254  |         |          |        | 20,479  |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                    |                                                         | Deferred Insurance Recovery                          |                         |        | 19,329  |       |          |         | 24,671  |         |          |        |        |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                    |                                                         | Other  Net                                          |                         |        | 3,116   |       |          |         | 2,629   |         |          |        |        |  
|                                                     |                                                                                                    |                                                         |                                                      |                         |        |         |       |          |        
|                                                     |                                                                                                    |                                                         | Net Cash Provided by (Used for) Operating Activities |                         |        | 69,554  |       |          |         | (3,723  | )       |          |        | 20,306  |  
|                                                     |                                                                                                    |                                                         |                                                      |                         |        |         |       |          |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|Cash Flows From Investing Activities                
|                                                     | Capital Expenditures                                                                               |                                                         |                                                      | (29,156                 | )      |         |       | (64,700  | )       |         |         | (21,226  | )     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Investment in Unconsolidated Subsidiaries                                                          |                                                         |                                                      | (1,290                  | )      |         |       | (5,298   | )       |         |         | (17,959  | )     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Distributions from Unconsolidated Subsidiaries                                                     |                                                         |                                                      | 5,823                   |        |         |       |         |         |         |         |         |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Change in Restricted Cash                                                                          |                                                         |                                                      | (2,700                  | )      |         |       |         |         |         |         |         |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Other  Net                                                                                        |                                                         |                                                      | (399                    | )      |         |       |         |         |         |         | 273      |       
|                                                     |                                                                                                    |                                                         |                                                      |                         |        |         |       |          |        
|                                                     |                                                                                                    |                                                         | Net Cash Used for Investing Activities               |                         |        | (27,722 | )     |          |         | (69,998 | )       |          |        | (38,912 | )
|                                                     |                                                                                                    |                                                         |                                                      |                         |        |         |       |          |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|Cash Flows From Financing Activities                
|                                                     | Drawdowns on Revolving Line                                                                        |                                                         |                                                      | 453,000                 |        |         |       | 453,200  |         |         |         | 271,700  |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Principal Payments on Revolving Line                                                               |                                                         |                                                      | (491,300                | )      |         |       | (377,400 | )       |         |         | (260,600 | )     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Cash Dividend Payments                                                                             |                                                         |                                                      | (2,660                  | )      |         |       | (2,656   | )       |         |         | (2,646   | )     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Exercise of Stock Options                                                                          |                                                         |                                                      |                        |        |         |       | 20       |         |         |         |         |       
|                                                     |                                                                                                    |                                                         |                                                      |                         |        |         |       |          |        
|                                                     |                                                                                                    |                                                         | Net Cash (Used for) Provided by Financing Activities |                         |        | (40,960 | )     |          |         | 73,164  |         |          |        | 8,454   |  
|                                                     |                                                                                                    |                                                         |                                                      |                         |        |         |       |          |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|Net Increase (Decrease) in Cash and Cash Equivalents |                                                                                                    |                                                         | 872                                                  |                         |        |         | (557  | )        |         |         | (10,152 | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|Cash and Cash Equivalents  Beginning of Year        |                                                                                                    |                                                         | 1,861                                                |                         |        |         | 2,418 |          |         |         | 12,570  |         
|                                                     |                                                                                                    |                                                         |                                                      |                         |        |         |       |          |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|Cash and Cash Equivalents  End of Year              |                                                                                                    | $                                                       | 2,733                                                |                         |        | $       | 1,861 |          |         | $       | 2,418   |         
|                                                     |                                                                                                    |                                                         |                                                      |                         |        |         |       |          |        

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

43



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##### Table of Contents



ROUGE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1  SIGNIFICANT ACCOUNTING POLICIES

Description of the Company

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

The steel industry is cyclical in nature and the domestic steel industry has
been adversely affected in recent years by high levels of steel imports,
worldwide production overcapacity, increased domestic and international
competition, high labor and energy costs and inefficient plants. As a result of
the most recent industry downturn and its effect on the Company, management has
pursued several initiatives intended to increase liquidity and better position
Rouge Industries to compete under current market conditions, including the
refinancing of the Companys long-term debt. (see Note 5).

Principles of Consolidation

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

Segment Information

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

Revenue Recognition

Revenue from product sales is recognized when the customer has taken title and
assumed the risks and rewards of ownership. Provisions for returns and other
adjustments are recorded in the period the revenue is recognized.

The revenue recognition guidelines of Staff Accounting Bulletin No. 101 are
consistent with the Companys existing revenue recognition policies.
Accordingly, there was no material impact on the consolidated financial
statements as a result of its adoption during the fourth quarter of 2000.

During the fourth quarter of 2000, the Company adopted the requirements of
Emerging Issues Task Force Issue 00-10, Accounting for Shipping and Handling
Fees and Costs, (EITF 00-10) which requires all amounts billed to customers
related to shipping and handling to be classified as revenue. Historically, all

44



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##### Table of Contents



freight charges to customers have been included as a component of revenue,
however, the cost of certain types of freight was recorded as a reduction of
revenue. The Company has reclassified such freight cost for all years presented.
As a result, reported sales and costs of goods sold have increased approximately
$26,216,000, $27,940,000 and $29,769,000 for 2000, 1999 and 1998, respectively.
There was no impact on operating income (loss) or net income (loss).

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, 2000 and 1999. 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, 2000.

Significant Customers

The Companys significant customers are Ford Motor Company (Ford), General
Motors Corporation (GM) and DaimlerChrysler AG (DaimlerChrysler). Sales to
Ford totaled $420,504,000 in 2000, $402,994,000 in 1999 and $428,865,000 in
1998.

Sales to GM totaled $103,916,000 in 2000, $63,000,000 in 1999 and $72,067,000 in
1998.

Sales to DaimlerChrysler totaled $96,043,000 in 2000, $99,800,000 in 1999 and
$120,061,000 in 1998.

Inventories

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

Nonmonetary Transactions

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

45



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##### Table of Contents



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.

As a result of the Powerhouse explosion (see Note 11), during 1999 the Company
installed temporary facilities to provide steam and electrical distribution. The
cost of these assets was $72,602,000, which was amortized over their expected
useful lives of 20 to 23 months.

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

Income Taxes

As required by SFAS 109, Accounting for Income Taxes, the Company has
considered the likelihood of its ability to realize the future benefit of its
deferred tax assets given the continuing uncertainty of the domestic steel
market. In evaluating the need for a valuation allowance against its net
deferred tax assets, the Company has considered historical and projected
financial performance and other factors relating to generation of future taxable
income. At this time, the Company has concluded that a valuation allowance is
necessary for all its net deferred tax assets (see Note 7).

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.

46



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##### Table of Contents



New Accounting Pronouncement

During the first quarter of 2001, the Company will adopt Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities. This pronouncement is not expected to have a significant impact on
the Companys results of operations or financial position.

NOTE 2  MARKETABLE SECURITIES

As of December 31, 2000 and 1999, marketable securities classified as cash
equivalents were $693,000 and $439,000, respectively. The Companys investments
in marketable securities are comprised entirely of money market funds.

NOTE 3  INVENTORIES

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

|                         |                                          |                          |        |             |         |  |        |         |         | 
|------------------------ | ---------------------------------------- | ------------------------ | ------ | ----------- | ------- |  | ------ | ------- | ------- | 
|                         |                                          |                          |        | December 31 |        
|                         |                                          |                          |        |             |        
|                         |                                          |                          |        | 2000        |         |  | 1999   |        
|                         |                                          |                          |        |             |         |  |        |        
|Production              
|                         | Raw Materials                            |                          | $      | 86,182      |         |  | $      | 79,434  |        
|                        
|                        
|                        
|                        
|                         | Semifinished and Finished Steel Products |                          |        | 180,688     |         |  |        | 182,517 |        
|                         |                                          |                          |        |             |         | 
|                         |                                          | Total Production at FIFO |        |             | 266,870 |  |        |         | 261,951 | 
|                        
|                        
|                        
|                        
|                         | LIFO Reserves                            |                          |        | (13,387     | )       |  |        | (9,214  | )      
|                         |                                          |                          |        |             |         | 
|                         |                                          | Total Production at LIFO |        |             | 253,483 |  |        |         | 252,737 | 
|                        
|                        
|                        
|                        
|Nonproduction and Sundry |                                          |                          | 15,762 |             |         |  | 17,071 |        
|                         |                                          |                          |        |             |         | 
|                         |                                          | Total Inventories        |        | $           | 269,245 |  |        | $       | 269,808 | 
|                         |                                          |                          |        |             |         | 

NOTE 4  INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES

At December 31, 2000, the Companys investments in unconsolidated subsidiaries
consist of a 50% interest in Double Eagle Steel Coating Company (Double
Eagle), a 45% interest in Eveleth Mines LLC (EVTAC), a 20% interest in Shiloh
of Michigan, L.L.C. (Shiloh of Michigan), a 48% interest in Spartan Steel
Coating, L.L.C. (Spartan Steel), an 11.1% interest in TWB Company, L.L.C.
(TWB), a 40% interest in Bing Blanking, L.L.C. (Bing Blanking) and a 49%
interest in Delaco Processing, L.L.C. (Delaco Steel Processing). All of the
Companys investments in unconsolidated subsidiaries are accounted for under the
equity method.

Double Eagle is an electrogalvanizing 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
$41,232,000, $39,609,000 and $40,432,000 for 2000, 1999 and 1998, respectively,
is included in the Companys costs and expenses and inventory. The Company is
committed to pay 50% of the fixed costs incurred and a pro rata share of
variable costs based on coatings applied to the Companys products. At December
31, 2000, the Companys share of the underlying net assets of Double Eagle
exceeded its investment by $27,752,000. This excess results from purchase
accounting adjustments made on the consolidated accounts of the Company at the
time of the acquisition of the Company from Ford and relates primarily to
property, plant, and equipment. This excess is being amortized as a reduction of
Rouge Industries share of Double Eagles costs over the remaining lives of the
property.

47



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##### Table of Contents



Eveleth became a wholly-owned subsidiary of the Company in 1996 and, in exchange
for a 45% ownership interest in EVTAC, Eveleth assigned substantially all of its
operating assets and liabilities to EVTAC. At December 31, 2000, the Companys
share of the underlying net assets of EVTAC exceeded its investment by
$6,863,000. This excess is being amortized over the estimated remaining useful
lives of the contributed assets.

Shiloh of Michigan produces engineered steel blanks, TWB produces laser welded
blanks, Spartan Steel is a cold rolled hot dip galvanizing facility, Bing
Blanking is a producer of first operation blanks and roll formed parts, and
Delaco Steel Processing is a steel processor. Spartan Steel, Bing Blanking and
Delaco Steel Processing all began operation in 1998. See Note 10 for additional
discussion related to Bing Blanking.

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

|                       |  |             |         |  |      |   |         | 
|---------------------- |  | ----------- | ------- |  | ---- | - | ------- | 
|                       |  | December 31 |        
|                       |  |             |        
|                       |  | 2000        |         |  | 1999 |  
|                       |  |             |         |  |      |  
|Current Assets         |  | $           | 99,848  |  |      | $ | 103,415 | 
|                      
|                      
|                      
|                      
|Noncurrent Assets      |  |             | 320,595 |  |      |   | 341,529 | 
|                      
|                      
|                      
|                      
|Current Liabilities    |  |             | 88,457  |  |      |   | 80,285  | 
|                      
|                      
|                      
|                      
|Noncurrent Liabilities |  |             | 96,038  |  |      |   | 110,513 | 

|                  |  |                         |         |  |      |   |         |      |  |   |         |  
|----------------- |  | ----------------------- | ------- |  | ---- | - | ------- | ---- |  | - | ------- | -
|                  |  | Years Ended December 31 |        
|                  |  |                         |        
|                  |  | 2000                    |         |  | 1999 |   |         | 1998 | 
|                  |  |                         |         |  |      |   |         |      | 
|Net Sales         |  | $                       | 354,459 |  |      | $ | 327,760 |      |  | $ | 258,779 |  
|                 
|                 
|                 
|                 
|Gross Profit      |  |                         | 31,021  |  |      |   | 34,108  |      |  |   | 18,422  |  
|                 
|                 
|                 
|                 
|Net Income (Loss) |  |                         | 7,270   |  |      |   | 15,546  |      |  |   | (1,594) | )

NOTE 5  DEBT

The Company had borrowings of $66,500,000 outstanding as of December 31, 2000
and $104,800,000 outstanding as of December 31, 1999.

During 2000, Rouge Steel had a $125,000,000 revolving loan commitment under a
credit agreement (the Credit Agreement). On December 31, 2000, $25,000,000 of
the commitments under the Credit Agreement expired with the remaining
$100,000,000 scheduled to expire on December 16, 2002. Interest on loans made
under the Credit Agreement was calculated by one of two methods: (i) the higher
of the prime rate or the federal funds rate plus 0.5% or (ii) the London
Interbank Offered Rate plus a margin ranging from 0.725% to 1.20%, depending on
the Companys debt to EBITDA ratio at the time of borrowing. The Companys
recent financial results caused it to seek amendments to the Credit Agreement
during 1999 and 2000 in order to adjust certain financial performance covenants
and increase the commitment level.

In 2001, the Company amended the Credit Agreement ( the Amendments and,
together with the Credit Agreement, the Amended Credit Agreement). Among other
things, the Amendments (i) changed financial covenants with which the Company
would have been out of compliance, (ii) caused the loans under the Amended
Credit Agreement to be secured by substantially all the assets of the Company,
(iii)

48



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##### Table of Contents



increased the commitment of the banks to $150,000,000, (iv) limited
borrowings to specified percentages of receivables and inventories, and (v)
changed the expiration date of the Amended Credit Agreement to January 31, 2002.
Interest on loans made under the Amended Credit Agreement was calculated by one
of two methods: (a) the higher of prime rate plus 1.5% or the federal funds rate
plus 2.0% or (b) the London Interbank Offered Rate plus 3.25%.

On March 13, 2001, Rouge Steel and Rouge Industries entered into an agreement
for a $250,000,000 revolving loan facility (the New Credit Agreement) which
replaced the Amended Credit Agreement. The New Credit Agreement expires on March
13, 2004. Rouge Steel is the borrower under the New Credit Agreement and Rouge
Industries is a guarantor. The New Credit Agreement is secured by substantially
all the assets of the Company. Borrowings under the New Credit Agreement are
limited to specified percentages of receivables and inventories. There is only
one financial covenant in the New Credit Agreement, minimum Net Worth, which
will be tested only when excess availability under the New Credit Agreement is
under $25,000,000. The New Credit Agreement bears an unused line fee of 0.375%.
Interest on loans made under the New Credit Agreement is calculated by one of
two methods: (i) the prime rate plus a margin ranging from 0.25% to 1.00%,
depending upon excess availability under the New Credit Agreement during the
prior quarter or (ii) the London Interbank Offered Rate plus a margin ranging
from 2.25% to 3.00%, depending upon excess availability under the New Credit
Agreement during the prior quarter.

The Company believes that funds available under the New Credit Agreement, cash
flows from operations and anticipated insurance proceeds will be adequate for
its working capital and capital expenditure requirements during the term of the
New Credit Agreement.

Cash paid for interest was $4,005,000 in 2000, $2,550,000 in 1999 and $926,000
in 1998.

49



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##### Table of Contents



NOTE 6  PENSION AND POSTRETIREMENT BENEFIT PLANS

The following table presents benefit obligation, asset value, funded status,
cash flow and weighted- average assumptions for Rouge Steels pension and
postretirement benefit plans (dollars in thousands):

|                                                                    |                                          |                                          |         |               |         |   |                              |        |         |      |         |        |         |   |         |         |         |   |         |         |         |   |         |         |         |  
|------------------------------------------------------------------- | ---------------------------------------- | ---------------------------------------- | ------- | ------------- | ------- | - | ---------------------------- | ------ | ------- | ---- | ------- | ------ | ------- | - | ------- | ------- | ------- | - | ------- | ------- | ------- | - | ------- | ------- | ------- | -
|                                                                    |                                          |                                          |        
|                                                                    |                                          |                                          |         | Pension Plans |         |   | Postretirement Benefit Plans
|                                                                    |                                          |                                          |         |               |         |   |                             
|                                                                    |                                          |                                          |         | 2000          |         |   | 1999                         |        |         | 1998 |         |        | 2000    |   |         | 1999    |         |   | 1998    |        
|                                                                    |                                          |                                          |         |               |         |   |                              |        |         |      |         |        |         |   |         |         |         |   |         |        
|Change in Benefit Obligation                                       
|Benefit Obligation at Beginning of Year                             |                                          | $                                        | 141,446 |               |         | $ | 130,763                      |        |         | $    | 109,087 |        |         | $ | 68,594  |         |         | $ | 67,879  |         |         | $ | 54,530  |        
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Service Cost                             |                                          |         | 7,006         |         |   |                              | 7,993  |         |      |         | 8,116  |         |   |         | 4,346   |         |   |         | 4,490   |         |   |         | 3,649   |        
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Interest Cost                            |                                          |         | 11,125        |         |   |                              | 9,280  |         |      |         | 8,425  |         |   |         | 5,459   |         |   |         | 4,878   |         |   |         | 4,211   |        
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Participants Contributions              |                                          |         | 329           |         |   |                              | 337    |         |      |         | 337    |         |   |         |        |         |   |         |        |         |   |         |        |        
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Plan Amendments                          |                                          |         | 9,728         |         |   |                              |       |         |      |         |       |         |   |         | (231    | )       |   |         |        |         |   |         |        |        
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Actuarial (Gain) Loss                    |                                          |         | (15,673       | )       |   |                              | (4,034 | )       |      |         | 6,821  |         |   |         | (5,951  | )       |   |         | (8,320  | )       |   |         | 5,727   |        
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Total Benefit Payments                   |                                          |         | (4,011        | )       |   |                              | (238   | )       |      |         | (2,893 | )       |   |         | (2,023  | )       |   |         | (449    | )       |   |         | (333    | )      
|                                                                    |                                          |                                          |         |               |         |   |                              |        |         |      |         |        |         |   |         |         |         |  
|                                                                    |                                          | Benefit Obligation at End of Year        |         | $             | 149,950 |   |                              | $      | 141,446 |      |         | $      | 130,763 |   |         | $       | 71,768  |   |         | $       | 68,594  |   |         | $       | 67,879  |  
|                                                                    |                                          |                                          |         |               |         |   |                              |        |         |      |         |        |         |   |         |         |         |  
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|Change in Plan Assets                                              
|Fair Value of Plan Assets at Beginning of Year                      |                                          | $                                        | 146,253 |               |         | $ | 128,055                      |        |         | $    | 121,360 |        |         | $ |        |         |         | $ |        |         |         | $ |        |        
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Actual Return on Plan Assets             |                                          |         | 20,538        |         |   |                              | 20,554 |         |      |         | 6,550  |         |   |         |        |         |   |         |        |         |   |         |        |        
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Employer Contributions                   |                                          |         | 861           |         |   |                              | 187    |         |      |         | 2,124  |         |   |         | 449     |         |   |         | 333     |         |   |         | 238     |        
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Participants Contributions              |                                          |         | 329           |         |   |                              | 337    |         |      |         | 337    |         |   |         |        |         |   |         |        |         |   |         |        |        
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Total Benefit Payments                   |                                          |         | (4,011        | )       |   |                              | (2,893 | )       |      |         | (2,023 | )       |   |         | (449    | )       |   |         | (333    | )       |   |         | (238    | )      
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Other                                    |                                          |         | (195          | )       |   |                              | 13     |         |      |         | (293   | )       |   |         |        |         |   |         |        |         |   |         |        |        
|                                                                    |                                          |                                          |         |               |         |   |                              |        |         |      |         |        |         |   |         |         |         |  
|                                                                    |                                          | Fair Value of Plan Assets at End of Year |         | $             | 163,775 |   |                              | $      | 146,253 |      |         | $      | 128,055 |   |         | $       |        |   |         | $       |        |   |         | $       |        |  
|                                                                    |                                          |                                          |         |               |         |   |                              |        |         |      |         |        |         |   |         |         |         |  
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|Funded Status                                                       |                                          | $                                        | 13,825  |               |         | $ | 4,807                        |        |         | $    | (2,708  | )      |         | $ | (71,768 | )       |         | $ | (68,594 | )       |         | $ | (67,879 | )      
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|Unrecognized Actuarial (Gain) Loss                                  |                                          |                                          | (37,647 | )             |         |   | (14,427                      | )      |         |      | (967    | )      |         |   | (1,571  | )       |         |   | 4,380   |         |         |   | 13,273  |        
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|Unrecognized Prior Service Cost                                     |                                          |                                          | 16,547  |               |         |   | 7,492                        |        |         |      | 8,600   |        |         |   | (88     | )       |         |   | 190     |         |         |   | 237     |        
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|Adjustment to Book Value                                            |                                          |                                          |        |               |         |   |                             |        |         |      |        |        |         |   | 139     |         |         |   | 88      |         |         |   | 68      |        
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|Adjustment for Sept. 30th Measurement Date                          |                                          |                                          | 2       |               |         |   | 81                           |        |         |      |        |        |         |   |        |         |         |   |        |         |         |   |        |        
|                                                                    |                                          |                                          |         |               |         |   |                              |        |         |      |         |        |         |   |         |         |         |  
|                                                                    |                                          | Net Amount Recognized                    |         | $             | (7,273  | ) |                              | $      | ( 2,047 | )    |         | $      | 4,925   |   |         | $       | (73,288 | ) |         | $       | (63,936 | ) |         | $       | (54,301 | )
|                                                                    |                                          |                                          |         |               |         |   |                              |        |         |      |         |        |         |   |         |         |         |  
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|Amount
Recognized in the Consolidated    Balance Sheets Consists of
|                                                                    | Prepaid Benefit Cost                     |                                          | $       | 4,818         |         |   | $                            | 3,945  |         |      | $       | 6,837  |         |   | $       |        |         |   | $       |        |         |   | $       |        |        
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Accrued Benefit Liability                |                                          |         | (12,091       | )       |   |                              | (5,992 | )       |      |         | (1,912 | )       |   |         | (73,288 | )       |   |         | (63,936 | )       |   |         | (54,301 | )      
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Additional Minimum Liability             |                                          |         | (607          | )       |   |                              | (5,286 | )       |      |         | (5,878 | )       |   |         |        |         |   |         |        |         |   |         |        |        
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Intangible Asset                         |                                          |         | 567           |         |   |                              | 980    |         |      |         | 1,366  |         |   |         |        |         |   |         |        |         |   |         |        |        
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Accumulated Other Comprehensive Income   |                                          |         | 40            |         |   |                              | 4,306  |         |      |         | 4,512  |         |   |         |        |         |   |         |        |         |   |         |        |        
|                                                                    |                                          |                                          |         |               |         |   |                              |        |         |      |         |        |         |   |         |         |         |  
|                                                                    |                                          | Net Amount Recognized                    |         | $             | (7,273  | ) |                              | $      | (54,301 | )    |         | $      | (2,047  | ) |         | $       | 4,925   |   |         | $       | (73,288 | ) |         | $       | (63,936 | )
|                                                                    |                                          |                                          |         |               |         |   |                              |        |         |      |         |        |         |   |         |         |         |  
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|Weighted-Average Assumptions                                       
|                                                                    | Discount Rate                            |                                          |         | 8.00          | %       |   |                              | 7.50   | %       |      |         | 6.75   | %       |   |         | 8.00    | %       |   |         | 7.50    | %       |   |         | 6.75    | %      
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Expected Return on Plan Assets           |                                          |         | 9.00          |         |   |                              | 9.00   |         |      |         | 9.00   |         |   |         | N/A     |         |   |         | N/A     |         |   |         | N/A     |        
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Rate of Compensation Increase  Salaried |                                          |         | 3.70          |         |   |                              | 3.70   |         |      |         | 3.70   |         |   |         | 3.70    |         |   |         | 3.70    |         |   |         | 3.70    |        
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Rate of Compensation Increase  Hourly   |                                          |         | N/A           |         |   |                              | N/A    |         |      |         | N/A    |         |   |         | 3.00    |         |   |         | 3.00    |         |   |         | 3.00    |        

For measurement purposes, an assumed health care trend rate of 6.0% was used for
the postretirement benefit obligation in 2000, 1999 and 1998. A measurement date
of September 30 was used for the pension plans and the postretirement benefit
plans.

50



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

|                                                     |                                    |                           |       |               |       |   |                              |         |       |      |       |         |       |   |       |       |       |   |       |       |       |   |       |       |       | 
|---------------------------------------------------- | ---------------------------------- | ------------------------- | ----- | ------------- | ----- | - | ---------------------------- | ------- | ----- | ---- | ----- | ------- | ----- | - | ----- | ----- | ----- | - | ----- | ----- | ----- | - | ----- | ----- | ----- | 
|                                                     |                                    |                           |       | Pension Plans |       |   | Postretirement Benefit Plans
|                                                     |                                    |                           |       |               |       |   |                             
|                                                     |                                    |                           |       | 2000          |       |   | 1999                         |         |       | 1998 |       |         | 2000  |   |       | 1999  |       |   | 1998  |      
|                                                     |                                    |                           |       |               |       |   |                              |         |       |      |       |         |       |   |       |       |       |   |       |      
|Components of Net Periodic Benefit Cost
Service Cost |                                    | $                         | 7,006 |               |       | $ | 7,993                        |         |       | $    | 8,116 |         |       | $ | 4,346 |       |       | $ | 4,490 |       |       | $ | 3,649 |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Interest Cost                      |                           |       | 11,125        |       |   |                              | 9,280   |       |      |       | 8,425   |       |   |       | 5,459 |       |   |       | 4,878 |       |   |       | 4,211 |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Expected Return on Plan Assets     |                           |       | (13,020       | )     |   |                              | (11,411 | )     |      |       | (10,833 | )     |   |       |      |       |   |       |      |       |   |       |      |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Amortization of Prior Service Cost |                           |       | 1,257         |       |   |                              | 1,108   |       |      |       | 1,108   |       |   |       | 47    |       |   |       | 47    |       |   |       | 47    |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Recognized Actuarial (Gain) Loss   |                           |       | (360          | )     |   |                              | 271     |       |      |       | (397    | )     |   |       |      |       |   |       | 573   |       |   |       | 197   |      
|                                                     |                                    |                           |       |               |       |   |                              |         |       |      |       |         |       |   |       |       |       |  
|                                                     |                                    | Net Periodic Benefit Cost |       | $             | 6,008 |   |                              | $       | 7,241 |      |       | $       | 6,419 |   |       | $     | 9,852 |   |       | $     | 9,988 |   |       | $     | 8,104 | 
|                                                     |                                    |                           |       |               |       |   |                              |         |       |      |       |         |       |   |       |       |       |  

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

|                               |  |             |       |  |      |   |        |      |  |   |        | 
|------------------------------ |  | ----------- | ----- |  | ---- | - | ------ | ---- |  | - | ------ | 
|                               |  | December 31 |       |  |      |   |       
|                               |  |             |       |  |      |   |       
|                               |  | 2000        |       |  | 1999 |   |        | 1998 | 
|                               |  |             |       |  |      |   |        |      | 
|Projected Benefit Obligation   |  | $           | 2,215 |  |      | $ | 20,002 |      |  | $ | 18,577 | 
|                              
|                              
|                              
|                              
|Accumulated Benefit Obligation |  |             | 2,137 |  |      |   | 19,759 |      |  |   | 18,317 | 
|                              
|                              
|                              
|                              
|Fair Value of Plan Assets      |  |             |      |  |      |   | 14,529 |      |  |   | 12,939 | 

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

Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plan. A one-percentage-point change in assumed
health care cost trend rates would have the following effects for the year ended
and as of December 31, 2000 (dollars in thousands):

|                                                        |  |                |        |  |                |   |         |  
|------------------------------------------------------- |  | -------------- | ------ |  | -------------- | - | ------- | -
|                                                        |  | One Percentage |        |  | One Percentage |  
|                                                        |  | Point Increase |        |  | Point Decrease |  
|                                                        |  |                |        |  |                |  
|Effect on Total of Service and Interest Cost Components |  | $              | 2,235  |  |                | $ | (1,714  | )
|                                                       
|                                                       
|                                                       
|                                                       
|Effect on Postretirement Benefit Obligation             |  |                | 14,057 |  |                |   | (10,977 | )

NOTE 7  INCOME TAXES

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

|                          |  |                         |         |   |      |   |        |      |  |   |        |  
|------------------------- |  | ----------------------- | ------- | - | ---- | - | ------ | ---- |  | - | ------ | -
|                          |  | Years Ended December 31 |        
|                          |  |                         |        
|                          |  | 2000                    |         |   | 1999 |   |        | 1998 | 
|                          |  |                         |         |   |      |   |        |      | 
|Current                   |  | $                       | 5,123   |   |      | $ | (940   | )    |  | $ | (3,275 | )
|                         
|                         
|                         
|                         
|Deferred                  |  |                         | (42,386 | ) |      |   | 31,434 |      |  |   | (5,430 | )
|                          |  |                         |         |   |      |   |        |      | 
|Total (Provision) Benefit |  | $                       | (37,262 | ) |      | $ | 30,494 |      |  | $ | (8,705 | )
|                          |  |                         |         |   |      |   |        |      | 

51



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##### Table of Contents



The Companys income tax provision is net of taxes related to the equity in the
income or loss of unconsolidated subsidiaries. The tax provision associated with
the income of unconsolidated subsidiaries was $0 in 2000. The income tax
provision associated with the income of unconsolidated subsidiaries was $783,000
in 1999, which is comprised of a current provision of $847,000 and a deferred
benefit of $64,000. The income tax benefit associated with the loss of
unconsolidated subsidiaries was $655,000 in 1998, which was comprised of a
current provision of $2,000 and deferred benefit of $657,000.

The Accumulated Other Comprehensive Income (Loss) of $(40), $(4,306,000) and
$(4,512,000) for 2000, 1999 and 1998, respectively, are shown net of the
deferred tax impact of $0, $1,507,000 and $1,579,000.

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

|                             |                                         |                           |         |                         |         |   |         |       |        |      |         |       |        |  
|---------------------------- | --------------------------------------- | ------------------------- | ------- | ----------------------- | ------- | - | ------- | ----- | ------ | ---- | ------- | ----- | ------ | -
|                             |                                         |                           |         | Years Ended December 31 |        
|                             |                                         |                           |         |                         |        
|                             |                                         |                           |         | 2000                    |         |   | 1999    |       |        | 1998 |        
|                             |                                         |                           |         |                         |         |   |         |       |        |      |        
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|Pre-Tax Income (Loss)        |                                         | $                         | (82,004 | )                       |         | $ | (79,957 | )     |        | $    | 33,061  |      
|                             |                                         |                           |         |                         |         |   |         |       |       
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|Computed (Provision) Benefit |                                         | $                         | 28,701  |                         |         | $ | 27,985  |       |        | $    | (11,571 | )    
|                            
|                            
|                            
|                            
|Source of Difference:       
|                            
|                            
|                            
|                            
|                             | Amortization of Negative Goodwill       |                           |         |                        |         |   |         | 1,919 |        |      |         | 2,029 |       
|                            
|                            
|                            
|                            
|                             | Change in Valuation Allowance           |                           |         | (63,012                 | )       |   |         | 700   |        |      |         | 1,106 |       
|                            
|                            
|                            
|                            
|                             | Basis Adjustment in Deferred Tax Assets |                           |         | (1,988                  | )       |   |         |      |        |      |         |      |       
|                            
|                            
|                            
|                            
|                             | Other                                   |                           |         | (963                    | )       |   |         | (110  | )      |      |         | (269  | )     
|                             |                                         |                           |         |                         |         |   |         |       |       
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                             |                                         | Total (Provision) Benefit |         | $                       | (37,262 | ) |         | $     | 30,494 |      |         | $     | (8,705 | )
|                             |                                         |                           |         |                         |         |   |         |       |       

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

|                                                                |                               |   |             |   |  |      |         |        | 
|--------------------------------------------------------------- | ----------------------------- | - | ----------- | - |  | ---- | ------- | ------ | 
|                                                                |                               |   | December 31 |  
|                                                                |                               |   |             |  
|                                                                |                               |   | 2000        |   |  | 1999 |        
|                                                                |                               |   |             |   |  |      |        
|Assets                                                         
|                                                               
|                                                               
|                                                               
|                                                               
|Basis of Consolidated Subsidiary                                |                               | $ | 1,754       |   |  | $    | 7,254   |       
|                                                               
|                                                               
|                                                               
|                                                               
|Postretirement and Other Benefits                               |                               |   | 34,857      |   |  |      | 30,604  |       
|                                                               
|                                                               
|                                                               
|                                                               
|Other                                                           |                               |   | 8,501       |   |  |      | 9,516   |       
|                                                               
|                                                               
|                                                               
|                                                               
|Operating Loss and Alternative
Minimum Tax Credit Carryforwards |                               |   | 93,569      |   |  |      | 76,758  |       
|                                                                |                               |   |             |   |  |     
|Gross Deferred Tax Assets                                       |                               |   | 138,681     |   |  |      | 124,132 |       
|                                                               
|                                                               
|                                                               
|                                                               
|Valuation Allowance                                             |                               |   | (73,027     | ) |  |      | (10,015 | )     
|                                                                |                               |   |             |   |  |     
|Gross Deferred Tax Assets
After Valuation Allowance             |                               |   | 65,654      |   |  |      | 114,117 |       
|                                                                |                               |   |             |   |  |     
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|Liabilities                                                    
|                                                               
|                                                               
|                                                               
|                                                               
|Property, Plant, and Equipment                                  |                               |   | (41,421     | ) |  |      | (48,845 | )     
|                                                               
|                                                               
|                                                               
|                                                               
|Inventories                                                     |                               |   | (11,652     | ) |  |      | (11,696 | )     
|                                                               
|                                                               
|                                                               
|                                                               
|Insurance Adjustment                                            |                               |   | (12,548     | ) |  |      | (9,245  | )     
|                                                               
|                                                               
|                                                               
|                                                               
|Other                                                           |                               |   | (33         | ) |  |      | (33     | )     
|                                                                |                               |   |             |   |  |     
|Gross Deferred Tax Liabilities                                  |                               |   | (65,654     | ) |  |      | (69,819 | )     
|                                                                |                               |   |             |   |  |     
|                                                                | Total Net Deferred Tax Assets |   | $           |  |  |      | $       | 44,298 | 
|                                                                |                               |   |             |   |  |     

52



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##### Table of Contents



Unused regular tax loss carryforwards were approximately $173,720,000 and
$137,917,000 at December 31, 2000 and December 31, 1999. Alternative minimum tax
credit carryforwards amounted to $31,714,000 and $28,487,000 at December 31,
2000 and 1999. The alternative minimum tax credit may be carried forward
indefinitely.

In 2000, the Company recorded a full valuation against its net deferred tax
assets, consistent with the determination that it is more likely than not that
all of the Companys net deferred tax assets will not be realized. The Company
has considered historical and projected financial performance and other factors
relating to the generation of future taxable income in its assessment of the
need for a valuation allowance. Current deferred tax assets of $0 and
$21,219,000 in 2000 and 1999, respectively, are recorded in Other Current
Assets.

The Company received cash refunds of $5,123,000 and $2,379,000 in 2000 and 1999,
respectively. Net cash paid for income taxes was $6,557,000 in 1998.

NOTE 8  COMMON STOCK

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

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

In 1997, Worthington Industries, Inc. (Worthington), the Companys second
largest stockholder at the time, issued debt securities (DECS) which, upon
maturity, could be redeemed for shares of Rouge Industries class A common stock
(Class A Common Stock) or cash. On March 1, 2000, Worthington exchanged its
422,000 shares of class B common stock for Class A Common Stock and then
relinquished its 5,999,600 shares of Class A Common Stock to satisfy its
obligations with respect to the DECS. Worthington no longer owns any of the
Companys common stock.

The Company has an outside director equity plan (the ODEP), a 1994 stock
incentive plan and a 1998 stock incentive plan (the 1994 stock incentive plan
and the 1998 stock incentive plan together the SIP). The ODEP and the SIP
provide for stock option grants to the Companys directors and employees,
respectively, at fair market value on the date of grant. Under the plans, the
Company is authorized to grant options to its directors and employees for up to
1,000,000 shares of common stock. Of this amount, options are outstanding for
650,875 shares at December 31, 2000. These stock options generally vest over a
period of three years and are exercisable for a period not exceeding ten years
from the date of grant. The stock options may be exercised subject to continued
employment and certain other conditions.

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

53



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##### Table of Contents



|                                         |  |                       |  |                         |                     |  |      |   |                   |      |  |   |               | 
|---------------------------------------- |  | --------------------- |  | ----------------------- | ------------------- |  | ---- | - | ----------------- | ---- |  | - | ------------- | 
|                                         |  |                       |  | Years Ended December 31 |                    
|                                         |  |                       |  |                         |                    
|                                         |  |                       |  | 2000                    |                     |  | 1999 |   |                   | 1998 | 
|                                         |  |                       |  |                         |                     |  |      |   |                   |      | 
|Net Income (Loss) (dollars in thousands) |  | As Reported
Pro Forma |  | $                       | (117,319)
(117,596) |  |      | $ | (47,811)
(48,010) |      |  | $ | 23,392
22,880 | 
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|Net Income (Loss) Per Share              |  | As Reported
Pro Forma |  | $                       | (5.29)
(5.31)       |  |      | $ | (2.16)
(2.17)     |      |  | $ | 1.06
1.04     | 

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 2000, 1999 and 1998:

|                        |  |      |         |   |      |  |         |      |  |  |         |  
|----------------------- |  | ---- | ------- | - | ---- |  | ------- | ---- |  |  | ------- | -
|                        |  | 2000 |         |   | 1999 |  |         | 1998 | 
|                        |  |      |         |   |      |  |         |      | 
|Dividend Yield          |  |      | 1.54    | % |      |  | 1.37    | %    |  |  | 0.99    | %
|                       
|                       
|                       
|                       
|Risk-Free Interest Rate |  |      | 6.55    |   |      |  | 4.74    |      |  |  | 5.77    |  
|                       
|                       
|                       
|                       
|Expected Volatility     |  |      | 41.16   |   |      |  | 41.16   |      |  |  | 36.40   |  
|                       
|                       
|                       
|                       
|Expected Life           |  |      | 7 years |   |      |  | 7 years |      |  |  | 7 years |  

A summary of the status of the Companys stock-based compensation plans as of
December 31, 2000, 1999, and 1998 and changes during the years then ended is
presented below:

|                                                               |  |        |         |   |       |           |        |        |  |  |         |   |           |        |       |  |       |  |         |           |  |   |       | 
|-------------------------------------------------------------- |  | ------ | ------- | - | ----- | --------- | ------ | ------ |  |  | ------- | - | --------- | ------ | ----- |  | ----- |  | ------- | --------- |  | - | ----- | 
|                                                               |  | 2000   |         |   | 1999  |           |        | 1998   | 
|                                                               |  |        |         |   |       |           |        |        | 
|                                                               |  |        |         |   |       | Weighted- |        |        |  |  |         |   | Weighted- |        |       |  |       |  |         | Weighted- | 
|                                                               |  |        |         |   |       | Average   |        |        |  |  |         |   | Average   |        |       |  |       |  |         | Average   | 
|                                                               |  | Shares |         |   | Price |           |        | Shares |  |  | Price   |   |           | Shares |       |  | Price | 
|                                                               |  |        |         |   |       |           |        |        |  |  |         |   |           |        |       |  |       | 
|Outstanding at January 1                                       |  |        | 505,725 |   |       | $         | 16.98  |        |  |  | 383,950 |   |           | $      | 21.09 |  |       |  | 297,250 |           |  | $ | 24.29 | 
|                                                              
|                                                              
|                                                              
|                                                              
|Granted                                                        |  |        | 201,200 |   |       |           | 7.83   |        |  |  | 187,700 |   |           |        | 8.79  |  |       |  | 109,300 |           |  |   | 12.16 | 
|                                                              
|                                                              
|                                                              
|                                                              
|Forfeited                                                      |  |        | (56,050 | ) |       |           | (16.63 | )      |  |  | (63,625 | ) |           |        | 17.87 |  |       |  | (22,600 | )         |  |   | 20.00 | 
|                                                              
|                                                              
|                                                              
|                                                              
|Exercised                                                      |  |        |        |   |       |           | N/A    |        |  |  | (2,300  | ) |           |        | 8.75  |  |       |  |        |           |  |   | N/A   | 
|                                                               |  |        |         |   |       |           |        |        |  |  |         |   |           |        |       |  |      
|Outstanding at December 31                                     |  |        | 650,875 |   |       | $         | 14.18  |        |  |  | 505,725 |   |           | $      | 16.98 |  |       |  | 383,950 |           |  | $ | 21.09 | 
|                                                               |  |        |         |   |       |           |        |        |  |  |         |   |           |        |       |  |       | 
|                                                              
|                                                              
|                                                              
|                                                              
|                                                              
|                                                              
|                                                              
|                                                              
|                                                              
|                                                              
|                                                              
|                                                              
|                                                              
|                                                              
|                                                              
|                                                              
|                                                              
|                                                              
|                                                              
|                                                              
|Options Exercisable at Year-End                                |  |        | 514,490 |   |       | $         | 15.80  |        |  |  | 399,244 |   |           | $      | 18.98 |  |       |  | 309,425 |           |  | $ | 22.58 | 
|                                                              
|                                                              
|                                                              
|                                                              
|Weighted-Average Fair Value of
Options Granted During the Year |  |        |         |   |       | $         | 3.65   |        |  |  |         |   |           | $      | 3.86  |  |       |  |         |           |  | $ | 5.41  | 

The following table presents summarized information about stock options
outstanding at December 31, 2000:

|                |  |                   |         |                  |                     |           |                     |  |                   |       |  |                |         |  |  |   |      
|--------------- |  | ----------------- | ------- | ---------------- | ------------------- | --------- | ------------------- |  | ----------------- | ----- |  | -------------- | ------- |  |  | - | -----
|                |  |                   |         |                  | Options Outstanding |           | Options Exercisable
|                |  |                   |         |                  |                     |           |                    
|                |  | Number            |         | Weighted-Average |                     |           | Weighted-           |  | Number            |       |  | Weighted-     
|Range of        |  | Outstanding at    |         | Remaining        |                     |           | Average             |  | Exercisable at    |       |  | Average       
|Exercise Prices |  | December 31, 2000 |         | Contractual Life |                     |           | Exercise Price      |  | December 31, 2000 |       |  | Exercise Price
|                |  |                   |         |                  |                     |           |                     |  |                   |       |  |               
|$4.69 - 7.88    |  |                   | 198,000 |                  |                     | 9.0 Years |                     |  | $                 | 7.83  |  |                | 99,000  |  |  | $ | 7.83 
|               
|               
|               
|               
|$8.75 - 11.44   |  |                   | 151,425 |                  |                     | 8.0       |                     |  |                   | 8.80  |  |                | 114,040 |  |  |   | 8.80 
|               
|               
|               
|               
|$12.13 to 15.13 |  |                   | 82,100  |                  |                     | 7.0       |                     |  |                   | 12.23 |  |                | 82,100  |  |  |   | 12.23
|               
|               
|               
|               
|$21.00 to 23.00 |  |                   | 78,250  |                  |                     | 5.9       |                     |  |                   | 21.13 |  |                | 78,250  |  |  |   | 21.13
|               
|               
|               
|               
|$23.01 to 24.00 |  |                   | 74,100  |                  |                     | 5.0       |                     |  |                   | 23.72 |  |                | 74,100  |  |  |   | 23.72
|               
|               
|               
|               
|$28.88          |  |                   | 67,000  |                  |                     | 4.0       |                     |  |                   | 28.88 |  |                | 67,000  |  |  |   | 28.88

54



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##### Table of Contents



NOTE 9  EARNINGS PER SHARE

The calculation of diluted net income per share for the years ended December 31,
2000, 1999, and 1998 did not require an adjustment to net income for the effect
of dilutive securities. The weighted-average shares outstanding were not
adjusted for the effect of dilutive securities because none were outstanding as
of December 31, 2000, 1999 or 1998.

NOTE 10  COMMITMENTS AND CONTINGENCIES

Commitments to Ford

The Company purchases various services including environmental, heavy equipment
repair, construction and transportation from Ford. In addition, the Company
leases certain land, office space and production support facilities from Ford
under cancelable operating leases with terms ranging from 1 to 99 years. The
costs of these services were approximately $7,148,000 in 2000, $7,182,000 in
1999 and $9,464,000 in 1998.

The Company also jointly owns a powerhouse facility (the Powerhouse) with
Ford, under a renewable ten-year agreement, which expired on December 31, 1999
but has been extended thereafter on a rolling 30-day basis unless terminated by
either party upon 30 days notice. On February 1, 1999, an explosion and fire at
the Powerhouse resulted in the interruption of the supply of electricity,
process and heating steam, turbo air, mill water and other utilities to
virtually all of the facilities of Rouge Steel. See Note 11 for a more detailed
discussion of the Powerhouse explosion. Prior to the explosion, the Powerhouse
generated electricity, steam and other utilities. The fixed assets of the
Powerhouse are owned 60% by the Company and 40% by Ford, with each party
receiving a portion of the power generated. The costs of operating the facility
were allocated between the Company and Ford based on the consumption of
utilities. The Companys share of the costs of this facility was approximately
$7,118,000 in 1999 and $76,185,000 in 1998. The cost in 1999 represents utility
costs allocated to Rouge Steel for the one month preceding the Powerhouse
explosion. The Company has signed an agreement for long-term energy services
with CMS Energy Corporation which has commenced to build and will operate a
co-generation power plant. It is expected that the new facility will begin
generating electricity in mid-2001.

In connection with its operation of the Powerhouse, Ford purchased a portion of
the gas produced by the Companys blast furnaces for use at the Powerhouse based
on a negotiated formula. Ford purchased $2,040,000 and $27,046,000 worth of
blast furnace gas in 1999 and 1998, respectively. Of these amounts, between 60%
and 70% was charged back to the Company for its proportionate share of the cost
of such gas. The temporary facilities that were put into place after February 1,
1999 are not configured to use blast furnace gas. Consequently, from February 1,
1999 through December 31, 2000 the blast furnace gas was flared and not sold to
the Powerhouse.

During 2000, 1999, and 1998, the Company purchased scrap from Ford at a cost of
$8,149,000, $20,025,000 and $31,774,000, respectively. The Company has stopped
purchasing scrap from Ford resulting in the decline of payments to Ford.

55



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##### Table of Contents



Other Commitments

Pursuant to a purchase and sale agreement executed in connection with the
restructuring of EVTAC in 1996, Rouge Steel is required to purchase 45% of the
first 5.0 million natural gross tons of pellets produced each year by EVTAC at
world market prices. The Company also has the right of first refusal with
respect to 45% of any pellets produced by EVTAC in excess of 5.0 million natural
gross tons. In 1999, EVTAC temporarily scaled back operations by 18%, reducing
capacity to 4.4 million natural gross tons of pellets to be purchased by the
Company and the other owners pursuant to the terms of existing purchase
agreements. The Company and the other owners of EVTAC are continuing discussions
regarding EVTACs operations and activities. These discussions and any
subsequent resulting actions may affect, among other things, the cost and
availability of iron ore pellets, the timing of EVTAC employee benefit liability
recognition and funding requirements and recognition of other obligations
relating to the mining operations.

The Company has a ten-year contract for the supply of oxygen and nitrogen which
expires in 2005. The contract contains minimum oxygen and nitrogen purchases of
$14,100,000 and $816,000 per year, respectively. Oxygen and nitrogen purchases
aggregated approximately $20,550,000 in 2000, $18,569,000 in 1999 and
$21,001,000 in 1998.

The Company has noncancellable operating lease commitments for facilities and
equipment with annual lease payments of $9,305,000. Subsequent to December 31,
2000, the terms of the noncancellable operating lease commitments were amended
to reduce the lease term by twelve months. Annual lease payments under the
amended agreement during 2001 and 2002 will be $9,305,000 and during 2003 and
2004 will be $13,389,000.

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

Rouge Industries guarantees the lesser of $6,000,000 or 20% of a line of credit
for Shiloh of Michigan, an engineered steel blanking joint venture between the
Company and Shiloh Industries, Inc. As of December 31, 2000, Shiloh of Michigan
had borrowings of $34,167,000 outstanding under its line of credit.

Delaco Processing, L.L.C. Loan Guaranty

Rouge Industries and Delaco Steel Corporation have agreed to jointly and
severally guarantee a $5,899,000 credit facility for Delaco Steel Processing,
the Companys 49% owned steel slitting joint venture with Delaco Supreme Tool &
Gear Co. As of December 31, 2000, Delaco Steel Processing had borrowings of
$2,407,000 outstanding under its line of credit.

Bing Blanking, L.L.C. Loan Guaranty

The Company guarantees a $2,746,000 term loan for Bing Blanking. In addition, as
of December 31, 2000, Bing Blanking owed the Company $3,000,000. During 2000,
the Companys joint venture partner indicated a desire to exit Bing Blanking.
The Company and a significant customer of the joint venture are continuing
discussions regarding the future of Bing Blankings operations and activities.
These discussions and any subsequent resulting actions may affect, among other
things, funding requirements and recognition of other obligations relating to
the blanking operations. As a result of the financial difficulties experienced
by Bing Blanking, as of December 31, 2000 the Company has recorded a reserve of
$3,000,000 against its note receivable. In addition, at the request of Bing
Blankings lender, the Company placed $2,700,000 on deposit with the bank as
collateral against its guarantee of the term loan.

56



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##### Table of Contents



Environmental Matters

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

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

Litigation

On December 18, 2000, the U.S. Department of Justice and Wayne County filed
lawsuits in connection with certain compliance issues arising from a multimedia
investigation conducted at Rouge Steels facility in 1998. The Company has
accrued $1,200,000 with respect to these lawsuits, which the Company believes
will be adequate to cover any penalties arising from them.

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

NOTE 11  POWERHOUSE EXPLOSION AND INSURANCE CLAIMS

Powerhouse Explosion

On February 1, 1999, an explosion and fire at the Powerhouse resulted in the
interruption of the supply of electricity, process and heating steam, turbo air,
mill water and other utilities to virtually all of the facilities of Rouge
Steel. The loss of power resulted in the temporary shutdown of Rouge Steels
steel making facilities. The Powerhouse is owned 60% by Rouge Steel and 40% by
Ford. Ford was responsible for the day-to-day management, operation and
maintenance of the Powerhouse.

The Companys insurance program provides coverage for damage to property
destroyed, interruption of business operations, including profit recovery, and
expenditures incurred to minimize the period and total cost of disruption to
operations. The Company continues to evaluate its potential insurance recoveries
in three areas:



|1. |  | Damage to Rouge Steel property and Powerhouse property as a result of the
explosion  Costs for repairs were expensed as incurred, with related
estimated insurance recoveries recorded as they were considered to be
probable, up to the amount of the actual costs incurred.                                                                                                                                                                                                                                                                                                                                     
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Rouge Steel business interruption costs  The non-capitalizable costs are
being expensed as incurred. Estimated insurance recoveries are recorded
to the extent such recoveries are considered to be probable. Recoveries
in excess of actual costs incurred will be recorded as gains when the
claims are settled and proceeds are received. Certain costs relating to
temporary steam boilers and electrical facilities which were procured to
mitigate the Companys loss from the Powerhouse explosion were
capitalized and amortized over their estimated useful lives. Insurance
recoveries relating to these

57



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##### Table of Contents





|   |  | items were recognized over the same periods.
The amount capitalized for these temporary facilities was approximately
$72,600,000.                                                                                                                                                                                                                                                                                                                                                            
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|3. |  | Powerhouse property damage  The net book value of the Powerhouse
property destroyed, which was $1,622,000, was written off in 1999. Any
proceeds from the claims relating to Powerhouse property damage (other
than amounts relating to repairs discussed in 1. above) are expected to
result in a gain since the proceeds are expected to exceed the net book
value of the property written off. The anticipated gain will be recorded
as the claims are settled and proceeds are received.

During the second quarter of 2000, the Company received cash proceeds
representing a partial settlement with its insurers regarding Rouge Steel
first-party property damage and business interruption costs through March 31,
2000. The partial settlement covers all of the first-party property damage and
substantially all aspects of the business interruption claim, including profit
on lost sales, operating inefficiencies caused by the loss and costs to mitigate
the claim. Three significant business interruption issues remain open for
subsequent settlement. The Company and its insurers are presently discussing the
period of indemnity for the Powerhouse claim. The Companys insurers have
indicated that coverage for business interruption costs incurred after December
31, 2000 will be denied, a position the Company is vigorously contesting. The
business interruption issues that remain open for subsequent settlement are
listed below.



| | 1) |  | Excess utility costs  During the period of indemnity, the Companys insurers agreed to pay any excess utility
costs above the costs that would have been incurred under the Powerhouse configuration. Rouge Steel
expects to incur excess utility costs until the new co-generation power plant, which is being
constructed by CMS Energy Corporation (CMS), begins to provide the Company with electricity and
steam. The insurers have paid $16,382,000 of excess utility costs incurred through March 31, 2000 and
have agreed to settle any additional excess utility costs as the costs are incurred, through the end
of the indemnity period.                                                                                                                                                                                                                                                        
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2) |  | Blast furnace gas  The Companys blast furnaces produce a by-product fuel (blast furnace gas) which, before
the explosion, was used by the Powerhouse to produce steam and served to reduce the Companys
production costs. When the new co-generation power plant begins operating its steam boilers, the
blast furnace gas will used by CMS. Until such time, however, the blast furnace gas, with a value of
approximately $3,000,000 per month, is being flared. The Companys insurers have agreed to reimburse
the Company for the value of the blast furnace gas, flared during the period of indemnity, which the
insurers assert ends on December 31, 2000. The Company is vigorously contesting this position. The
part of the claim related to blast furnace gas is still open and will be settled as the costs are
incurred, through the end of the indemnity period.                            
|
| | 3) |  | Temporary facilities  During the first quarter of 1999, the
Company installed temporary package steam boilers to provide
heating and processing steam after the Powerhouse explosion.
Additionally, temporary electrical facilities were installed.
Although the temporary steam and electrical facilities have
been in use for nearly two years, all of the invoices have not
been received by Rouge Steel and reviewed by the insurers. The
partial settlement included payments of $58,941,000 for the
temporary boilers against a claim which is expected to be
approximately $60,400,000 and payments of $7,564,000 for the
temporary electrical distribution system against a claim which
is expected to be approximately $12,202,000. When all the
invoices have been received by Rouge Steel and reviewed by the
insurers, the part of the claim related to the temporary
facilities will be settled.

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During the second quarter of 2000, the partial first-party settlement resulted
in net recoveries of $21,584,000 in excess of amounts previously recognized.
During the third and fourth quarters of 2000, the Company received cash advances
of $18,400,000 related to the open business interruption issues.

Pursuant to the accounting methodology described above, during 2000, the Company
recorded recoverable insurance proceeds with respect to the Powerhouse explosion
insurance claim of $84,306,000. During 2000, the Company received advances of
$44,000,000 related to the Powerhouse claim, which have been deferred and will
be recognized in income in future periods as certain costs are incurred or when
the claim is settled. At December 31, 2000, the Company has a receivable with
respect to the Powerhouse explosion of $20,007,000, which is net of reserves of
$27,853,000 and advances from the insurance carriers of $96,845,000. Total cash
proceeds through December 31, 2000 amount to $286,400,000 of which $127,400,000
were received during 2000.

With respect to unsettled matters in the Powerhouse insurance claim discussed
above, the Company continues to discuss the determination of the total claim
with its insurers. The Companys assessments of probability with respect to the
receivables were made based on discussions with insurers and legal and financial
experts retained to assist in the claim process. The estimates will change as
additional information becomes available with respect to actual costs and as the
insurers perform their review of claim information submitted by the Company.
Based on the magnitude and complexity of the insurance claim, the Company is
presently unable to reasonably estimate the amount of actual costs to be
incurred in the future as well as the extent of the Companys exposure for
amounts not covered by its insurance program.

In addition to costs discussed above, the Company is evaluating ancillary costs,
including cleanup and abatement activities, relating to the explosion. Such
amounts could be material to the Companys results of operations, cash flows and
financial position during future periods. Based upon the available information,
during 1999, the Company recorded a $3,000,000 reserve for its share of the
minimum estimated cost to mitigate further environmental contamination at the
Powerhouse. If the abatement costs exceed $3,000,000, those costs will be
recorded as incurred if they relate to future operations. If they do not result
in future benefit to the Company, additional abatement costs will be recorded in
the period during which losses become probable and reasonably estimable.

BOF Incident

On January 7, 2000, a mechanical system failure occurred at Rouge Steels basic
oxygen furnace facility (BOF) which required approximately seven weeks to
repair. The BOF operated at approximately 85% of its normal production capacity
during the repair. A $2,500,000 deductible and $6,700,000 of recoverable
insurance proceeds were recorded in 2000. The Company settled the BOF claim in
the third quarter.

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SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

Accounts Receivable Allowances (amounts in thousands):

|            |  |              |        |  |               |         |        |            |  |   |           |         |  |   |        | 
|----------- |  | ------------ | ------ |  | ------------- | ------- | ------ | ---------- |  | - | --------- | ------- |  | - | ------ | 
|            |  |              |        |  |               | Charged |       
|            |  | Balance      |        |  | (Credited) to |         |        |            |  |   |           | Balance | 
|Years Ended |  | at Beginning |        |  | Cost and      |         |        |            |  |   |           | at End  | 
|December 31 |  | of Period    |        |  | Expenses      |         |        | Write-Offs |  |   | of Period |        
|            |  |              |        |  |               |         |        |            |  |   |           |        
|2000        |  | $            | 15,997 |  |               | $       | 904    |            |  | $ | (7,078    | )       |  | $ | 9,823  | 
|           
|           
|           
|           
|1999        |  |              | 17,937 |  |               |         | (776   | )          |  |   | (1,164    | )       |  |   | 15,997 | 
|           
|           
|           
|           
|1998        |  |              | 6,333  |  |               |         | 11,604 |            |  |   |          |         |  |   | 17,937 | 

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|                            |  |                                          |         |   |         |   |         |         |  |   |         |   |  |   |          |  
|--------------------------- |  | ---------------------------------------- | ------- | - | ------- | - | ------- | ------- |  | - | ------- | - |  | - | -------- | -
|                            |  | First                                    |         |   | Second  |   |         | Third   |  |   | Fourth  |  
|                            |  | Quarter                                  |         |   | Quarter |   |         | Quarter |  |   | Quarter |  
|                            |  |                                          |         |   |         |   |         |         |  |   |         |  
|                            |  | (in thousands, except per share amounts) |        
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|2000                       
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|Total Sales 1               |  | $                                        | 321,606 |   |         | $ | 283,348 |         |  | $ | 264,113 |   |  | $ | 230,744  |  
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|Gross Margin                |  |                                          | (28,383 | ) |         |   | (23,238 | )       |  |   | (23,624 | ) |  |   | (64,870  | )
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|Net Income (Loss)           |  |                                          | (12,897 | ) |         |   | 6,861   |         |  |   | (6,279  | ) |  |   | (105,004 | )
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|Net Income (Loss) Per Share |  |                                          | (0.58   | ) |         |   | 0.31    |         |  |   | (0.28   | ) |  |   | (4.74    | )
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|1999                       
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|Total
Sales 1               |  | $                                        | 245,099 |   |         | $ | 177,807 |         |  | $ | 266,787 |   |  | $ | 305,889  |  
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|                           
|Gross Margin                |  |                                          | (69,975 | ) |         |   | (81,390 | )       |  |   | (42,056 | ) |  |   | (39,355  | )
|                           
|                           
|                           
|                           
|Net Loss                    |  |                                          | (11,582 | ) |         |   | (14,827 | )       |  |   | (10,950 | ) |  |   | (10,452  | )
|                           
|                           
|                           
|                           
|Net Loss Per Share          |  |                                          | (0.52   | ) |         |   | (0.67   | )       |  |   | (0.49   | ) |  |   | (0.47    | )



|(1) |  | During 2000, the Company adopted the requirements of Emerging Issues Task
Force Issue 00-10, Accounting for Shipping and Handling Fees and Costs,
which requires all amounts billed to customers related to shipping and
handling to be classified as revenue. Historically, the Company had
included all freight charges to customers as a component of revenue,
however, the cost of certain types of freight was recorded as a reduction
of revenue. The Company has reclassified such freight cost for 2000 and
1999. As a result, reported sales and cost of sales increased by the
amounts shown on the table below. The reclassification had no impact on
gross margin, net income (loss) or net income (loss) per share.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|     |  |                |        |  |         |   |       |         |  |   |        |  |  |              |       |  |  |   |        | 
|---- |  | -------------- | ------ |  | ------- | - | ----- | ------- |  | - | ------ |  |  | ------------ | ----- |  |  | - | ------ | 
|     |  | First          |        |  | Second  |   |       | Third   |  |   | Fourth | 
|     |  | Quarter        |        |  | Quarter |   |       | Quarter |  |   | Year   |  |  | Full Quarter |      
|     |  |                |        |  |         |   |       |         |  |   |        |  |  |              |      
|     |  | (in thousands)
|2000 |  | $              | 6,841  |  |         | $ | 7,105 |         |  | $ | 6,181  |  |  | $            | 6,089 |  |  | $ | 26,216 | 
|    
|    
|    
|    
|1999 |  |                | 11,187 |  |         |   | 4,569 |         |  |   | 5,634  |  |  |              | 6,550 |  |  |   | 27,940 | 

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

None.

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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 2001 Proxy Statement (the Proxy
Statement), which will be filed with the Securities and Exchange Commission not
later than April 30, 2001. 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, 2001.




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, 2001.




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, 2001.

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

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PART IV




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



| | (a) |  | Documents filed as part of this Report:

(1) A list of the financial statements filed as part of this
report is submitted as a separate section, the index to
which is located on page 37.
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (2) |  | A list of financial statement schedules required to be filed by Item 8 is located on
page 37.                                                                                             
|
| | (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)).                                                                                                                       
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|3.1     |  | Amended and Restated Certificate of Incorporation of the Registrant (incorporated herein by
reference to Exhibit 3.1 to the Form 8-B).                                                                                                                                                                                                                             
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|3.2     |  | Amended and Restated By-Laws of the Registrant (incorporated herein by reference to Exhibit 3.2
to the Form 8-B).                                                                                                                                                                                                                                                  
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|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)).
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|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).                                                                                                                        
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|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
(incorporated herein by reference to Exhibit 10.1 to
the Registrants 1997 Annual Report on Form 10-K
(Commission File Number 1-12852) (the 1997 Form
10-K)).                                           
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|10.2    |  | First Amendment to Credit Agreement dated as of July
23, 1999 among the Registrant, Rouge Steel Company, the
banks named therein and Bank One, Michigan, formerly
known as NBD Bank (incorporated herein by reference to
Exhibit 10.2 to the Registrants 1999 Annual Report on
Form 10-K (Commission File Number 1-12852) (the 1999
Form 10-K)).                

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|        |  |                                                                                                                                                                                                                                                                                                               
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit
|Number  |  | Description of Exhibit                                                                                                                                                                                                                                                                                        
|        |  |                                                                                                                                                                                                                                                                                                               
|10.3 +  |  | Second Amendment to Credit Agreement dated as of April 21, 2000 among the Registrant, Rouge Steel
Company, the banks named therein and Bank One, Michigan.                                                                                                                                                    
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|10.4 +  |  | Third Amendment to Credit Agreement dated as of January 18, 2001 among the Registrant, Rouge Steel
Company, the banks named therein and Bank One, Michigan.                                                                                                                                                   
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|10.5 +  |  | Fourth Amendment to Credit Agreement dated as of February 2, 2001 among the Registrant, Rouge Steel
Company, the banks named therein and Bank One, Michigan.                                                                                                                                                  
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|10.6 +  |  | Fifth Amendment to Credit Agreement dated as of February 26, 2001 among the Registrant, Rouge Steel
Company, the banks named therein and Bank One, Michigan.                                                                                                                                                  
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|10.7 +  |  | Sixth Amendment to Credit Agreement dated as of March 1, 2001 among the Registrant, Rouge Steel
Company, the banks named therein and Bank One, Michigan.                                                                                                                                                      
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|10.8 +  |  | Loan and Security Agreement dated March 13, 2001 by and among
Rouge Steel Company, the Registrant, QS Steel Inc., Eveleth Taconite
Company, the financial institutions parties
thereto and Congress Financial Corporation.                                                                                    
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|10.9    |  | 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)).
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|10.10   |  | 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)).                           
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|10.11 + |  | Amendment No. 1 to Oxygen, Nitrogen and Argon Supply Agreement dated as of April 10, 1998 between
Praxair, Inc. and the Registrant.                                                                                                                                                                           
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|10.12 + |  | Amendment No. 2 to Oxygen, Nitrogen and Argon Supply Agreement dated as of January 1, 1999 between
Praxair, Inc. and the Registrant.                                                                                                                                                                          
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|10.13   |  | 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).                                                                                                                    
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|10.14   |  | Natural Gas Operating Agreement dated as of December 15, 1989
between the Registrant and Ford (incorporated herein by
reference to Exhibit 10.25 to the S-1 Registration
Statement).                                                                                                                          
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|10.15   |  | 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).                                                              

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|        |  |                                                                                                                                                                                                                                                                                                                                                                 
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit
|Number  |  | Description of Exhibit                                                                                                                                                                                                                                                                                                                                          
|        |  |                                                                                                                                                                                                                                                                                                                                                                 
|10.16   |  | Amendment to Joint Venture Agreement (incorporated herein by reference to Exhibit 10.24 to the S-1
Registration Statement).                                                                                                                                                                                                                                     
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|10.17   |  | 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).                                                                                                                   
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|10.18   |  | Operating Agreement of TWB Company, L.L.C. dated as of April 15,
1997 by and between Thyssen Inc. (Thyssen) and Worthington Steel
of Michigan, Inc., (Worthington Steel) (incorporated herein by
reference to Exhibit 10.1 to the Registrants Quarterly Report on
Form 10-Q for the Quarterly Period Ended March 31, 1997 (the
First Quarter 1997 10-Q)).
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|10.19   |  | 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).                                                                    
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|10.20   |  | Operating Agreement of Delaco Processing, L.L.C. dated as of September 3, 1997 by and between QS Steel
Inc. and Delaco Supreme Tool & Gear Co. (incorporated herein by reference to Exhibit 10.18 to the 1997
Form 10-K).                                                                                                                                       
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|10.21   |  | First Amended and Restated Operating Agreement for Bing Blanking, L.L.C. dated as of March 31, 1998 by and
among Bing Blanking, L.L.C., QS Steel Inc., and Bing Management II, L.L.C. (incorporated herein by
reference to Exhibit 10.1 to the Registrants Quarterly Report on Form 10-Q for the Quarterly Period
Ended March 31, 1998).                       
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|10.22   |  | 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).                                                                                                                                                         
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|10.23   |  | Member Control Agreement of Eveleth Mines LLC dated as of December
2, 1996 between Virgina Horn Taconite Company, Eveleth Taconite
Company and Ontario Eveleth Company (incorporated herein by
reference to Exhibit 10.21 to the 1996 form 10-K).                                                                                                               
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|10.24   |  | 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).                                                                                                                                                              
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|10.25   |  | 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).                                                                                                                             

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|        |  |                                                                                                                                                                                                                                   
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit
|Number  |  | Description of Exhibit                                                                                                                                                                                                            
|        |  |                                                                                                                                                                                                                                   
|10.26   |  | 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).                  
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|10.27 + |  | Electricity Sales Agreement between Rouge Steel Company and Dearborn Industrial Generation, L.L.C.
dated as of January 13, 1999.                                                                                                  
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|10.28 + |  | Steam Sales Agreement between Rouge Steel Company and Dearborn Industrial Generation, L.L.C. dated
as of January 13, 1999                                                                                                         
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|10.29 + |  | Ground Lease Between Rouge Steel Company and Dearborn Industrial Generation, L.L.C. dated as of June
30, 1999.                                                                                                                    
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|10.30 + |  | Purchase Option Agreement by and between Dearborn Industrial Generation, L.L.C., Rouge Steel Company
and Ford Motor Company dated as of May 31, 2000.                                                                             
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|10.31 + |  | Easement Agreement by and among Rouge Steel Company, Ford Motor Company, Double Eagle Steel Coating
Company and Dearborn Industrial Generation, L.L.C. dated as of May 31, 2000.                                                  
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|10.32 + |  | Blast Furnace Gas Purchase Agreement by and among Rouge Steel Company and Dearborn Industrial
Generation, L.L.C. dated as of January 13, 1999.                                                                                    
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|10.33 + |  | Amended and Restated Information Systems Services Agreement between Rouge Steel Company and Perot
Systems Corporation dated as of April 1, 2000.                                                                                  
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|10.34 + |  | Master Lease between Bank One, Michigan and Rouge Steel Company dated as of May 14, 1997.                                                                                                                                         
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|10.35** |  | 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)).
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|10.36** |  | Amendment to Rouge Steel Company Savings Plan for Salaried
Employees (incorporated herein by reference to Exhibit 10.3
to the Form 8-B).                                                                                          
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|10.37   |  | 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).                                                                     
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|10.38   |  | 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).                                                                              
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|10.39   |  | Rouge Steel Company Profit Sharing Plan for Salaried
Employees (incorporated herein by reference to Exhibit 10.38
to the S-1 Registration Statement).                                                                             

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|        |  |                                                                                                                                                  
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit
|Number  |  | Description of Exhibit                                                                                                                           
|        |  |                                                                                                                                                  
|10.40** |  | Rouge Steel Company Incentive Compensation Plan (incorporated herein by reference to Exhibit 10.39
to the S-1 Registration Statement).           
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|10.41** |  | Rouge Steel Company Amended and Restated Stock Incentive
Plan (incorporated herein by reference to Exhibit 10.1 to
the Form 8-B).                
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|10.42** |  | First Amendment to Rouge Steel Company Amended and Restated Stock Incentive Plan.                                                                
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|10.43** |  | Rouge Steel Company 1998 Stock Incentive Plan.                                                                                                   
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|10.44** |  | First Amendment to Rouge Steel Company 1998 Stock Incentive Plan.                                                                                
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|10.45** |  | Rouge Steel Company Retirement Plan for Salaried Employees
(incorporated herein by reference to Exhibit 10.41 to the
S-1 Registration Statement).
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|10.46** |  | Amended and Restated Supplemental Executive Retirement Plan.                                                                                     
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|10.47** |  | Amended and Restated Rouge Steel Company Benefit Restoration Plan.                                                                               
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|10.48** |  | Rouge Steel Company Amended and Restated Outside Director
Equity Plan (incorporated herein by reference to Exhibit
10.2 to the Form 8-B).        
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|21+     |  | List of Subsidiaries.                                                                                                                            
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|23+     |  | Consent of PricewaterhouseCoopers LLP.                                                                                                           



|+  |  | Filed herewith.                                                                           
|-- |  | ------------------------------------------------------------------------------------------
|  
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|** |  | 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 2000.       
| | --- |  | -----------------------------------------------------------------------------------------------
|
| | (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.                 

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Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, on the
8th day of March 2001.

| |  |                               
| |  | ------------------------------
| |  | ROUGE INDUSTRIES, INC.        
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| |  | By: /s/ Carl L. Valdiserri    
| |  |                               
| |  | Name: Carl L. Valdiserri      
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| |  | Title: Chief Executive Officer

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

|                        |  |                                                     |  |              
|----------------------- |  | --------------------------------------------------- |  | -------------
|Signatures              |  | Title                                               |  | Date         
|                        |  |                                                     |  |              
|/s/ Carl L. Valdiserri  |  | Chief Executive Officer and Chairman of the Board   |  | March 8, 2001
|                       
|/s/ Louis D. Camino     |  | President, Chief Operating Officer and Director     |  | March 8, 2001
|                       
|/s/ Gary P. Latendresse |  | Vice Chairman, Chief Financial Officer and Director |  | March 8, 2001
|                       
|/s/ Dominick C. Fanello |  | Director                                            |  | March 8, 2001
|                       
|/s/ John E. Lobbia      |  | Director                                            |  | March 8, 2001
|                       
|/s/ Peter J. Pestillo   |  | Director                                            |  | March 8, 2001
|                       
|/s/ Shamel T. Rushwin   |  | Director                                            |  | March 8, 2001
|                       
|/s/ Clayton P. Shannon  |  | Director                                            |  | March 8, 2001

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EXHIBIT INDEX

|        |  |                                                                                                                                                                                                                                                                                                                                                                    
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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)).                                                                                                                       
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|3.1     |  | Amended and Restated Certificate of Incorporation of the Registrant (incorporated herein by
reference to Exhibit 3.1 to the Form 8-B).                                                                                                                                                                                                                             
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|3.2     |  | Amended and Restated By-Laws of the Registrant (incorporated herein by reference to Exhibit 3.2
to the Form 8-B).                                                                                                                                                                                                                                                  
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|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)).
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|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).                                                                                                                        
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|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
(incorporated herein by reference to Exhibit 10.1 to
the Registrants 1997 Annual Report on Form 10-K
(Commission File Number 1-12852) (the 1997 Form
10-K)).                                           
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|10.2    |  | First Amendment to Credit Agreement dated as of July
23, 1999 among the Registrant, Rouge Steel Company, the
banks named therein and Bank One, Michigan, formerly
known as NBD Bank (incorporated herein by reference to
Exhibit 10.2 to the Registrants 1999 Annual Report on
Form 10-K (Commission File Number 1-12852) (the 1999
Form 10-K)).                

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|        |  |                                                                                                                                                                                                                                                                                                               
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit
|Number  |  | Description of Exhibit                                                                                                                                                                                                                                                                                        
|        |  |                                                                                                                                                                                                                                                                                                               
|10.3 +  |  | Second Amendment to Credit Agreement dated as of April 21, 2000 among the Registrant, Rouge Steel
Company, the banks named therein and Bank One, Michigan.                                                                                                                                                    
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|10.4 +  |  | Third Amendment to Credit Agreement dated as of January 18, 2001 among the Registrant, Rouge Steel
Company, the banks named therein and Bank One, Michigan.                                                                                                                                                   
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|10.5 +  |  | Fourth Amendment to Credit Agreement dated as of February 2, 2001 among the Registrant, Rouge Steel
Company, the banks named therein and Bank One, Michigan.                                                                                                                                                  
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|10.6 +  |  | Fifth Amendment to Credit Agreement dated as of February 26, 2001 among the Registrant, Rouge Steel
Company, the banks named therein and Bank One, Michigan.                                                                                                                                                  
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|10.7 +  |  | Sixth Amendment to Credit Agreement dated as of March 1, 2001 among the Registrant, Rouge Steel
Company, the banks named therein and Bank One, Michigan.                                                                                                                                                      
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|10.8 +  |  | Loan and Security Agreement dated March 13, 2001 by and among
Rouge Steel Company, the Registrant, QS Steel Inc., Eveleth Taconite
Company, the financial institutions parties
thereto and Congress Financial Corporation.                                                                                    
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|10.9    |  | 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)).
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|10.10   |  | 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)).                           
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|10.11 + |  | Amendment No. 1 to Oxygen, Nitrogen and Argon Supply Agreement dated as of April 10, 1998 between
Praxair, Inc. and the Registrant.                                                                                                                                                                           
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|10.12 + |  | Amendment No. 2 to Oxygen, Nitrogen and Argon Supply Agreement dated as of January 1, 1999 between
Praxair, Inc. and the Registrant.                                                                                                                                                                          
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|10.13   |  | 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).                                                                                                                    
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|10.14   |  | Natural Gas Operating Agreement dated as of December 15, 1989
between the Registrant and Ford (incorporated herein by
reference to Exhibit 10.25 to the S-1 Registration
Statement).                                                                                                                          
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|10.15   |  | 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).                                                              

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|        |  |                                                                                                                                                                                                                                                                                                                                                                 
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit
|Number  |  | Description of Exhibit                                                                                                                                                                                                                                                                                                                                          
|        |  |                                                                                                                                                                                                                                                                                                                                                                 
|10.16   |  | Amendment to Joint Venture Agreement (incorporated herein by reference to Exhibit 10.24 to the S-1
Registration Statement).                                                                                                                                                                                                                                     
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|10.17   |  | 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).                                                                                                                   
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|10.18   |  | Operating Agreement of TWB Company, L.L.C. dated as of April 15,
1997 by and between Thyssen Inc. (Thyssen) and Worthington Steel
of Michigan, Inc., (Worthington Steel) (incorporated herein by
reference to Exhibit 10.1 to the Registrants Quarterly Report on
Form 10-Q for the Quarterly Period Ended March 31, 1997 (the
First Quarter 1997 10-Q)).
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|10.19   |  | 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).                                                                    
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|10.20   |  | Operating Agreement of Delaco Processing, L.L.C. dated as of September 3, 1997 by and between QS Steel
Inc. and Delaco Supreme Tool & Gear Co. (incorporated herein by reference to Exhibit 10.18 to the 1997
Form 10-K).                                                                                                                                       
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|10.21   |  | First Amended and Restated Operating Agreement for Bing Blanking, L.L.C. dated as of March 31, 1998 by and
among Bing Blanking, L.L.C., QS Steel Inc., and Bing Management II, L.L.C. (incorporated herein by
reference to Exhibit 10.1 to the Registrants Quarterly Report on Form 10-Q for the Quarterly Period
Ended March 31, 1998).                       
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|10.22   |  | 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).                                                                                                                                                         
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|10.23   |  | Member Control Agreement of Eveleth Mines LLC dated as of December
2, 1996 between Virgina Horn Taconite Company, Eveleth Taconite
Company and Ontario Eveleth Company (incorporated herein by
reference to Exhibit 10.21 to the 1996 form 10-K).                                                                                                               
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|10.24   |  | 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).                                                                                                                                                              
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|10.25   |  | 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).                                                                                                                             

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|        |  |                                                                                                                                                                                                                                   
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|Exhibit
|Number  |  | Description of Exhibit                                                                                                                                                                                                            
|        |  |                                                                                                                                                                                                                                   
|10.26   |  | 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).                  
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|10.27 + |  | Electricity Sales Agreement between Rouge Steel Company and Dearborn Industrial Generation, L.L.C.
dated as of January 13, 1999.                                                                                                  
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|10.28 + |  | Steam Sales Agreement between Rouge Steel Company and Dearborn Industrial Generation, L.L.C. dated
as of January 13, 1999                                                                                                         
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|10.29 + |  | Ground Lease Between Rouge Steel Company and Dearborn Industrial Generation, L.L.C. dated as of June
30, 1999.                                                                                                                    
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|10.30 + |  | Purchase Option Agreement by and between Dearborn Industrial Generation, L.L.C., Rouge Steel Company
and Ford Motor Company dated as of May 31, 2000.                                                                             
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|10.31 + |  | Easement Agreement by and among Rouge Steel Company, Ford Motor Company, Double Eagle Steel Coating
Company and Dearborn Industrial Generation, L.L.C. dated as of May 31, 2000.                                                  
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|10.32 + |  | Blast Furnace Gas Purchase Agreement by and among Rouge Steel Company and Dearborn Industrial
Generation, L.L.C. dated as of January 13, 1999.                                                                                    
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|10.33 + |  | Amended and Restated Information Systems Services Agreement between Rouge Steel Company and Perot
Systems Corporation dated as of April 1, 2000.                                                                                  
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|10.34 + |  | Master Lease between Bank One, Michigan and Rouge Steel Company dated as of May 14, 1997.                                                                                                                                         
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|10.35** |  | 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)).
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|10.36** |  | Amendment to Rouge Steel Company Savings Plan for Salaried
Employees (incorporated herein by reference to Exhibit 10.3
to the Form 8-B).                                                                                          
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|10.37   |  | 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).                                                                     
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|10.38   |  | 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).                                                                              
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|10.39   |  | Rouge Steel Company Profit Sharing Plan for Salaried
Employees (incorporated herein by reference to Exhibit 10.38
to the S-1 Registration Statement).                                                                             

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|        |  |                                                                                                                                                  
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|Exhibit
|Number  |  | Description of Exhibit                                                                                                                           
|        |  |                                                                                                                                                  
|10.40** |  | Rouge Steel Company Incentive Compensation Plan (incorporated herein by reference to Exhibit 10.39
to the S-1 Registration Statement).           
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|10.41** |  | Rouge Steel Company Amended and Restated Stock Incentive
Plan (incorporated herein by reference to Exhibit 10.1 to
the Form 8-B).                
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|10.42** |  | First Amendment to Rouge Steel Company Amended and Restated Stock Incentive Plan.                                                                
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|10.43** |  | Rouge Steel Company 1998 Stock Incentive Plan.                                                                                                   
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|10.44** |  | First Amendment to Rouge Steel Company 1998 Stock Incentive Plan.                                                                                
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|10.45** |  | Rouge Steel Company Retirement Plan for Salaried Employees
(incorporated herein by reference to Exhibit 10.41 to the
S-1 Registration Statement).
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|10.46** |  | Amended and Restated Supplemental Executive Retirement Plan.                                                                                     
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|10.47** |  | Amended and Restated Rouge Steel Company Benefit Restoration Plan.                                                                               
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|10.48** |  | Rouge Steel Company Amended and Restated Outside Director
Equity Plan (incorporated herein by reference to Exhibit
10.2 to the Form 8-B).        
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|21+     |  | List of Subsidiaries.                                                                                                                            
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|23+     |  | Consent of PricewaterhouseCoopers LLP.                                                                                                           



|+  |  | Filed herewith.                                                                           
|-- |  | ------------------------------------------------------------------------------------------
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|** |  | 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 2000.       
| | --- |  | -----------------------------------------------------------------------------------------------
|
| | (c) |  | The exhibits listed under Item 14(a)(3) are filed herewith or
incorporated herein by reference.
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| | (d) |  | The financial statement schedule listed under Item 14(a)(2) is
filed herewith.                 

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