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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

|  |  |                                                                                     
|- |  | ------------------------------------------------------------------------------------
|x |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the fiscal year ended December 31, 2002

OR

|  |  |                                                                                         
|- |  | ----------------------------------------------------------------------------------------
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number 1-12852

ROUGE INDUSTRIES,
INC.

|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|DELAWARE                                                       |  | 38-3340770                       
|                                                               |  |                                  
|(State or other jurisdiction of
incorporation or organization) |  | (IRS Employer
Identification No.)
|                                                               |  |                                  
|3001 Miller Road, P.O. Box 1699, Dearborn, Michigan            |  | 48121-1699                       
|                                                               |  |                                  
|(Address of principal executive offices)                       |  | (Zip Code)                       

(313) 317-8900

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:

None

Indicate by check mark whether the 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 ü   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. [ü]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

YES    NO ü

Based upon the closing price of the Class A Common Stock on February 5, 2003,
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 $12,147,632.

The number of shares of common stock issued and outstanding as of February 5,
2003 was 22,247,554. This amount includes 15,107,154 shares of Class A Common
Stock and 7,140,400 shares of Class B Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

Selected portions of the 2003 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 7A. Quantitative and Qualitative Disclosures About Market Risk                          
|Item 8. Financial Statements and Supplementary Data                                          
|Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 
|PART III                                                                                     
|Item 10. Directors and Executive Officers of the Registrant                                  
|Item 11. Executive Compensation                                                              
|Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|Item 13. Certain Relationships and Related Transactions                                      
|Item 14. Controls and Procedures                                                             
|PART IV                                                                                      
|Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K                    
|Amend to Subordinated Loan & Security Agreement                                              
|Oxygen, Nitrogen & Argon Supply Agreement                                                    
|List of Subsidiaries                                                                         
|Consent of PricewaterhouseCoopers LLP                                                        
|906 Certification of Chief Executive Officer                                                 
|906 Certification of Chief Financial Officer                                                 



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ROUGE INDUSTRIES, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

TABLE OF CONTENTS

|         |  |                                                                                       |  |      |    | 
|-------- |  | ------------------------------------------------------------------------------------- |  | ---- | -- | 
|PART I   |  |                                                                                       |  | Page |   
|        
|Item 1.  |  | Business                                                                              |  |      | 3  | 
|         |  |                                                                                       |  |      |    | 
|Item 2.  |  | Properties                                                                            |  |      | 16 | 
|         |  |                                                                                       |  |      |    | 
|Item 3.  |  | Legal Proceedings                                                                     |  |      | 16 | 
|         |  |                                                                                       |  |      |    | 
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                   |  |      | 18 | 
|         |  |                                                                                       |  |      |    | 
|PART II  |  |                                                                                       |  |      |    | 
|         |  |                                                                                       |  |      |    | 
|Item 5.  |  | Market for Registrants Common Stock and Related Stockholder Matters                  |  |      | 21 | 
|         |  |                                                                                       |  |      |    | 
|Item 6.  |  | Selected Financial Data                                                               |  |      | 22 | 
|         |  |                                                                                       |  |      |    | 
|Item 7.  |  | Managements Discussion and Analysis of Financial Condition and
Results of Operations |  |      | 24 | 
|         |  |                                                                                       |  |      |    | 
|Item 7A. |  | Quantitative and Qualitative Disclosures About Market Risk                            |  |      | 42 | 
|         |  |                                                                                       |  |      |    | 
|Item 8.  |  | Financial Statements and Supplementary Data                                           |  |      | 43 | 
|         |  |                                                                                       |  |      |    | 
|Item 9.  |  | Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure  |  |      | 69 | 
|         |  |                                                                                       |  |      |    | 
|PART III |  |                                                                                       |  |      |    | 
|         |  |                                                                                       |  |      |    | 
|Item 10. |  | Directors and Executive Officers of the Registrant                                    |  |      | 70 | 
|         |  |                                                                                       |  |      |    | 
|Item 11. |  | Executive Compensation                                                                |  |      | 70 | 
|         |  |                                                                                       |  |      |    | 
|Item 12. |  | Security Ownership of Certain Beneficial Owners and Management                        |  |      | 70 | 
|         |  |                                                                                       |  |      |    | 
|Item 13. |  | Certain Relationships and Related Transactions                                        |  |      | 70 | 
|         |  |                                                                                       |  |      |    | 
|Item 14. |  | Controls and Procedures                                                               |  |      | 70 | 
|         |  |                                                                                       |  |      |    | 
|PART IV  |  |                                                                                       |  |      |    | 
|         |  |                                                                                       |  |      |    | 
|Item 15. |  | Exhibits, Financial Statement Schedules, and Reports on Form 8-K                      |  |      | 71 | 

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PART I

Item 1. Business.

General

Rouge Industries, Inc., a Delaware corporation (together with its
subsidiaries, Rouge Industries or the Company), was incorporated in 1996.
The Company is primarily engaged, through its wholly-owned subsidiary, Rouge
Steel Company (Rouge Steel), in the production of high quality, flat rolled
carbon steel products consisting of hot rolled, cold rolled and galvanized
steel. The Companys products generally, 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 maintain its position as a key automotive supplier. The Company also
sells its products to steel converters, service centers and other end users.

Other than Rouge Steel, Rouge Industries wholly-owned subsidiaries
include QS Steel Inc. (QS Steel) and Eveleth Taconite Company (Eveleth).
QS Steel holds minority ownership interests in two Michigan-based joint
ventures. Eveleth holds a minority interest in Eveleth Mines LLC (EVTAC), a
Minnesota-based iron ore mining and pellet producing operation. Rouge Steel
holds a 50% interest in Double Eagle Steel Coating Company (Double Eagle), a
Michigan-based joint venture.

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. Continuing business
interruption and Powerhouse property damage expenses in 2000 and 2001, along
with a partial settlement of the insurance claim in 2000 and the full
settlement in 2001, affected the Companys results of operations in those
years. Consequently, comparisons between 2002 and 2001 and between 2001 and
2000 may not be meaningful.

During the mid-1990s, the Company experienced a relatively stable market
environment. Then in 1998, an unprecedented amount of steel imports began
flooding the U.S. causing domestic steel prices to decline dramatically. Next,
in 2000, natural gas prices began to rise causing a considerable increase in
the Companys costs of goods sold. In addition, in late 2001, a fire occurred
at Double Eagle, the Companys joint venture electrogalvanizing line, which
caused that facility to lose production for nine months.

The Company continues to face difficult market conditions, although steel
product prices in the spot market and demand for the Companys products
improved during 2002. The low prices during the past three years, the cash
strain caused by the Powerhouse explosion and the Double Eagle fire and
contractual issues related to the startup and operation of the new power plant
caused significant operating losses and put considerable pressure on the
Companys liquidity. The Company responded to the liquidity deterioration by
refinancing its revolving loan facility, procuring two subordinated credit
facilities and selling or restructuring three joint ventures. The first
subordinated credit facility was obtained in late 2001 and during 2002, the
Company secured an additional $10 million loan, which is tied to a long-term
supply contract with a raw material

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supplier. Additionally, the Company has undertaken an aggressive cost
reduction program and reduced capital expenditures in order to help conserve
cash.

The Companys liquidity is dependent on its operating performance (which
is closely related to business conditions in the domestic steel industry), the
implementation of operating and capital cost reduction programs, receipt of
proceeds from the Double Eagle insurance claim, the impact of the tariffs
imposed in response to the Bush Administrations Section 201 relief, and its
sources of financing. The Company depends on borrowings to fund operations.
In the event that market conditions deteriorate, causing operating losses to
continue, and the Company is unable to secure additional financing sources to
fund its operations, it may be required to seek bankruptcy protection or
commence liquidation or other administrative proceedings.

Products

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

The following table sets forth the percentage of Rouge Industries steel
product revenues from hot rolled, cold rolled, electrogalvanized and hot dip
galvanized steel for the years from 2000 through 2002.

|                   |       |  |                         |       |   |      |      |       |      |  |      |       |  
|------------------ | ----- |  | ----------------------- | ----- | - | ---- | ---- | ----- | ---- |  | ---- | ----- | -
|                   |       |  | Years Ended December 31 |      
|                   |       |  |                         |      
|                   |       |  | 2002                    |       |   | 2001 |      |       | 2000 | 
|                   |       |  |                         |       |   |      |      |       |      | 
|Hot Rolled         |       |  | 40.5                    | %     |   |      | 39.9 | %     |      |  | 37.5 | %    
|Cold Rolled        |       |  | 24.6                    |       |   |      | 21.2 |       |      |  | 25.5 |      
|Electrogalvanized  |       |  | 17.4                    |       |   |      | 19.1 |       |      |  | 20.5 |      
|Hot Dip Galvanized |       |  | 17.5                    |       |   |      | 19.8 |       |      |  | 16.5 |      
|                   |       |  |                         |       |   |      |      |       |     
|                   | 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.

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



| | (i)   |  | Double Eagle, a joint venture owned 50% by Rouge Steel and 50% by
United States Steel Corporation (U.S. Steel), produces
electrogalvanized steel sold primarily to the automotive industry.
The Double Eagle joint venture agreement was set to expire in 2001,
but the Company and U.S. Steel have extended the agreement on a
rolling two-year basis. On December 15, 2001, a major fire at Double
Eagle halted production at the plant. The Company and U.S. Steel
rebuilt Double Eagle and returned the facility to production in
September 2002;
| | ----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (ii)  |  | Spartan Steel Coating, L.L.C. (Spartan Steel), a joint venture
owned 48% by QS Steel and 52% by Worthington Industries, Inc.
(together with its subsidiaries, Worthington), produces hot dip
galvanized steel primarily for automotive applications; and                                                                                                                                                                                                                                                                                           
|
| | (iii) |  | Delaco Processing, L.L.C. (Delaco Steel Processing), a joint
venture owned 49% by QS Steel and 51% by Delaco Steel Corporation,
slits and blanks steel coils to be sold to automotive customers and
other end users.                                                                                                                                                                                                                                                                                                                                 

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

Subsequent to the liquidation of Bing Blanking, the Company sold a 51%
interest, valued at $1.9 million, in the land, buildings and operating
equipment formerly utilized by Bing Blanking to Delaco Steel Corporation. This
interest was subsequently contributed to Delaco Steel Processing. The Company
has also contributed its corresponding 49% interest in these assets, amounting
to $1.9 million, to Delaco Steel Processing. This investment was intended to
enable Delaco Steel Processing to enhance its product and service capability.

In December 2002, Rouge Industries sold its interest in TWB Company,
L.L.C. (TWB) to the joint venture for $4.7 million. The sale of the
Companys interest in TWB resulted in Rouge Industries recording a non-cash
writeoff of $4.5 million relating to its investment in TWB. The Company had
invested $6.5 million to purchase its interest in TWB in 1997.

The Company guarantees a loan for Delaco Steel Processing. The
outstanding amount at December 31, 2002 was $1.3 million. The Company does
not presently anticipate the need to fund the Delaco Steel Processing
guarantee.

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

Markets and Customers

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

Ford Motor Company (Ford), DaimlerChrysler AG (DaimlerChrysler) and
General Motors Corporation (GM), the Companys three largest customers,
accounted for approximately 33%, 10% and 10%, respectively, of total sales in
2002. Sales to Ford, DaimlerChrysler and GM were 36%, 10% and 10%,
respectively, of total sales in 2001 and were 38%, 9% and 9%, respectively, of
total sales in 2000. While the loss of Ford, DaimlerChrysler or GM as a
customer would have a materially adverse effect on the Companys business, the
Company believes that its relationship with these companies provides a stable
sales base and the ability to expand its product capability and concentrate on
increasing margins through more efficient production. No single customer,
other than Ford, DaimlerChrysler or GM, 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 72% of total sales in
2002, approximately 73% of total sales in 2001 and approximately 74% of total
sales in 2000. For 2002, the Company estimates that its share of the domestic
flat rolled steel market, as measured by shipments, was approximately 5%.

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, 2000 through 2002.

|                |       |  |                         |       |   |      |      |       |      |  |      |       |  
|--------------- | ----- |  | ----------------------- | ----- | - | ---- | ---- | ----- | ---- |  | ---- | ----- | -
|                |       |  | Years Ended December 31 |      
|                |       |  |                         |      
|                |       |  | 2002                    |       |   | 2001 |      |       | 2000 | 
|                |       |  |                         |       |   |      |      |       |      | 
|Automotive      |       |  | 58.1                    | %     |   |      | 62.4 | %     |      |  | 61.7 | %    
|Converters      |       |  | 13.8                    |       |   |      | 10.2 |       |      |  | 9.3  |      
|Service Centers |       |  | 26.8                    |       |   |      | 25.5 |       |      |  | 28.2 |      
|Other End Users |       |  | 1.3                     |       |   |      | 1.9  |       |      |  | 0.8  |      
|                |       |  |                         |       |   |      |      |       |     
|                | 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

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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 58.1% of the
Companys steel product revenues in 2002, down from 62.4% in 2001. The decrease
in revenue from the automotive market as a percentage of total revenue is due
to the increase in spot market prices not a decrease in sales volume to
automotive customers.

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 316,000 net tons at December 31, 2002,
compared to 493,000 net tons at December 31, 2001. All orders related to the
order load at December 31, 2002 are expected to be shipped during the first
half of 2003. The order load represents orders received but not yet shipped.

Raw Materials and Energy Sources

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

Coke.Coke and pellets represent the Companys largest raw material
expenditures. The Company does not produce coke and, as a consequence, relies
upon outside sources. In 2002, approximately 92% of the Companys coke was
provided by U.S. Steel. The Company acquired approximately 8% of its coke
through a tolling agreement with New Boston Coke Corporation (New Boston),
whose total productive capacity was dedicated to the Company. During 2002,
New Boston closed its facilities and the Company purchased all of its coke
requirements from U.S. Steel for the remainder of the year. U.S. Steel
provided coke to the Company pursuant to a three-year agreement that terminates
on December 31, 2003 upon 12 months written notice. This agreement requires
the Company to purchase all of its coke requirements in excess of the amount
provided by New Boston. Annual prices under this agreement are based on market
conditions.

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Recently, 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. The coke
shortage that may result from the reduction in capacity and the increased
demand for coal as an energy source may cause the price that the Company pays
for coke to increase, which may adversely affect the Companys results of
operations.

Iron Ore Pellets.The Company has consumed an average of 3.4 million
gross tons of iron ore pellets annually over the three-year period ended
December 31, 2002. Approximately 65% of the Companys requirements for pellets
during this period was obtained under a trade arrangement with Stelco, Inc
(Stelco) or The Cleveland-Cliffs Iron Company (Cleveland-Cliffs). Under
this arrangement, the Company exchanged acid pellets purchased from its 45%
owned joint venture, EVTAC, for fluxed pellets or acid pellets with a higher
manganese content, which are used to enhance blast furnace productivity. The
Company was 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, 2002, the Company traded an average of 1.8 million gross
tons of EVTAC pellets annually, which constituted 100% of the Companys share
of the pellets produced by EVTAC. The balance of the Companys pellet
requirements was purchased pursuant to a contract with Cleveland-Cliffs.

The six-year pellet purchase agreement with EVTAC expired on December 31,
2002. The Company did not renew or extend this agreement with EVTAC. As a
result, the trade arrangements with Stelco and Cleveland-Cliffs have been
terminated. The Company will purchase all of its iron ore requirements from
Cleveland-Cliffs pursuant to a 2002 amendment to the Companys existing pellet
agreement with Cleveland-Cliffs. The amendment contains minimum pellet
purchase levels of approximately $75.2 million per year from 2003 through 2007
with a minimum five-year aggregate purchase level of approximately $564.0
million.

EVTAC has contracts in place to support pellet production into the second
quarter of 2003. If EVTAC is unable to secure orders or contracts to sustain pellet production beyond the
second quarter of 2003, EVTAC may discontinue operations. This action, should
it be required, is not anticipated to have a material impact on the results of
operations or financial position of the Company.

Scrap.The Company spent approximately $60 million to purchase steel
scrap in 2002 compared to $56 million in 2001 and $80 million in 2000.

Other Raw Materials and Energy Sources.During 2002, natural gas,
electricity and steam constituted 53%, 26% and 21%, respectively, of the
Companys total energy costs. Natural gas is acquired at prevailing market
prices from various producers. The cost of natural gas increased dramatically
during 2000 and stayed high in 2001 and 2002.

Prior to 1999, the Powerhouse provided electricity for all of the
Companys steel-making facilities except its ladle refining facility, as well
as all of its steam requirements pursuant to an operating agreement with Ford
(the Powerhouse Joint Operating Agreement). The Powerhouse is owned 60% by
the Company and 40% by Ford. The Powerhouse Joint Operating Agreement was due
to expire on December 31, 1999, but has been extended on a rolling 30-day basis
until it

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is terminated by either party upon 30 days notice. The Powerhouse
Joint Operating Agreement governs the utility distribution and cost sharing arrangements
for the Rouge Complex. The Company installed temporary package steam boilers to
provide heating and processing steam after the Powerhouse explosion. In 1998,
Rouge Steel and Ford signed agreements for long-term energy services with
Dearborn Industrial Generation, L.L.C. (DIG), an affiliate of CMS Energy
Corporation (together with its subsidiaries, CMS). DIG operates a new
co-generation power plant. The Company began to purchase electricity and steam
from DIG in 2001. However, DIG has not acknowledged a contractually mandated
blast furnace gas delivery date; therefore, DIG has not paid for 100% of the
available blast furnace gas pursuant to the Blast Furnace Gas Purchase
Agreement between Rouge Steel and DIG. Consequently, the Company continues to
flare a portion of its blast furnace gas at a cost penalty of $1.0 million to
$1.5 million per quarter, down from approximately $1.0 million per month
earlier in 2002. In December 2002, DIG experienced exceedances to its permit
limits for sulfur dioxide. The Company and DIG dispute the financial
responsibilities arising from these exceedances. DIG has asserted certain
claims against the Company which the Company believes are without merit. In
January 2003, the Company sent notice to DIG of its intention to initiate
arbitration of all of the issues related to DIGs supply of electricity and
steam and purchase of blast furnace gas.

The Company has a long-term contract for the supply of oxygen and nitrogen
with Praxair, Inc. which expires in 2011 and for the supply of hydrogen which
expires in 2005. The contracts contain minimum oxygen, nitrogen and hydrogen
purchase levels of approximately $9.4 million, $1.3 million and $972,000 per
year, respectively.

Competition

The Company competes directly with domestic and foreign flat rolled carbon
steel producers and producers of plastics, aluminum and other materials which
can be used in place of flat rolled carbon steel in manufactured products. The
Company competes principally on the basis of service, quality, price and the
ability to meet customers product specifications and delivery schedules. The
steel industry is highly competitive. This competition affects the prices that
the Company can charge for its products, the utilization levels at its
production facilities, and, ultimately, its profitability.

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

Steel imports in 2002 are estimated to have been 32 million tons, a 7%
increase from 2001 levels. Imports as a percentage of apparent domestic
consumption, including semifinished steel, averaged approximately 26% in 2002,
24% in 2001 and 32% in 2000. In 1998, steel imports were 42 million tons, or
32% of apparent domestic consumption. Despite the Bush Administrations
Section 201 relief, flat rolled steel imports have surged from countries that
were excluded from tariffs, resulting in the higher levels of imports in 2002.
As a result, supply has been excessive and spot market prices began falling in
late 2002. See - Trade Case.

Domestic Steel Industry. The domestic steel industry is a cyclical
business. In the United States, the Company competes with many domestic
integrated steel companies. The Company also competes with electric furnace
based mini-mills, which generally target regional markets,


9Table of Contents

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. The availability and
fluctuations in the cost of electricity and scrap, the primary raw materials
for mini-mill steel production, may influence the ability of mini-mills to
compete with domestic integrated producers.

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

Trade Case.The U.S. steel industry has been suffering financially, with
marked declines in profits, returns on investment and market share. As a
result, many steel-related companies have sought bankruptcy protection. Many
U.S. steel producers maintain that an increase in low-priced imports, which
began four years ago, is responsible for the hardships within the industry.

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

On March 5, 2002, the Bush Administration announced its decision regarding
remedies to the trade situation. Tariffs of 30% were imposed on imports of
flat rolled steel (which compete with the Companys products) for one year,
declining to 24% the second year and 18% the third year. Although the tariffs
may have had a slightly positive effect on pricing, import volumes continued in
2002 at very high levels.

The tariffs imposed on imported steel were designed to give the domestic
steel industry an opportunity to consolidate and shed inefficient capacity.
The recently announced offers to purchase Bethlehem Steel Corporation by
International Steel Group and National Steel Corporation by AK Steel
Corporation or U.S. Steel appear to be consistent with the Bush
Administrations objectives, although it is unclear that any significant
steelmaking capacity will be permanently idled. It is too early for the Company
to predict the impact of these potential mergers on Rouge Industries.

Steel Substitutes. In the case of many steel products, there is
substantial competition from other products, including plastics, aluminum,
ceramics, glass, wood and concrete. In conjunction with the American Iron and
Steel Institute and the International Iron and Steel Institute, the

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Company is working to make steel the product of choice in its traditional
markets through programs such as the Ultra Light Steel Auto Body.

There is increasing competition between electrogalvanized and hot dip
galvanized steels. Automotive customers are attempting to mitigate certain
exposed product applications to the lower priced hot dip galvanized steel as
hot dip galvanized steel surface quality is improved. Presently, there is not
enough automotive grade hot dip galvanized steelmaking capacity in the U.S. to
accommodate a total substitution.

Employees

At December 31, 2002, the work force of Rouge Steel was comprised of 2,075
hourly and 630 salaried personnel, including Rouge Steel employees working at
Double Eagle. In 2002, the Companys employment cost per ton shipped decreased
to $87 from $91 in 2001. Tons shipped per employee in 2002 increased to 1,001
from 909 in 2001.

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

Environmental Control and Cleanup Expenditures

General.The Companys operations are subject to many federal, state and
local laws, regulations, permits and consent agreements relating to the
protection of human health and the environment. Except as set forth below,
the Company believes that its facilities are in material compliance with these
provisions and does not believe that future compliance with such provisions
will have a materially adverse effect on its results of operations or financial
position. The Company has incurred capital expenditures in connection with
matters relating to environmental control of approximately $5.4 million during
the past four years. In addition, the Company has planned an aggregate of
approximately $1 million in capital expenditures for environmental compliance
for the years 2003 through 2005. Since environmental laws and regulations are
becoming increasingly stringent, the Companys environmental capital
expenditures and costs for environmental compliance may increase in the future.
In addition, due to the possibility of unanticipated regulatory or other
developments, the amount and timing of future environmental expenditures may
vary substantially from those currently anticipated. The costs for current and
future environmental compliance may also place domestic steel producers at a
competitive disadvantage with respect to foreign steel producers, which may not
be required to undertake equivalent costs in their operations, and
manufacturers of steel substitutes which are subject to less stringent
environmental requirements.

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

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

In 2000, Rouge Steel and Ford co-signed a Corrective Action Consent Order
(the Consent Order) which committed both companies to a four-phase
remediation program throughout the Rouge Complex. 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 obligation to the Company under the Ford Indemnity. The Company has no
information at this time to suggest that the cost to the Company of the
remediation required by the Consent Order will have a materially adverse effect
on its results of operations or financial position.

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

Recent Events.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) issued a
draft Title V Permit in 2002 and the Company is presently negotiating details
of the requirements. The final permit will contain substantially increased
monitoring of air pollution control equipment which is not expected to have a
materially adverse effect on the Companys results of operations or financial
position.

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

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amendments have not been finalized,
but the Company anticipates that the blast furnaces will remain outside the
scope of the regulations.

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

In 2000, the Company and Ford entered into a voluntary consent order (the
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 2002, the Company agreed to a consent decree (the Consent Decree) in
a multimedia enforcement action filed by the EPA, Wayne County (the County)
and the MDEQ against Rouge Steel in the United States District Court for the
Eastern District of Michigan (the Court). In 2000, the EPA filed a complaint
(the EPA Complaint) against Rouge Steel in the Court. The EPA Complaint
alleged violations of the Clean Air Act, the State of Michigans (the
States) opacity emissions standards and certain violations of RCRA. At the
same time, the County filed a complaint (the County Complaint) against Rouge
Steel in the Court. The County Complaint alleged violations of the opacity
emissions standards of the Wayne County Air Pollution Control Ordinance. The
Countys allegations of non-compliance with the Clean Air Act paralleled those
in the EPA Complaint. The County and the EPA agreed to jointly settle the
claims resulting in the consolidation of the actions. Subsequently, through a
stipulation filed with the Court in 2002, the State joined with the County and
the EPA as a party to the settlement of this matter. The County Complaint also
alleged claims under the Michigan Environmental Protection Act for the creation
of a public nuisance. The County presented the Company with an order to abate
the alleged public nuisance and proposed a settlement penalty of $252,000 for
15 fallout incidents alleged to have been caused by the Company. However, in
2001, the County relinquished enforcement of air quality matters to the State.
The State indicated that it will review the fallout allegations, but has not
yet reported a decision on the matter. The Consent Decree imposed $462,488 in
penalties to be paid in four installments.

The Consent Decree also includes a requirement for the Company to
demonstrate compliance with visible emission (opacity) standards at each of the
two blast furnaces, the basic oxygen furnace (BOF) roof monitor and the BOF
electrostatic precipitator stack by February 2003. The Company demonstrated
compliance at its smaller blast furnace in September 2002 and BOF electrostatic
precipitator stack in October 2002. There were four exceedances at the BOF
roof monitor during the October 2002 compliance demonstration test. The
compliance

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demonstration at the Companys larger blast furnace was successfully
completed in February 2003.

The occurrence of exceedances during a compliance demonstration triggers a
process of identification and implementation of additional operating and
maintenance practices and/or emission control technologies, acceptable to the
EPA, to achieve compliance with opacity standards. Such corrective actions
could require substantial capital expenditures for additional pollution control
equipment. With respect to the BOF roof monitor exceedances, the Company is
required to notify the EPA of its proposed operating and maintenance practices
and/or emission control technology changes by March 10, 2003. The Company has
identified and implemented corrective actions that it believes will not require
substantial capital expenditures.

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

In 2000, the EPA issued a Unilateral Administrative Order (the Order) to
Rouge Steel pursuant to Section 7003(a) of RCRA. The Order directed the
Company to take immediate measures to stop the exposure of wildlife and
migratory birds to solid wastes and to develop and implement continuous
emergency measures to eliminate contact by wildlife with the solid wastes at
the Companys Schaefer Road Waste Water Treatment Plant. Rouge Steel complied
with the Order and submitted a continuing emergency measures workplan (CEMW)
which the EPA approved. Since then, the EPA has taken issue with the
effectiveness of the CEMW and with Rouge Steels implementation of the CEMW.
In 2001, the EPA issued an NOV to Rouge Steel informing the Company that the
EPA has determined that the Company is not complying with the Order nor the
approved CEMW. Rouge Steel has raised vigorous objections to a number of the
allegations contained in the NOV. The parties have conducted several
negotiations to address these issues but have not yet reached a resolution. In
February 2002, the EPA issued Rouge Steel a request for information pursuant to
Section 3007 of RCRA seeking information regarding the Companys Schaefer Road
Waste Water Treatment Plant. The Company responded to this request. The
preliminary nature of this matter makes it difficult for the Company to predict
the nature of its outcome or its impact on the Company.

The federal Maximum Achievable Control Technology (MACT) standard for
hydrochloric acid pickling became effective in 2001. The standard includes
requirements for operation, monitoring, maintenance and stack emissions. Stack
tests for two of the three scrubbers met the emission standard in June 2002. A
mist eliminator in the third scrubber was found to have deteriorated and did
not meet the emission standard. Upon discovery of the malfunction, Rouge Steel
promptly submitted notification of the malfunction to the MDEQ. The MDEQ
issued a Letter of Violation (an LOV) for the initial results for the third
scrubber. The new MACT standards for hydrochloric acid pickling lines
specifically indicate that non-opacity emission standards do not apply during
times of, among other things, malfunctions. Rouge Steel has contested the LOV
based on a malfunction defense. Initial negotiations indicate that the MDEQ
has neither asserted a demand for penalties nor requested further corrective
measures.

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Due to the preliminary nature of this matter the Company is unable to assess
its impact on the Companys financial position or results of operations.

In 2001, the EPA proposed a MACT standard for primary iron and steel
operations. The standard will include requirements for operation, monitoring,
maintenance, and opacity and stack emissions. The standards monitoring
requirements are burdensome and include a provision for progressively
tightening the BOF stack opacity limit over time. It appears that the standard
will be issued by the end of February 2003, becoming effective three years
later. The Company is investigating means of becoming exempt from the standard,
both directly and joined with the American Iron and Steel Institute. The
additional monitoring costs are not expected to be material. The BOF stack
opacity limitation could eventually lead to modifications to the control system
technology, the cost of which could be material.

A RCRA hazardous waste and liquid industrial waste (LIW) inspection of
the Companys facilities was conducted jointly by the EPA and the MDEQ in 2002.
The RCRA portion looked at hazardous waste handling, and the LIW portion
looked at liquid industrial waste practices. The MDEQ issued a letter which
raised four concerns. The Companys response explained why the conditions were
not in violation of rules and identified actions taken to eliminate the
concerns expressed. The EPA has not identified any significant concerns. There
is insufficient information at this time to predict an outcome from the
inspection.

Revisions to the existing federal and state spill control regulations were
issued in 2002. These revisions expand the scope of materials covered and
dictate new management and containment requirements for bulk liquid storage and
handling. A consultant will be hired to revise the Companys spill control
plan and provide recommendations for procedures and installations required.
Installation of tank gauges, and additional paving, curbs and sumps for spill
containment may be required. Anticipated facility upgrades are not expected to
be material.

In December 2002, DIG experienced exceedances to its permit limits for
sulfur dioxide. The Company and DIG dispute the financial responsibilities
arising from these exceedances. DIG has asserted certain claims against the
Company which the Company believes are without merit. In January 2003, the
Company sent notice to DIG of its intention to initiate arbitration of all of
the issues related to DIGs supply of electricity and steam and purchase of
blast furnace gas.

On January 2, 2003, the MDEQ issued an LOV for an odor incident presumed
to be associated with the blast furnace slag pits operated on site by the
Edward C. Levy Company (Levy). It has not been established at this time
whether the LOV is factually supported. However, the Companys contract with
Levy identifies Levy as responsible for compliance and includes indemnification
for claims arising from Levys operations. Under these circumstances, it is
unknown whether MDEQ contemplates taking further enforcement action with
respect to this matter.

On January 16, 2003, the EPA issued a Notice of Federal Interest (Notice
of Interest) in an oil pollution incident to a number of parties, including
Rouge Steel. This Notice of Interest related to an alleged pollution incident
that occurred or threatened to occur on or about October 22, 2002 at Sybill (SRS Environmental). SRS Environmental was a
vendor for Rouge Steel that collected and processed used oil through
July of 2002. Recently, the EPA has indicated that it intends to
conduct a removal action at this location. Alternatively, the EPA is
encouraging generators of material sent to this facility to promptly
agree to conduct a voluntary removal action. Due to the preliminary nature of
 this matter, at this time, Rouge Steel is not able to
estimate the impact on the Companys results of operations or financial
position.

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Research and Development

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




Item 2. Properties.

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

Rouge Steels facilities include three blast furnaces (one of which has
been idle since 1988), two basic oxygen furnaces, one waste oxide reclamation
facility (which is leased and has been idle since 2000), 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 certain
power and utility assets, including the Powerhouse that was managed, operated
and maintained by Ford (which owns the other 40%). On February 1, 1999, an
explosion and fire at the Powerhouse curtailed the supply of utilities which
resulted in the temporary idling of the Companys steel making facilities and
destroyed the Powerhouse. Prior to the Powerhouse explosion, Ford and Rouge
Steel had entered an agreement for long-term energy services with CMS, which
has built and is operating a co-generation power plant. Along with Rouge
Steels properties, Rouge Industries owns (i) a 48% interest in Spartan Steel,
a cold rolled hot dip galvanizing facility; (ii) a 45% interest in EVTAC, an
iron ore mining and pellet producing facility; and (iii) a 49% interest in
Delaco Steel Processing, a steel processor.




Item 3. Legal Proceedings.

Environmental Lawsuit

In 2002, the Company agreed to the Consent Decree to settle a multimedia
enforcement action filed by the EPA, the County and the MDEQ against Rouge
Steel in the Court. In 2000, the EPA filed the EPA Complaint against Rouge
Steel in the Court. The EPA Complaint alleged violations of the Clean Air Act,
the States opacity emissions standards and certain violations of RCRA. At the
same time, the County filed the County Complaint against Rouge Steel in the
Court. The County Complaint alleged violations of the opacity emissions
standards of the Wayne County Air Pollution Control Ordinance. The Countys
allegations of non-compliance with the Clean Air Act paralleled those in the
EPA Complaint. The County and the EPA agreed to jointly settle the claims
resulting in the consolidation of the actions. Subsequently, through a
stipulation filed with the Court in 2002, the State joined with the County and
the EPA as a party to the settlement of this matter. The County Complaint also
alleged claims under the Michigan

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Environmental Protection Act for the creation
of a public nuisance. The County presented the Company with an order to abate the alleged public nuisance and proposed a
settlement penalty of $252,000 for 15 fallout incidents alleged to have been
caused by the Company. However, in 2001, the County relinquished enforcement
of air quality matters to the State. The State indicated that it will review
the fallout allegations, but has not yet reported a decision on the matter.
The Consent Decree imposed $462,488 in penalties to be paid in four
installments.

The Consent Decree also includes a requirement for the Company to
demonstrate compliance with visible emission (opacity) standards at each of the
two blast furnaces, the BOF roof monitor and the BOF electrostatic precipitator
stack by February 2003. The Company demonstrated compliance at its smaller
blast furnace in September 2002 and BOF electrostatic precipitator stack in
October 2002. There were four exceedances at the BOF roof monitor during the
October 2002 compliance demonstration test. The compliance demonstration at
the Companys larger blast furnace was successfully completed in February 2003.

The occurrence of exceedances during a compliance demonstration triggers a
process of identification and implementation of additional operating and
maintenance practices and/or emission control technologies, acceptable to the
EPA, to achieve compliance with opacity standards. Such corrective actions
could require substantial capital expenditures for additional pollution control
equipment. With respect to the BOF roof monitor exceedances, the Company is
required to notify the EPA of its proposed operating and maintenance practices
and/or emission control technology changes by March 10, 2003. The Company has
identified and implemented corrective actions that it believes will not require
substantial capital expenditures.

Powerhouse Related Lawsuits

Rouge Steel has been served with 14 lawsuits filed by 17 current or former
Ford employees and two Rouge Steel employees, claiming unspecified injuries
relating to the February 1, 1999 Powerhouse explosion. Rouge Steels insurers
have assumed the defense and indemnity obligations for these lawsuits under a
reservation of rights citing the 2001 settlement between Ford and Rouge Steel
with respect to the Powerhouse explosion as possibly impacting their coverage
obligations.

Notice of Intent for Dispute Resolution

In 2000, Rouge Steel, Ford and DIG entered a Memorandum of Agreement
(MOA) regarding additional obligations of each party with respect to the
co-generation power plant built and operated by DIG. The failure of DIG to
acknowledge a contractually mandated blast furnace gas delivery date and to
purchase all of the blast furnace gas the Company generates as provided for in
the Blast Furnace Gas Purchase Agreement has been financially injurious to the
Company. The Company also has incurred substantial damages resulting from
DIG-related steam quality and reliability and electrical outage issues.

In addition, DIG has asserted certain claims against the Company pursuant
to the MOA. The Companys attempts to negotiate a settlement agreement with DIG
on all open matters have been unsuccessful to date and the Company has given
notice to DIG that it intends to pursue the alternate dispute resolution
provision of its agreements, including arbitration.

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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, if taken in the aggregate, could have a materially adverse
effect on the Companys results of operations or financial position.




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

There were no matters submitted to a vote of security holders during the
fourth quarter of 2002.

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EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth, as of December 31, 2002, certain
information with respect to the executive officers of Rouge Industries and
Rouge Steel. 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    |  |     | 66 |  |          | Chairman and Chief Executive Officer                                          
|Gary P. Latendresse   |  |     | 59 |  |          | Vice Chairman and Chief Financial Officer                                     
|William E. Hornberger |  |     | 56 |  |          | Senior Vice President, Corporate Relations and
External Affairs               
|Christopher Kristock  |  |     | 44 |  |          | Vice President, Advanced Engineering, Quality Assurance and Technical Services
|Ronald J. Nock        |  |     | 50 |  |          | Senior Vice President, Commercial and Strategic Planning                      
|Martin Szymanski      |  |     | 49 |  |          | Vice President, General Counsel and Secretary                                 
|Wilbur Winland        |  |     | 48 |  |          | Vice President, Operations                                                    

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 44 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
34 years. Mr. Latendresse has 34 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 19 years of
experience in the steel manufacturing industry.

Mr. Kristock has been Vice President, Advanced Engineering, Quality
Assurance and Technical Service since October 1999. He was Director, Advanced
Engineering, Quality Assurance and Technical Service from 1998 to October 1999,
Manager, Quality Assurance from


19Table of Contents

1993 to 1998, and Quality Systems Implementation Manager from 1990 to 1993. Prior to that, Mr. Kristock held various metallurgical and quality assurance positions
with the Company from 1984 to 1993. Mr. Kristock began his career in 1981 with
Jones and Laughlin Steel and has 22 years of experience in the steel
manufacturing industry.

Mr. Nock has been Senior Vice President, Commercial and Strategic Planning
since January 2000. He served as Vice President, Sales and Marketing from 1988
through 1999. Mr. Nock held various positions at the Company since 1982,
including Manager of Sales and Sales Representative. He has 27 years of
experience in the steel manufacturing industry.

Mr. Szymanski has been Vice President, General Counsel and Secretary since
October 1999. He served as General Counsel and Secretary from January 1998 to
October 1999. From 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 24 years of corporate
and private practice legal experience.

Mr. Winland has been Vice President, Operations since June 1998. Prior to his
assuming his present position, he was Manager, Finishing Operations from 1997
to June 1998. He held managerial positions with the Company in the Hot Mills,
Cold Mills, Continuous Caster, Blast Furnaces and Labor Relations from 1984 to
1997. Mr. Winland began his career at Wheeling-Pittsburgh Steel Corporation in
1976 and has 26 years experience in the steel manufacturing industry.

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PART II




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

As of December 31, 2002, there were (i) 15,107,154 shares of class A
common stock, par value $0.01 per share (the Class A Common Stock), issued
and outstanding and held by approximately 7,000 stockholders of record, and
(ii) 7,140,400 shares of class B common stock, par value $0.01 per share (the
Class B Common Stock and together with the Class A Common Stock, the Common
Stock), issued and outstanding and held by one stockholder of record, Carl L.
Valdiserri. The principal market for the Class A Common Stock is the New York
Stock Exchange, Inc. (the NYSE). The Class B Common Stock is not listed for
trading on any securities exchange.

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

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 5, 2003 was $0.83.

|               |  |      |      |  |     |   |      | 
|-------------- |  | ---- | ---- |  | --- | - | ---- | 
|2002           |  | High |      |  | Low |  
|               |  |      |      |  |     |  
|First Quarter  |  | $    | 1.45 |  |     | $ | 0.63 | 
|Second Quarter |  |      | 1.80 |  |     |   | 1.27 | 
|Third Quarter  |  |      | 1.80 |  |     |   | 1.00 | 
|Fourth Quarter |  |      | 1.40 |  |     |   | 0.84 | 

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

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##### Table of Contents






Item 6. Selected Financial Data.

The Statement of Operations data and Balance Sheet data in the following
table present selected historical consolidated financial information derived
from the historical consolidated financial statements of the Company as of and
for each of the years in the five-year period ended December 31, 2002. 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.

|                                          |                                       |   |                                                 |       |   |      |        |       |      |   |         |       |   |   |        |       |   |   |         |      | 
|----------------------------------------- | ------------------------------------- | - | ----------------------------------------------- | ----- | - | ---- | ------ | ----- | ---- | - | ------- | ----- | - | - | ------ | ----- | - | - | ------- | ---- | 
|                                          |                                       |   | Years Ended December 31                         |      
|                                          |                                       |   |                                                 |      
|                                          |                                       |   | 2002                                            |       |   | 2001 |        |       | 2000 |   |         | 1999  |   |   | 1998   |      
|                                          |                                       |   |                                                 |       |   |      |        |       |      |   |         |       |   |   |        |      
|                                          |                                       |   | (dollars in millions, except per share amounts) |      
|Statement of Operations Data              |                                       |   |                                                 |       |   |      |        |       |      |   |         |       |   |   |        |       |   |   |         |     
|Total Sales                               |                                       | $ | 1,127.0                                         |       |   | $    | 923.5  |       |      | $ | 1,099.8 |       |   | $ | 995.6  |       |   | $ | 1,193.0 |     
|Operating Income (Loss)                   |                                       |   | (77.0                                           | )(2)  |   |      | (190.7 | )(1)  |      |   | (166.8  | )(1)  |   |   | (254.1 | )(1)  |   |   | 35.1    |     
|Net Interest Income (Expense)             |                                       |   | (10.4                                           | )     |   |      | (8.4   | )     |      |   | (4.3    | )     |   |   | (2.1   | )     |   |   | 0.7     |     
|Insurance Recovery                        |                                       |   | 31.4                                            |       |   |      | 81.5   |       |      |   | 91.0    |       |   |   | 177.4  |       |   |   |        |     
|Income Tax (Provision) Benefit            |                                       |   | 2.5                                             |       |   |      |       |       |      |   | (37.3   | )     |   |   | 30.5   |       |   |   | (8.7    | )   
|Net Income (Loss)                         |                                       |   | (52.3                                           | )(2)  |   |      | (111.5 | ) (1) |      |   | (117.3  | )(1)  |   |   | (47.8  | ) (1) |   |   | 23.4    |     
|Per Share Data                            |                                       |   |                                                 |       |   |      |        |       |      |   |         |       |   |   |        |       |   |   |         |     
|                                          | Net Income (Loss)  Basic and Diluted |   | $                                               | (2.35 | ) |      | $      | (5.01 | )    |   | $       | (5.29 | ) |   | $      | (2.16 | ) |   | $       | 1.06 | 
|                                          | Cash Dividends Declared               |   |                                                 |      |   |      |        | 0.04  |      |   |         | 0.12  |   |   |        | 0.12  |   |   |         | 0.12 | 
|Weighted-Average Shares Outstanding (000) |                                       |   | 22,247                                          |       |   |      | 22,242 |       |      |   | 22,158  |       |   |   | 22,122 |       |   |   | 22,025  |     

|                                    |  |             |       |  |      |                       |       |      |  |   |       |  |  |      |       |  |  |   |       | 
|----------------------------------- |  | ----------- | ----- |  | ---- | --------------------- | ----- | ---- |  | - | ----- |  |  | ---- | ----- |  |  | - | ----- | 
|                                    |  | December 31 |      
|                                    |  |             |      
|                                    |  | 2002        |       |  | 2001 |                       |       | 2000 |  |   | 1999  |  |  | 1998 |      
|                                    |  |             |       |  |      |                       |       |      |  |   |       |  |  |      |      
|                                    |  |             |       |  |      | (dollars in millions) |       |      |  |   |      
|Balance Sheet Data                  |  |             |       |  |      |                       |       |      |  |   |       |  |  |      |       |  |  |   |       | 
|Working Capital                     |  | $           | 23.4  |  |      | $                     | (42.7 | )    |  | $ | 117.8 |  |  | $    | 198.3 |  |  | $ | 212.4 | 
|Property, Plant, and Equipment, Net |  |             | 215.0 |  |      |                       | 237.2 |      |  |   | 244.4 |  |  |      | 278.6 |  |  |   | 258.1 | 
|Total Assets                        |  |             | 652.4 |  |      |                       | 673.3 |      |  |   | 741.0 |  |  |      | 867.6 |  |  |   | 768.9 | 
|Long-Term and Short-Term Debt       |  |             | 186.2 |  |      |                       | 145.5 |      |  |   | 66.5  |  |  |      | 104.8 |  |  |   | 29.0  | 
|Stockholders Equity                |  |             | 79.5  |  |      |                       | 170.6 |      |  |   | 292.8 |  |  |      | 409.8 |  |  |   | 459.6 | 

|                                            |  |                         |       |   |      |   |       |       |  |   |       |      |  |      |       |       |  |   |       |    
|------------------------------------------- |  | ----------------------- | ----- | - | ---- | - | ----- | ----- |  | - | ----- | ---- |  | ---- | ----- | ----- |  | - | ----- | ---
|                                            |  | Years Ended December 31 |      
|                                            |  |                         |      
|                                            |  | 2002                    |       |   | 2001 |   |       | 2000  |  |   | 1999  |      |  | 1998 |      
|                                            |  |                         |       |   |      |   |       |       |  |   |       |      |  |      |      
|Other Data                                  |  |                         |       |   |      |   |       |       |  |   |       |      |  |      |       |       |  |   |       |    
|Net Tons Shipped (000)                      |  |                         | 2,707 |   |      |   | 2,440 |       |  |   | 2,570 |      |  |      | 2,320 |       |  |   | 2,630 |    
|Raw Steel Production (Mils) NT              |  |                         | 3.1   |   |      |   | 2.8   |       |  |   | 2.9   |      |  |      | 2.2   |       |  |   | 3.1   |    
|Effective Capacity Utilization              |  |                         | 96    | % |      |   | 89    | %     |  |   | 92    | %    |  |      | 66    | %     |  |   | 94    | %  
|Purchased Slabs (000) NT                    |  |                         | 61    |   |      |   |      |       |  |   | 91    |      |  |      | 351   |       |  |   | 76    |    
|Number of Employees at Year-End (3)         |  |                         | 2,705 |   |      |   | 2,684 |       |  |   | 2,881 |      |  |      | 3,006 |       |  |   | 3,108 |    
|Average Hourly Labor Rate                   |  | $                       | 33.92 |   |      | $ | 32.18 |       |  | $ | 31.26 | (4)  |  | $    | 31.28 |       |  | $ | 30.25 | (4)
|Total Sales per Employee (000)(3)           |  |                         | 417   |   |      |   | 344   |       |  |   | 382   |      |  |      | 331   |       |  |   | 384   |    
|Hours Worked per Net Ton Produced (3)       |  |                         | 2.52  |   |      |   | 2.79  |       |  |   | 2.67  |      |  |      | 2.94  |       |  |   | 2.81  |    
|Operating Income (Loss) per Net Ton Shipped |  | $                       | (28   | ) |      | $ | (78   | ) (1) |  | $ | (65   | )(1) |  | $    | (110  | ) (1) |  | $ | 13    |    
|Capital Expenditures (Mils) (5)             |  |                         | 24.2  |   |      |   | 17.7  |       |  |   | 21.4  |      |  |      | 80.5  |       |  |   | 31.8  |    

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|(1) |  | Operating loss and net loss for the year ended December 31, 2001
include the pre-tax effect of business interruption and property damage
losses of $23.7 million (or $10 per ton shipped) resulting from the
February 1, 1999 Powerhouse explosion. Net loss for the year ended
December 31, 2001 also includes the offsetting impact of $81.5 million of
pre-tax insurance recovery. Operating loss and net loss for the year
ended December 31, 2000 include the pre-tax effect of business
interruption and property damage losses of $72.0 million (or $28 per net
ton shipped) resulting from the Powerhouse explosion. Net loss for the
year ended December 31, 2000 also includes the offsetting impact of $84.3
million of pre-tax insurance recovery. Operating loss and net loss for
the year ended December 31, 1999 include the pre-tax effect of business
interruption and property damage losses of $217.4 million (or $94 per net
ton shipped) resulting from the Powerhouse explosion. Net loss for the
year ended December 31, 1999 also includes the offsetting impact of $177.4
million of pre-tax insurance recovery.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Operating loss and net loss for the year ended December 31, 2002 include
the pre-tax effect of business interruption and property damage losses of
$41.7 million (or $15 per ton shipped) resulting from the December 15,
2001 Double Eagle fire. Net loss for the year ended December 31, 2002
also includes the offsetting impact of $31.4 million of pre-tax insurance
recovery.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|(3) |  | Includes all hourly and salaried employees.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|(4) |  | Includes $0.21 per hour in 2000 and $0.29 per hour in 1998 paid or
accrued pursuant to the Rouge Steel Company Profit Sharing Plan for Hourly
Employees. Due to losses sustained in 1999 and 2001, no amounts were paid
or accrued. The amount paid with respect to 2000 was the result of the
favorable impact of the partial settlement of the Powerhouse explosion
insurance claim in the second quarter.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|(5) |  | Includes capital expenditures paid or accrued and investments in
unconsolidated subsidiaries.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

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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 43.

Rouge Steel Company (Rouge Steel) is the primary operating subsidiary of
Rouge Industries, Inc., a Delaware corporation (together with its subsidiaries,
Rouge Industries or the Company). Rouge Steel is an integrated producer of
high quality, flat rolled steel products consisting of hot rolled, cold rolled
and galvanized steel. The Company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 than Rouge Steel, Rouge Industries wholly-owned subsidiaries
include QS Steel Inc. (QS Steel) and Eveleth Taconite Company (Eveleth).
QS Steel holds minority ownership interests in two Michigan-based joint
ventures. Eveleth holds a minority interest in Eveleth Mines LLC (EVTAC), a
Minnesota-based iron ore mining and pellet producing operation. Rouge Steel
holds a 50% interest in Double Eagle Steel Coating Company (Double Eagle), a
Michigan based joint venture.

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. Continuing
business interruption and Powerhouse property damage expenses in 2000 and 2001,
along with a partial settlement of the insurance claim in 2000 and the full
settlement in 2001, affected the Companys results of operations in those
years. Consequently, comparisons between 2002 and 2001 and between 2001 and
2000 may not be meaningful.

During the mid-1990s, the Company experienced a relatively stable market
environment. Then in 1998, an unprecedented amount of steel imports began
flooding the U.S. causing domestic steel prices to decline dramatically. Next,
in 2000, natural gas prices began to rise causing a considerable increase in
the Companys costs of goods sold. In addition, in late 2001, a fire occurred
at Double Eagle, the Companys joint venture electrogalvanizing line, which
caused that facility to lose production for nine months.

The Company continues to face difficult market conditions, although steel
product prices in the spot market and demand for the Companys products
improved during 2002. The low prices during the past three years, the cash
strain caused by the Powerhouse explosion and the Double Eagle fire and
contractual issues related to the startup and operation of the new power plant
caused significant operating losses and put considerable pressure on the
Companys liquidity. The Company responded to the liquidity deterioration by
refinancing its revolving loan facility, procuring two subordinated credit
facilities and selling or restructuring three joint ventures. The first
subordinated credit facility was obtained in late 2001 and during 2002, the
Company secured an additional $10 million loan, which is tied to a long-term
supply contract with a raw material

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##### Table of Contents



supplier. Additionally, the Company has undertaken an aggressive cost
reduction program and reduced capital expenditures in order to help conserve
cash.

The Companys liquidity is dependent on its operating performance (which
is closely related to business conditions in the domestic steel industry), the
implementation of operating and capital cost reduction programs, receipt of
proceeds from the Double Eagle insurance claim, the impact of the tariffs
imposed in response to the Bush Administrations Section 201 relief, and its
sources of financing. The Company depends on borrowings to fund operations.
In the event that market conditions deteriorate, causing operating losses to
continue, and the Company is unable to secure additional financing sources to
fund its operations, it may be required to seek bankruptcy protection or
commence liquidation or other administrative proceedings.

The following table summarizes the annual raw steel capacity, raw steel
production, utilization rates and finished shipment information for the
domestic steel industry (as reported by the American Iron and Steel Institute)
and for Rouge Steel for the years from 2000 through 2002:

|                  |                      |  |                                          |       |   |      |  |       |      |  |  |       |  
|----------------- | -------------------- |  | ---------------------------------------- | ----- | - | ---- |  | ----- | ---- |  |  | ----- | -
|                  |                      |  | Years Ended December 31                  |      
|                  |                      |  |                                          |      
|                  |                      |  | 2002                                     |       |   | 2001 |  |       | 2000 | 
|                  |                      |  |                                          |       |   |      |  |       |      | 
|                  |                      |  | (in millions of tons except utilization) |      
|Domestic Industry |                      |  |                                          |       |   |      |  |       |      |  |  |      
|                  | Raw Steel Capacity   |  |                                          | 113.1 |   |      |  | 125.8 |      |  |  | 130.3 |  
|                  | Raw Steel Production |  |                                          | 101.7 |   |      |  | 100.9 |      |  |  | 111.0 |  
|                  | Utilization          |  |                                          | 89.9  | % |      |  | 80.4  | %    |  |  | 92.1  | %
|                  | Finished Shipments   |  |                                          | 98.5  |   |      |  | 99.4  |      |  |  | 109.1 |  
|Rouge Steel       |                      |  |                                          |       |   |      |  |       |      |  |  |      
|                  | Raw Steel Capacity   |  |                                          | 3.2   |   |      |  | 3.2   |      |  |  | 3.2   |  
|                  | Raw Steel Production |  |                                          | 3.1   |   |      |  | 2.8   |      |  |  | 2.9   |  
|                  | Utilization          |  |                                          | 96.2  | % |      |  | 88.9  | %    |  |  | 92.1  | %
|                  | Finished Shipments   |  |                                          | 2.7   |   |      |  | 2.4   |      |  |  | 2.6   |  

The cyclicality of the steel industry and the domestic economy affects the
Companys steel product prices. To protect itself from the volatile nature of
prices in the domestic steel industry, the Company sells more than one half of
its steel products pursuant to fixed price contracts, under which prices are
typically set annually. In 2003, a significant portion of the Companys
contract prices will increase over 2002. 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
2.7 million net tons of steel products and recorded total sales of $1,127.0
million during 2002, implying an average realized price per ton of $416. A one
percent increase or decrease in this implied average realized price during 2002
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 materially adverse effect on Rouge
Industries.

Prices in the domestic steel industry have been volatile for a number of
years. In 1994, prices reached the highest level since 1988. By mid-1995,
however, prices began to soften

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despite the strong demand for steel. In 1996, there was some
strengthening of prices but in 1997, prices declined. When unprecedented
levels of imports saturated the U.S. in 1998, prices declined dramatically. In
late 1999 and early 2000, prices made a modest recovery, but never reached the
early-1998 levels. By the second half of 2000, prices again declined
considerably. Despite operating losses by nearly all of the domestic
integrated steel producers, prices continued to deteriorate throughout 2001.
The Companys average realized price is still not as high as it was in 1998.
Spot market prices improved in 2002, but changes in price still depend on
factors such as the impact of the Bush Administrations Section 201 relief and
whether there will be further consolidation in the steel industry. Spot market
prices reached their peak in the third quarter of 2002 and they have
deteriorated since that time.

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 2000 through 2002:

|                   |       |  |                         |       |   |      |      |       |      |  |      |       |  
|------------------ | ----- |  | ----------------------- | ----- | - | ---- | ---- | ----- | ---- |  | ---- | ----- | -
|                   |       |  | Years Ended December 31 |      
|                   |       |  |                         |      
|                   |       |  | 2002                    |       |   | 2001 |      |       | 2000 | 
|                   |       |  |                         |       |   |      |      |       |      | 
|Hot Rolled         |       |  | 40.5                    | %     |   |      | 39.9 | %     |      |  | 37.5 | %    
|Cold Rolled        |       |  | 24.6                    |       |   |      | 21.2 |       |      |  | 25.5 |      
|Electrogalvanized  |       |  | 17.4                    |       |   |      | 19.1 |       |      |  | 20.5 |      
|Hot Dip Galvanized |       |  | 17.5                    |       |   |      | 19.8 |       |      |  | 16.5 |      
|                   |       |  |                         |       |   |      |      |       |     
|                   | Total |  |                         | 100.0 | % |      |      | 100.0 | %    |  |      | 100.0 | %
|                   |       |  |                         |       |   |      |      |       |     

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

The major raw materials and energy used by the Company in its production
process are coke, iron ore pellets, steel scrap, natural gas, electricity,
steam, oxygen and nitrogen. Iron ore pellets were purchased from EVTAC
pursuant to a pellet purchase agreement which expired in 2002. The Companys
wholly-owned subsidiary, Eveleth, continues to hold a 45% interest in EVTAC,
but beginning in 2003, the Company will purchase all of its pellets from
Cleveland-Cliffs Inc.

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

The Company uses between 16 million and 19 million MMBTUs of natural gas
per year in its blast furnaces, hot strip mill and cold mills. The cost of
natural gas increased dramatically during 2000 and stayed high in 2001 and
2002.

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 increased the outside processing and related
costs. However, Rouge Industries believes that the incremental revenue
generated

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##### Table of Contents



from additional sales of value-added products produced by the joint
ventures has exceeded such cost increases.

Double Eagle Insurance Claim

On December 15, 2001, a major fire at Double Eagle halted production. The
Company and its joint venture partner, United States Steel Corporation, rebuilt
Double Eagle and returned the facility to production in September 2002.

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



| | 1. |  | Damage to Double Eagle property as a result of the fire -
Non-capitalizable costs for repairs are being 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.
Capitalizable costs are being capitalized as incurred. Gains from
proceeds relating to capitalizable repair costs will be recorded when
the claim is settled.
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | Rouge Steel business interruption costs  Costs to coat steel at toll
processors are expensed as incurred, with related estimated insurance
recoveries recorded as they are considered to be probable.                                                                                                                                                                                                                                

Pursuant to the accounting methodology described above, during 2002, the
Company recorded insurance recoveries with respect to the Double Eagle fire of
$31.4 million. At December 31, 2002, the Company had a deferred insurance
recovery liability with respect to the Double Eagle fire of $13.9 million,
which represents advances from insurers in excess of recoverable costs
recorded. The deferred insurance recovery was recorded in connection with
capitalized repair costs and will be recognized in income when the claim is
settled. Recoverable costs are net of a deductible of $7.5 million and
reserves of $3.4 million at December 31, 2002. Advances from the insurance
carriers total $33.3 million through December 31, 2002. Additional advances of
$10.0 million were received through February 5, 2003.

Powerhouse Explosion and Insurance Claim

On February 1, 1999, an explosion and fire at the Powerhouse resulted in
the interruption of the supply of electricity, process and heating steam, turbo
air, mill water and other utilities to virtually all of the facilities of Rouge
Steel. The loss of power resulted in a 93-day shutdown of Rouge Steels steel
making facilities. The Powerhouse is owned 60% by Rouge Steel and 40% by Ford.
Ford was responsible for the day-to-day management, operation and maintenance
of the Powerhouse.

The Companys insurance program relating to the Powerhouse provided
coverage for damage to property destroyed, interruption of business operations,
including profit recovery, and expenditures incurred to minimize the period and
total cost of disruption to operations.

During 2000, the Company received cash proceeds representing a partial
settlement with its insurers regarding Rouge Steel first-party property damage
and business interruption costs

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through March 31, 2000. The partial settlement
covered all of the first-party property damage and substantially all aspects of
the business interruption claim, including profit on lost sales, operating
inefficiencies caused by the loss and costs to mitigate the claim.

During 2001, the Company received cash proceeds representing final
settlement with its insurers regarding Rouge Steels insurable first-party and
Powerhouse property damage and business interruption costs. As a result of the
settlement, the Company recorded $81.5 million of insurance recoveries in 2001,
of which $63.2 million represents gain on the net book value of the Powerhouse
property destroyed. Total recoveries and final proceeds of the claim amount to
$343.3 million.

Based on current engineering information and applicable legal
requirements, the Company has evaluated the amount and probability of certain
ancillary costs relating to the explosion, principally cleanup, demolition and
abatement activities. In 2001, as a result of these obligations with respect
to its share of expenditures required to mitigate safety and environmental
risks associated with the final disposition of the Powerhouse, the Company
recorded an accrual of $14.6 million for these anticipated costs. As of
December 31, 2002, the Company has spent $9.2 million for such costs.

Results of Operations

Year Ended December 31, 2002 versus Year Ended December 31, 2001

Total Sales.Total sales increased 22.0% in 2002 to $1,127.0 million from
$923.5 million in 2001, an increase of $203.5 million. The increase in total
sales in 2002 was caused principally by higher steel product prices and
shipments. Average realized revenue per ton increased 9.7% in 2002 to $416
from $379 per ton in 2001, an increase of $37 per ton. The increase in average
realized revenue per ton was the result of considerably higher steel prices in
2002. The increase in steel prices was due to the impact of the reduction in
steelmaking capacity resulting from the closure of bankrupt steel companies in
late 2001 and, to a lesser extent, the tariffs imposed by the Bush
Administration pursuant to Section 201 of the U.S. Trade Act of 1974. Steel
product shipments increased 11.0% in 2002 to 2,707,000 net tons from 2,440,000
net tons in 2001, an increase of 267,000 net tons.

Costs and Expenses.Total costs and expenses increased 8.1% in 2002 to
$1,204.0 million from $1,114.3 million in 2001, an increase of $89.7 million.
Costs of goods sold increased 8.9% in 2002 to $1,162.2 million from $1,067.7
million in 2001, an increase of $94.5 million. The increase in costs of goods
sold was primarily due to the higher shipments discussed above, costs
associated with the Double Eagle fire and increased costs for health care and
other fringe benefits, partially offset by an effective cost reduction effort,
the absence of a temporary blast furnace shutdown, lower natural gas prices,
lower costs related to the Powerhouse explosion and improved productivity in
primary operations. The Companys blast furnaces set an annual production
record in 2002. Costs of goods sold in 2002 was 103.1% of total sales, down
from 115.6% of total sales in 2001 primarily as a result of price increases.
Selling and administrative expenses decreased 17.2% in 2002 to $17.1 million
from $20.6 million in 2001, a decrease of $3.5 million. The decrease in
selling and administrative expenses was the result of a reduction in the
Michigan Single Business Tax expense due to recently passed legislation
permitting tax credits for Michigan iron ore consumption as well as lower professional service costs associated with the
Powerhouse explosion insurance claim in 2001. The Companys operating cost per
net

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ton shipped decreased 2.6% in 2002 to $445 per net ton from $457 per net
ton in 2001, a decrease of $12 per net ton. The decrease was primarily the
result of favorable economics on certain utilities, materials and fuels and the
Companys effective cost reduction effort. The Company has embarked on a plan
to implement cost reduction projects throughout the organization.

Operating Loss.The operating loss decreased 59.6% in 2002 to $77.0
million from $190.7 million in 2001, a decrease of $113.7 million. The
decrease is primarily the result of significantly higher steel product selling
prices, improved productivity and aggressive cost reductions, partially offset
by costs associated with the Double Eagle fire and higher health care costs.

Interest Expense.Interest expense increased 18.5% in 2002 to $10.4
million from $8.8 million in 2001, an increase of $1.6 million. The increase in
interest expense was the result of higher debt in 2002 resulting primarily from
operating losses. The average debt balance in 2002 was $168.6 million compared
to $100.6 million in 2001.

Insurance Recovery.The Company recognized $31.4 million of income in
2002 for insurance recoveries related to the Double Eagle fire. It recognized
$81.5 million of income for insurance recoveries related to the Powerhouse
explosion in 2001. Insurance recoveries in 2002 were $50.1 million lower than
in 2001.

Other  Net.Other-net increased in 2002 to $6.0 million from $2.1
million in 2001, an increase of $3.9 million. The increase is due to the
Companys sale of its joint venture interest in TWB Company, L.L.C., which
caused a writeoff of $4.5 million.

Income Tax Benefit.An income tax benefit of $2.5 million was recorded in
2002 as a result of a refund relating to the implementation of a provision in
the Job Creation and Worker Assistance Act of 2002 allowing for a five-year
carryback of net operating losses. In 2001, the Company did not record an
income tax benefit or provision.

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

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

Costs and Expenses.Total costs and expenses decreased 12.0% in 2001 to
$1,114.3 million from $1,266.6 million in 2000, a decrease of $152.3 million.
Costs of goods sold decreased 9.8% in 2001 to $1,067.7 million from $1,183.2
million in 2000, a decrease of $115.5 million. The decrease in costs of goods
sold was primarily due to the lower shipments discussed above, lower costs
associated with the Powerhouse explosion, an effective cost reduction effort
and lower utility costs partially offset by higher natural gas prices. Costs
of goods sold in 2001 was 115.6% of total sales, up from 107.6% of total sales in 2000. Depreciation and amortization
decreased

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54.2% in 2001 to $26.0 million from $56.7 million in 2000, a decrease
of $30.7 million. The decrease in depreciation and amortization is
attributable to lower amortization of the cost of the temporary steam boilers
and electrical distribution systems installed to provide the Company with steam
and electricity after the Powerhouse explosion. The temporary facilities,
which were placed into service in the second quarter of 1999, were amortized
over the period from the second quarter of 1999 through December 31, 2000.
Selling and administrative expenses decreased 22.8% in 2001 to $20.6 million
from $26.7 million in 2000, a decrease of $6.1 million . The decrease in
selling and administrative expenses was the result of considerably lower fees
paid to professional service firms to assist with the Powerhouse explosion
insurance claim, lower salaried labor costs and lower spending by
administrative departments resulting from an aggressive cost reduction effort.
The Companys operating cost per net ton shipped decreased 7.3% in 2001 to $457
per net ton from $493 per net ton in 2000, a decrease of $36 per net ton. The
decrease was primarily the result of lower spending from an aggressive cost
reduction effort, lower costs related to the Powerhouse explosion, lower
depreciation and amortization expense and lower selling and administrative
expenses.

Operating Loss.The operating loss increased 14.3% in 2001 to $190.7
million from $166.8 million in 2000, an increase of $23.9 million. The
increase is primarily the result of significantly lower steel product selling
prices and higher natural gas costs, partially offset by lower spending from an
aggressive cost reduction effort, lower costs related to the Powerhouse
explosion, lower depreciation and amortization expense and lower selling and
administrative expenses.

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

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

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

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Equity in Unconsolidated Subsidiaries.Equity in unconsolidated
subsidiaries increased in 2001 to $8.1 million from $1.9 million in 2000, an
increase of $6.2 million. The increase is attributable to improved performance
at Eveleth Mines LLC, the Companys 45% owned iron ore mine and pellet
producer, and the adjustment of the Companys basis in Shiloh of Michigan,
L.L.C. (Shiloh of Michigan). Rouge Industries transferred its interest in
Shiloh of Michigan to an affiliate of Shiloh Industries, Inc., the Companys
partner in the Shiloh of Michigan joint venture. This agreement resulted in
the Company recording a $1.8 million non-cash gain relating to the reversal of
previously recorded losses in excess of the Companys basis in Shiloh of
Michigan.

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

Liquidity and Capital Resources

During the mid-1990s, the Company experienced a relatively stable market
environment. Then in 1998, an unprecedented amount of steel imports began
flooding the U.S. causing domestic steel prices to decline dramatically. Next,
in 2000, natural gas prices began to rise causing a considerable increase in
the Companys costs of goods sold. In addition, in late 2001, a fire occurred
at Double Eagle, the Companys joint venture electrogalvanizing line, which
caused that facility to lose production for nine months.

The Company continues to face difficult market conditions, although steel
product prices in the spot market and demand for the Companys products
improved during 2002. The low prices during the past three years, the cash
strain caused by the Powerhouse explosion and the Double Eagle fire and
contractual issues related to the contractual issues related to the startup and
operation of the new power plant caused significant operating losses and put
considerable pressure on the Companys liquidity. The Company responded to the
liquidity deterioration by refinancing its revolving loan facility, procuring
two subordinated credit facilities and selling or restructuring three joint
ventures. During the year ended December 31, 2002, the Companys borrowings
increased from $145.5 million to $186.2 million.

The Companys liquidity is dependent on operating performance (which is
closely related to business conditions in the domestic steel industry), the
implementation of operating and capital cost reduction programs, receipt of
proceeds from the Double Eagle insurance claim, the impact of the tariffs
imposed in response to the Section 201 filings, and its sources of financing.
The Company depends on borrowings to fund operations. In the event that market
conditions deteriorate, causing operating losses to continue, and the Company
is unable to secure additional financing sources to fund its operations, it may
be required to seek bankruptcy protection or commence liquidation or other
administrative proceedings.

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Cash and cash equivalents on December 31, 2002 totaled $2.6 million
compared to $3.2 million on December 31, 2001, a decrease of $600,000. Cash
used for operating activities was offset by cash provided by financing
activities during 2002.

Cash Flows from Operating Activities.Net cash used for operating
activities was $31.1 million in 2002 compared to $59.8 million in 2001. The
net decrease of $28.7 million was comprised primarily of lower net loss and
deferred insurance recovery partially offset by higher accounts receivable
caused by the increase in the volume and price of the steel sold by the Company
and lower accounts payable.

Capital Expenditures.Cash used for capital expenditures, including
investments in unconsolidated subsidiaries, was $23.1 million in 2002
compared to $23.3 million in 2001, a decrease of $200,000. The decrease
is the result of an effort to reduce capital spending in order to conserve
cash offset by costs incurred to rebuild Double Eagle. In 2003, the Company plans to spend
approximately $25 million on capital items, which will be generally directed at
maintaining plant efficiency and product quality.

Credit Facilities. The Company has a $200 million revolving loan
agreement (the Credit Agreement) which expires on March 13, 2004. Rouge
Steel is the borrower under the Credit Agreement and Rouge Industries is a
guarantor. The Credit Agreement is secured by substantially all the assets of
the Company. Borrowings under the Credit Agreement are limited to specified
percentages of receivables and inventories. There is one financial covenant in
the Credit Agreement, which is an excess availability minimum of $25 million.
There is also a subjective acceleration clause in the Credit Agreement which
causes the Company to classify its debt outstanding under the Credit Agreement
as current. At December 31, 2002, the Companys receivables and inventories
supported availability under the Credit Agreement of $156.2 million, of which
it could borrow up to $129.9 million without a covenant default. The Company
had borrowings outstanding under the Credit Agreement of $101.2 million as of
December 31, 2002. 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.

During 2002, the Company secured a $10 million loan from Cleveland-Cliffs
Inc (the Cliffs Facility). The Cliffs Facility expires on June 30, 2007 and
bears interest at 10% per year. The Cliffs Facility is subordinate to the
Credit Agreement, has a second security interest in the accounts receivable and
inventory of the Company and contains cross default provisions with the Credit
Agreement.

The Company also has a $75 million credit facility (the Ford Facility).
The Ford Facility, expires on June 30, 2004 and bears interest at approximately
the same rate as the Credit Agreement. The Ford Facility is subordinate to the
Credit Agreement and the Cliffs Facility, has a third security interest in the
accounts receivable and inventory of the Company and contains cross default
provisions with the Credit Agreement.

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

|                                       |       |   |                                           |       |  |        |                       |       |       |     |       |       |     |   |         |       |  |   |      |      | 
|-------------------------------------- | ----- | - | ----------------------------------------- | ----- |  | ------ | --------------------- | ----- | ----- | --- | ----- | ----- | --- | - | ------- | ----- |  | - | ---- | ---- | 
|                                       |       |   | Contractual Obligations with Payments Due |      
|                                       |       |   |                                           |      
|                                       |       |   |                                           |       |  |        | Less Than             |       |       | 1-3 |       |       | 4-5 |   |         | After | 
|                                       |       |   | Total                                     |       |  | 1 Year |                       |       | Years |     |       | Years |     |   | 5 Years |      
|                                       |       |   |                                           |       |  |        |                       |       |       |     |       |       |     |   |         |      
|                                       |       |   |                                           |       |  |        | (Dollars in millions) |       |       |     |       |      
|Short-Term Debt (1)                    |       | $ | 101.2                                     |       |  | $      | 101.2                 |       |       | $   |      |       |     | $ |        |       |  | $ |     |     
|Long-Term Debt (2)                     |       |   | 85.0                                      |       |  |        |                      |       |       |     | 80.0  |       |     |   | 5.0     |       |  |   |     |     
|Operating Leases (3)                   |       |   | 31.1                                      |       |  |        | 14.7                  |       |       |     | 16.1  |       |     |   | 0.3     |       |  |   |     |     
|Unconditional Purchase
Obligations (4) |       |   | 662.3                                     |       |  |        | 86.9                  |       |       |     | 259.6 |       |     |   | 284.6   |       |  |   | 31.2 |     
|                                       |       |   |                                           |       |  |        |                       |       |       |     |       |       |     |   |        
|                                       | Total |   | $                                         | 879.6 |  |        | $                     | 202.8 |       |     | $     | 355.7 |     |   | $       | 289.9 |  |   | $    | 31.2 | 
|                                       |       |   |                                           |       |  |        |                       |       |       |     |       |       |     |   |        



---

|(1) |  | Includes $101.2 million of debt outstanding under the Credit Agreement.
This amount is classified as an obligation with payments due in less than
one year because of a subjective acceleration clause in the Credit
Agreement.                                                                                                                                           
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Includes $75.0 million of debt outstanding under the Ford Facility and
$10.0 million of debt outstanding under the Cliffs Facility.                                                                                                                                                                                                                                       
|   
|(3) |  | Includes the Companys operating lease for its Waste Oxide Reclamation
Facility and mobile equipment rentals.                                                                                                                                                                                                                                                             
|   
|(4) |  | Includes $75.2 million per year until 2006 for minimum pellet purchases
and $263.2 million in 2007 to recognize a five-year aggregate minimum
pellet purchase obligation, $9.4 million per year until 2011 for minimum
oxygen purchases, $1.3 million per year until 2011 for minimum nitrogen
purchases, and $972,000 per year until 2005 for minimum hydrogen
purchases.

|                              |                              |   |                                                     |     |  |        |                       |     |       |     |     |       |     |   |         |       |  |   |   |   | 
|----------------------------- | ---------------------------- | - | --------------------------------------------------- | --- |  | ------ | --------------------- | --- | ----- | --- | --- | ----- | --- | - | ------- | ----- |  | - | - | - | 
|                              |                              |   | Other Commercial Commitments which Expire by Period |    
|                              |                              |   |                                                     |    
|                              |                              |   |                                                     |     |  |        | Less Than             |     |       | 1-3 |     |       | 4-5 |   |         | After | 
|                              |                              |   | Total                                               |     |  | 1 Year |                       |     | Years |     |     | Years |     |   | 5 Years |      
|                              |                              |   |                                                     |     |  |        |                       |     |       |     |     |       |     |   |         |      
|                              |                              |   |                                                     |     |  |        | (Dollars in millions) |     |       |     |     |      
|Standby Letters of Credit (1) |                              | $ | 1.3                                                 |     |  | $      | 1.3                   |     |       | $   |    |       |     | $ |        |       |  | $ |  |  
|Guarantees (2)                |                              |   | 2.2                                                 |     |  |        | 1.0                   |     |       |     | 1.2 |       |     |   |        |       |  |   |  |  
|                              |                              |   |                                                     |     |  |        |                       |     |       |     |     |       |     |   |        
|                              | Total Commercial Commitments |   | $                                                   | 3.5 |  |        | $                     | 2.3 |       |     | $   | 1.2   |     |   | $       |      |  |   | $ |  | 
|                              |                              |   |                                                     |     |  |        |                       |     |       |     |     |       |     |   |        



---

|(1) |  | Includes $1.0 million to the State of Michigan Bureau of Workers
Compensation and $300,000 as collateral under the Companys automobile
insurance program.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Includes amount guaranteed to a bank in favor of Delaco Processing,
L.L.C., a 49% owned joint venture.                                                     

Off-Balance Sheet Arrangements

The Company has certain off-balance sheet arrangements that affect its
financial condition, liquidity and results of operations. These arrangements
are described below.

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Delaco Steel Processing Guarantee.Rouge Industries and Delaco Steel
Corporation (the Delaco Guarantors) have agreed to jointly and severally
guarantee a $2,223,000 credit facility for Delaco Steel Processing (the Delaco
Guarantee). As of December 31, 2002, Delaco Steel Processing, the Companys
49% owned steel slitting and blanking joint venture, had borrowings of
$1,263,000 outstanding under its credit facility. The Delaco Guarantors agreed
to the Delaco Guarantee in order to induce the bank to make a loan to Delaco
Steel Processing. The obligations under the guarantee remain in effect until Delaco Steel Processing repays all
amounts due to the bank. In the event that Delaco Steel Processing does not
have sufficient funding to meet its obligations as they become due, the Delaco
Guarantors would be required to fund such obligations. The Delaco Guarantors
also have agreed to jointly and severally insure that Delaco Steel Processing
maintains a positive Net Worth at all times. There is no collateral with
respect to the Delaco Guarantee, nor are there any recourse provisions that
would enable the Company to recover any amounts paid under the Delaco
Guarantee.

Waste Oxide Lease.The Company has an operating lease with Banc One
Leasing Corporation (Banc One Leasing) for its waste oxide reclamation
facility. Payments totaling $13.4 million per year are due in 2003 and 2004.
The lease expires on December 29, 2004. Bank One Leasing is secured by the
waste oxide reclamation facility and a subordinated security interest in the
Companys equipment. The Company cannot economically justify operating the
waste oxide reclamation facility and, consequently, the facility is shut down.

Environmental Matters

General.The Companys operations are subject to many federal, state and
local laws, regulations, permits and consent agreements relating to the
protection of human health and the environment. Except as set forth below,
the Company believes that its facilities are in material compliance with these
provisions and does not believe that future compliance with such provisions
will have a materially adverse effect on its results of operations or financial
position. The Company has incurred capital expenditures in connection with
matters relating to environmental control of approximately $5.4 million during
the past four years. In addition, the Company has planned an aggregate of
approximately $1 million in capital expenditures for environmental compliance
for the years 2003 through 2005. Since environmental laws and regulations are
becoming increasingly stringent, the Companys environmental capital
expenditures and costs for environmental compliance may increase in the future.
In addition, due to the possibility of unanticipated regulatory or other
developments, the amount and timing of future environmental expenditures may
vary substantially from those currently anticipated. The costs for current and
future environmental compliance may also place domestic steel producers at a
competitive disadvantage with respect to foreign steel producers, which may not
be required to undertake equivalent costs in their operations, and
manufacturers of steel substitutes which are subject to less stringent
environmental requirements.

In connection with the acquisition of the Company from Ford in 1989 (the
Acquisition), Ford has agreed to indemnify the Company (the Ford Indemnity)
for any liability arising out of an environmental condition existing prior to
the Acquisition or a subsequent change in law relating to such condition that
results in an environmental claim under any federal or state environmental law,
including the Comprehensive Environmental Response Compensation and Liability
Act of 1980, as amended, (CERCLA), the Resource Conservation and Recovery Act
(RCRA), the Clean Water Act, the Safe Drinking Water Act, the Clean Air Act
and the Occupational Safety and Health Act of 1970 or an environmental claim
based upon a release of a

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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.

In 2000, Rouge Steel and Ford co-signed a Corrective Action Consent Order
(the Consent Order) which committed both companies to a four-phase
remediation program throughout the Rouge Complex. 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 to the Company of the
remediation required by the Consent Order will have a materially adverse effect
on its results of operations or financial position.

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

Recent Events.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) issued a
draft Title V Permit in 2002 and the Company is presently negotiating details
of the requirements. The final permit will contain substantially increased
monitoring of air pollution control equipment which is not expected to have a
materially adverse effect on the Companys results of operations or financial
position.

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

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

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In 2000, the Company and Ford entered into a voluntary consent order (the
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 2002, the Company agreed to a consent decree (the Consent Decree) in
a multimedia enforcement action filed by the EPA, Wayne County (the County)
and the MDEQ against Rouge Steel in the United States District Court for the
Eastern District of Michigan (the Court). In 2000, the EPA filed a complaint
(the EPA Complaint) against Rouge Steel in the Court. The EPA Complaint
alleged violations of the Clean Air Act, the State of Michigans (the
States) opacity emissions standards and certain violations of RCRA. At the
same time, the County filed a complaint (the County Complaint) against Rouge
Steel in the Court. The County Complaint alleged violations of the opacity
emissions standards of the Wayne County Air Pollution Control Ordinance. The
Countys allegations of non-compliance with the Clean Air Act paralleled those
in the EPA Complaint. The County and the EPA agreed to jointly settle the
claims resulting in the consolidation of the actions. Subsequently, through a
stipulation filed with the Court in 2002, the State joined with the County and
the EPA as a party to the settlement of this matter. The County Complaint also
alleged claims under the Michigan Environmental Protection Act for the creation
of a public nuisance. The County presented the Company with an order to abate
the alleged public nuisance and proposed a settlement penalty of $252,000 for
15 fallout incidents alleged to have been caused by the Company. However, in
2001, the County relinquished enforcement of air quality matters to the State.
The State indicated that it will review the fallout allegations, but has not
yet reported a decision on the matter. The Consent Decree imposed $462,488 in
penalties to be paid in four installments.

The Consent Decree also includes a requirement for the Company to
demonstrate compliance with visible emission (opacity) standards at each of the
two blast furnaces, the basic oxygen furnace (BOF) roof monitor and the BOF
electrostatic precipitator stack by February 2003. The Company demonstrated
compliance at its smaller blast furnace in September 2002 and BOF electrostatic
precipitator stack in October 2002. There were four exceedances at the BOF
roof monitor during the October 2002 compliance demonstration test. The
compliance demonstration at the Companys larger blast furnace was successfully
completed in February 2003.

The occurrence of exceedances during a compliance demonstration triggers a
process of identification and implementation of additional operating and
maintenance practices and/or emission control technologies, acceptable to the
EPA, to achieve compliance with opacity standards. Such corrective actions
could require substantial capital expenditures for additional pollution control
equipment. With respect to the BOF roof monitor exceedances, the Company is
required to notify the EPA of its proposed operating and maintenance practices
and/or emission control technology changes by March 10, 2003. The Company has
identified and implemented corrective actions that it believes will not require
substantial capital expenditures.

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

In 2000, the EPA issued a Unilateral Administrative Order (the Order) to
Rouge Steel pursuant to Section 7003(a) of RCRA. The Order directed the
Company to take immediate measures to stop the exposure of wildlife and
migratory birds to solid wastes and to develop and implement continuous
emergency measures to eliminate contact by wildlife with the solid wastes at
the Companys Schaefer Road Waste Water Treatment Plant. Rouge Steel complied
with the Order and submitted a continuing emergency measures workplan (CEMW)
which the EPA approved. Since then, the EPA has taken issue with the
effectiveness of the CEMW and with Rouge Steels implementation of the CEMW.
In 2001, the EPA issued an NOV to Rouge Steel informing the Company that the
EPA has determined that the Company is not complying with the Order nor the
approved CEMW. Rouge Steel has raised vigorous objections to a number of the
allegations contained in the NOV. The parties have conducted several
negotiations to address these issues but have not yet reached a resolution. In
February 2002, the EPA issued Rouge Steel a request for information pursuant to
Section 3007 of RCRA seeking information regarding the Companys Schaefer Road
Waste Water Treatment Plant. The Company responded to this request. The
preliminary nature of this matter makes it difficult for the Company to predict
the nature of its outcome or its impact on the Company.

The federal Maximum Achievable Control Technology (MACT) standard for
hydrochloric acid pickling became effective in 2001. The standard includes
requirements for operation, monitoring, maintenance and stack emissions. Stack
tests for two of the three scrubbers met the emission standard in June 2002. A
mist eliminator in the third scrubber was found to have deteriorated and did
not meet the emission standard. Upon discovery of the malfunction, Rouge Steel
promptly submitted notification of the malfunction to the MDEQ. The MDEQ
issued a Letter of Violation (an LOV) for the initial results for the third
scrubber. The new MACT standards for hydrochloric acid pickling lines
specifically indicate the non-opacity emission standards do not apply during
times of, among other things, malfunctions. Rouge Steel has contested the LOV
based on a malfunction defense. Initial negotiations indicate that the MDEQ
has neither asserted a demand for penalties nor requested further corrective
measures. Due to the preliminary nature of this matter the Company is unable
to assess its impact on the Companys financial position or results of
operations.

In 2001, the EPA proposed a MACT standard for primary iron and steel
operations. The standard will include requirements for operation, monitoring,
maintenance, and opacity and stack emissions. The standards monitoring
requirements are burdensome and include a provision for progressively
tightening the BOF stack opacity limit over time. It appears that the standard
will be issued by the end of February 2003, becoming effective three years
later. The Company is investigating means of becoming exempt from the standard,
both directly and joined with the American Iron and Steel Institute. The
additional monitoring costs are not expected to be material. The BOF stack
opacity limitation could eventually lead to modifications to the control system
technology, the cost of which could be material.

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A RCRA hazardous waste and liquid industrial waste (LIW) inspection of
the Companys facilities was conducted jointly by the EPA and the MDEQ in 2002.
The RCRA portion looked at hazardous waste handling, and the LIW portion
looked at liquid industrial waste practices. The MDEQ issued a letter which
raised four concerns. The Companys response explained why the conditions were
not in violation of rules and identified actions taken to eliminate the
concerns expressed. The EPA has not identified any significant concerns. There
is insufficient information at this time to predict an outcome from the
inspection.

Revisions to the existing federal and state spill control regulations were
issued in 2002. These revisions expand the scope of materials covered and
dictate new management and containment requirements for bulk liquid storage and
handling. A consultant will be hired to revise the Companys spill control
plan and provide recommendations for procedures and installations required.
Installation of tank gauges, and additional paving, curbs and sumps for spill
containment may be required. Anticipated facility upgrades are not expected to
be material.

In December 2002, DIG experienced exceedances to its permit limits for
sulfur dioxide. The Company and DIG dispute the financial responsibilities
arising from these exceedances. DIG has asserted certain claims against the
Company which the Company believes are without merit. In January 2003, the
Company sent notice to DIG of its intention to initiate arbitration of all of
the issues related to DIGs supply of electricity and steam and purchase of
blast furnace gas.

On January 2, 2003, the MDEQ issued an LOV for an odor incident presumed
to be associated with the blast furnace slag pits operated on site by the
Edward C. Levy Company (Levy). It has not been established at this time
whether the LOV is factually supported. However, the Companys contract with
Levy identifies Levy as responsible for compliance and includes indemnification
for claims arising from its operations. Under these circumstances, it is
unknown whether MDEQ contemplates taking further enforcement action with
respect to this matter.

On January 16, 2003, the EPA issued a Notice of Federal Interest (Notice
of Interest) in an oil pollution incident to a number of parties, including
Rouge Steel. This Notice of Interest related to an alleged pollution incident
that occurred or threatened to occur on or about October 22, 2002 at Sybill (SRS Environmental). SRS Environmental was a
vendor for Rouge Steel that collected and processed used oil through July of
2002. Recently the EPA has indicated that it intends to conduct a
removal action at this location. Alternatively, the EPA is
encouraging generators of material sent to this facility to promptly
agree to conduct a voluntary removal action. Due to the preliminary nature of
this matter, at this time, Rouge Steel is not able to
estimate the impact on the Companys results of operations or financial
position.

Significant Accounting Policies

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

Insurance Matters. Since the Powerhouse explosion in February 1999, the
Companys results have been significantly impacted by estimates of the timing
and amount of costs incurred as a result of an insurable event and related
insurance recoveries from third parties. The policies

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with respect to the timing of expenses and recovery recognition were outlined in the first
Quarterly Report on Form 10-Q subsequent to the Powerhouse explosion and have been
consistently followed by the Company since that time. The status of the
contested amounts and contingencies were discussed and the amounts recorded
each quarter were disclosed in the footnotes to the financial statements as
well as in Managements Discussion and Analysis of Financial Condition and
Results of Operations. As additional insurable events have occurred, such as
the fire at the Companys Double Eagle joint venture, they have also been
discussed and a consistent accounting treatment has been applied.

On a quarterly basis, the Company considers all available information
relating to costs incurred, including the extent of damage to its facilities as
a result of the insurable event, costs incurred for rebuilding and repairs,
business interruption costs and related remediation costs. The Company
assesses the probability of recoveries and makes a determination as to the
amount to be recorded each quarter based upon discussions with insurers, legal
and financial advisors and the status of the insurance settlement process.

Asset Impairments. Based on its recent operating losses, the Company has
made estimates of the undiscounted future cash flow over the remaining useful
lives of its operating assets to determine if the assets are impaired. As of
December 31, 2002, the Company determined that no impairment existed.
Estimates of future cash flows in volatile market conditions are inherently
subjective and these estimates of future expected cash flows may change by a
material amount in the future.

Reserves and Valuation Allowances.The Company evaluates its significant
reserves and valuation allowances and makes revisions to the estimates as
required. The ultimate cost or loss to the Company changes as additional
information regarding the uncertainty becomes available. The Company uses the
following policies to establish these reserves:



| |  |  | Accounts Receivable Reserves  Management analyzes accounts
receivable balances on an ongoing basis, including historical bad debt
information, customer creditworthiness and current economic trends, to
evaluate the adequacy of the allowances for accounts receivable.
Current economic trends, which have led to an unprecedented level of
steel industry corporate bankruptcies over the past two years, have
created conditions of increased credit risk. The ability of the
Companys debtors to honor their obligations to the Company is
dependent upon the automotive and steel industry economic sectors.
The Company records appropriate provision for loss whenever reasonable
doubt exists as to the collectibility of customer accounts receivable.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Environmental and Legal  Environmental and legal matters are
evaluated on an individual occurrence basis. The Company works
closely with its legal and environmental consultants and government
agencies to estimate the cost of environmental and legal matters.
Estimates are adjusted, both upward and downward, as information
becomes available to support such changes. The Company also considers
recoveries available pursuant to the environmental indemnification
provisions of an agreement with the Companys former owner.                                                                                                                                                                                                                           
|
| |  |  | Deferred Tax Assets  On a quarterly basis, the Company considers
the likelihood of its ability to realize the future benefit of its
deferred tax assets given the continuing uncertainty of the domestic
steel market. The Company utilizes information regarding                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

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| |   |  | historical and projected financial performance and other factors relating to the
generation of taxable income as a basis for its estimates. During 2000, the
Company determined that a valuation allowance was necessary for all of
its net deferred tax assets. The Company will continue to evaluate the
need for a valuation allowance on a quarterly basis.                                                                     
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Inventories  The Company determines the cost of its steel
product inventories under the last-in, first-out (LIFO) method.
Consequently, the overall carrying value of inventories is less than
the replacement cost. The LIFO reserve is based on managements
estimates of prices for raw materials and energy in the future. On an
ongoing basis, management evaluates market conditions and changes its
estimates accordingly.

Pensions and Other Postemployment Benefits.Pension and other
postemployment benefit (OPEB) expenses are based on, among other things,
assumptions of the discount rate, estimated return on plan assets, wage and
salary increases, the mortality of participants, and the current level and
escalation of health care costs in the future. On an annual basis, management
determines the assumptions to be used to compute pension and OPEB expense and
pension contributions based upon discussions with the Companys actuaries and
other advisors. Changes in the factors named above and differences between
actual and assumed changes in the present value of liabilities or assets of the
Companys plans could cause annual expense or contributions to increase or
decrease materially from year to year. In 2002, the poor performance of the
stock market resulted in a negative return on assets for Rouge Steels and
EVTACs pension plans. As a result, Rouge Industries balance sheet and
statement of changes in stockholders equity show an additional minimum pension
liability adjustment of $38.7 million in 2002.

Other Events

New Accounting Pronouncements.During 2002, the Company adopted Statement
of Financial Accounting Standards (SFAS) No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, SFAS No. 145, Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical
Corrections as of April 2002, SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities and SFAS No. 147, Acquisitions of Certain
Financial Institutions. These pronouncements did not have a material impact
on the Companys results of operations or financial position. In November
2002, the Financial Accounting Standards Board (FASB) released FASB
Interpretation No. 45 (FIN 45), Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others: an Interpretation of FASB Statements No. 5, 57 and 107 and Rescission
of FASB Interpretation No. 34. FIN 45 establishes new disclosure and
liability requirements for direct and indirect debt guarantees with specified
characteristics. The initial measurement and recognition requirements of FIN
45 are effective prospectively for guarantees issued or modified after December
31, 2002. However, the disclosure requirements are effective for interim and
annual financial statement periods ending after December 15, 2002. The Company
has adopted the disclosure provisions of FIN 45 and does not expect the full
adoption of FIN 45 to have a material impact on the Companys results of
operations or financial position. The Company will be required to adopt SFAS
No. 143, Accounting for Asset Retirement Obligations (SFAS No. 143) on
January 1, 2003. The Company is evaluating the impact of SFAS No. 143 on its
financial position and results of operations.

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Insurance Matters.As a result of the Companys recent history of
insurance losses as well as volatility in the insurance markets, the Companys
cost for insurance and deductible amounts have increased substantially. The
Companys coverage for losses has not changed for 2003.

EVTAC Situation.Rouge Steel had a six-year pellet purchase agreement
with EVTAC that expired on December 31, 2002. The Company did not renew or
extend this agreement with EVTAC. The Company will purchase all of its iron ore
requirements from Cleveland-Cliffs pursuant to a 2002 amendment to the existing
pellet agreement with Cleveland-Cliffs. EVTAC has contracts in place to
support pellet production into the second quarter of 2003. If EVTAC is unable
to secure orders or contracts to sustain pellet production beyond the second
quarter of 2003, EVTAC may discontinue operations. This action, should it be
required, is not anticipated to have a material impact on the results of
operations or financial position of 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 or
political 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) plant operating performance, given the age of the Companys facilities,
(v) product quality, in light of increasingly tighter standards required by the
Companys customers, (vi) potential environmental liabilities, particularly as
a result of tightened environmental standards, (vii) the availability and
prices of raw materials, supplies, utilities and other services and items
required by the Companys operations, (viii) the level of imports and import
prices in the Companys markets (ix) the availability of sufficient cash to
support the Companys operations, (x) uncertainty regarding the Companys
ability to resolve the Double Eagle fire insurance claim and (xi) higher than
expected operating costs.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

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

The table below presents the Companys debt that is sensitive to changes
in interest rates (dollars in millions).

|                |                    |   |      |     |   |      |     |     |      |   |       |      |   |   |      |     |   |            |   |     |       |   |   |       |   |   |       |      |   |      |       |      | 
|--------------- | ------------------ | - | ---- | --- | - | ---- | --- | --- | ---- | - | ----- | ---- | - | - | ---- | --- | - | ---------- | - | --- | ----- | - | - | ----- | - | - | ----- | ---- | - | ---- | ----- | ---- | 
|                |                    |   |      |     |   |      |     |     |      |   |       |      |   |   |      |     |   |            |   |     |       |   |   |       |   |   |       |      |   | Fair |      
|                |                    |   | 2002 |     |   | 2003 |     |     | 2004 |   |       | 2005 |   |   | 2006 |     |   | Thereafter |   |     | Total |   |   | Value |  
|                |                    |   |      |     |   |      |     |     |      |   |       |      |   |   |      |     |   |            |   |     |       |   |   |       |  
|Short-Term Debt |                    | $ |     |     |   | $    |    |     |      | $ | 101.2 |      |   | $ |     |     |   | $          |  |     |       | $ |  |       |   | $ | 101.2 |      |   | $    | 101.2 |     
|Variable Rate   |                    |   | 5.3  | %   |   |      | 5.3 | %   |      |   | 5.3   | %    |   |   |     |     |   |            |  |     |       |   |  |       |   |   | 5.3   | %    |   |      |       |     
|Long-Term Debt  |                    |   |      |     |   |      |     |     |      |   |       |      |   |   |      |     |   |            |   |     |       |   |   |       |   |   |       |      |   |      |       |     
|                | Ford               |   | $    |    |   |      | $   |    |      |   | $     | 75.0 |   |   | $    |    |   |            | $ |    |       |   | $ |      |   |   | $     | 75.0 |   |      | $     | 75.0 | 
|                | Variable Rate      |   |      | 5.3 | % |      |     | 5.3 | %    |   |       | 5.3  | % |   |      |    |   |            |   |    |       |   |   |      |   |   |       | 5.3  | % |      |       |      | 
|                | Cleveland  Cliffs |   | $    |    |   |      | $   |    |      |   | $     | 2.5  |   |   | $    | 2.5 |   |            | $ | 2.5 |       |   | $ | 2.5   |   |   | $     | 10.0 |   |      | $     | 10.0 | 
|                | Fixed Rate         |   |      | 10  | % |      |     | 10  | %    |   |       | 10   | % |   |      | 10  | % |            |   | 10  | %     |   |   | 10    | % |   |       | 10   | % |      |       |      | 

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Item 8. Financial Statements and Supplementary Data.

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

|                                                                                                                |  |      |    | 
|--------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                                                |  | Page |   
|                                                                                                                |  |      |   
|Report of Independent Accountants                                                                               |  |      | 44 | 
|                                                                                                                |  |      |    | 
|Consolidated Balance Sheets as of December 31, 2002 and 2001                                                    |  |      | 45 | 
|                                                                                                                |  |      |    | 
|Consolidated Statements of Operations for the Years Ended
December 31, 2002, 2001 and 2000                      |  |      | 47 | 
|                                                                                                                |  |      |    | 
|Consolidated Statements of Changes in Stockholders Equity for the Years Ended
December 31, 2002, 2001 and 2000 |  |      | 48 | 
|                                                                                                                |  |      |    | 
|Consolidated Statements of Cash Flows for the Years Ended
December 31, 2002, 2001 and 2000                      |  |      | 49 | 
|                                                                                                                |  |      |    | 
|Notes to Consolidated Financial Statements                                                                      |  |      | 50 | 
|                                                                                                                |  |      |    | 
|Schedule II  Valuation and Qualifying Accounts and Reserves                                                    |  |      | 67 | 

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Report of Independent Accountants

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

In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Rouge Industries, Inc. and its subsidiaries at December 31, 2002
and 2001, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2002 in conformity with
accounting principles generally accepted in the United States of America. In
addition, in our opinion, the financial statement schedule listed in the
accompanying index presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements. These financial statements and financial statement
schedule are the responsibility of the Companys management; our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.

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

PricewaterhouseCoopers LLP
Detroit, Michigan
February 8,  2003

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

Assets

|                                          |                                |                                                            |        |             |         |  |        |          |         | 
|----------------------------------------- | ------------------------------ | ---------------------------------------------------------- | ------ | ----------- | ------- |  | ------ | -------- | ------- | 
|                                          |                                |                                                            |        | December 31 |        
|                                          |                                |                                                            |        |             |        
|                                          |                                |                                                            |        | 2002        |         |  | 2001   |         
|                                          |                                |                                                            |        |             |         |  |        |         
|Current Assets                            |                                |                                                            |        |             |         |  |        |         
|                                          | Cash and Cash Equivalents      |                                                            | $      | 2,620       |         |  | $      | 3,235    |        
|                                          | Accounts Receivable            |                                                            |        |             |         |  |        |          |        
|                                          |                                | Trade and Other (Net of Allowances of $14,134 and $13,970) |        | 69,863      |         |  |        | 70,365   |        
|                                          |                                | Insurance Recovery                                         |        |             | 11,983  |  |        |          |        | 
|                                          |                                | Affiliates                                                 |        |             | 1,341   |  |        |          | 1,052   | 
|                                          | Inventories                    |                                                            |        | 220,568     |         |  |        | 232,937  |        
|                                          | Other Current Assets           |                                                            |        | 16,600      |         |  |        | 10,636   |        
|                                          |                                |                                                            |        |             |         | 
|                                          |                                | Total Current Assets                                       |        |             | 322,975 |  |        |          | 318,225 | 
|                                          |                                |                                                            |        |             |         | 
|Property, Plant, and Equipment            |                                |                                                            |        |             |         |  |        |         
|                                          | Land                           |                                                            |        |            |         |  |        | 360      |        
|                                          | Buildings and Improvements     |                                                            |        | 22,158      |         |  |        | 23,344   |        
|                                          | Machinery and Equipment        |                                                            |        | 337,543     |         |  |        | 383,377  |        
|                                          | Construction in Progress       |                                                            |        | 9,959       |         |  |        | 27,980   |        
|                                          |                                |                                                            |        |             |         | 
|                                          |                                | Subtotal                                                   |        |             | 369,660 |  |        |          | 435,061 | 
|                                          | Less: Accumulated Depreciation |                                                            |        | (154,652    | )       |  |        | (197,868 | )      
|                                          |                                |                                                            |        |             |         | 
|                                          |                                | Net Property, Plant, and Equipment                         |        |             | 215,008 |  |        |          | 237,193 | 
|                                          |                                |                                                            |        |             |         | 
|Investment in Unconsolidated Subsidiaries |                                |                                                            | 77,521 |             |         |  | 72,455 |         
|                                          |                                |                                                            |        |             |         |  |       
|Deferred Charges and Other                |                                |                                                            | 36,896 |             |         |  | 45,434 |         
|                                          |                                |                                                            |        |             |         |  |       
|                                          |                                | Total Assets                                               |        | $           | 652,400 |  |        | $        | 673,307 | 
|                                          |                                |                                                            |        |             |         | 

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

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

Liabilities and Stockholders Equity

|                                                |                                      |                                                                                                                                            |         |             |         |  |         |         |         | 
|----------------------------------------------- | ------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------ | ------- | ----------- | ------- |  | ------- | ------- | ------- | 
|                                                |                                      |                                                                                                                                            |         | December 31 |        
|                                                |                                      |                                                                                                                                            |         |             |        
|                                                |                                      |                                                                                                                                            |         | 2002        |         |  | 2001    |        
|                                                |                                      |                                                                                                                                            |         |             |         |  |         |        
|Current Liabilities                             |                                      |                                                                                                                                            |         |             |         |  |         |        
|                                                | Accounts Payable                     |                                                                                                                                            |         |             |         |  |         |         |        
|                                                |                                      | Trade                                                                                                                                      |         | $           | 129,614 |  |         | $       | 146,814 | 
|                                                |                                      | Affiliates                                                                                                                                 |         |             | 4,456   |  |         |         | 17,112  | 
|                                                | Deferred Insurance Recovery          |                                                                                                                                            |         | 13,900      |         |  |         |        |        
|                                                | Short-Term Debt                      |                                                                                                                                            |         | 101,181     |         |  |         | 145,549 |        
|                                                | Other Accrued Liabilities            |                                                                                                                                            |         | 50,425      |         |  |         | 51,440  |        
|                                                |                                      |                                                                                                                                            |         |             |         | 
|                                                |                                      | Total Current Liabilities                                                                                                                  |         |             | 299,576 |  |         |         | 360,915 | 
|                                                |                                      |                                                                                                                                            |         |             |         | 
|Long-Term Debt                                  |                                      |                                                                                                                                            | 85,000  |             |         |  |        |        
|                                                |                                      |                                                                                                                                            |         |             |         |  |         |        
|Pensions and Other Postretirement Benefits      |                                      |                                                                                                                                            | 172,744 |             |         |  | 121,003 |        
|                                                |                                      |                                                                                                                                            |         |             |         |  |         |        
|Other Liabilities                               |                                      |                                                                                                                                            | 15,571  |             |         |  | 20,816  |        
|                                                |                                      |                                                                                                                                            |         |             |         |  |         |        
|Commitments and Contingencies (Notes 10 and 11) |                                      |                                                                                                                                            |         |             |         |  |         |        
|Stockholders Equity                            |                                      |                                                                                                                                            |         |             |         |  |         |        
|                                                | Common Stock                         |                                                                                                                                            |         |             |         |  |         |         |        
|                                                |                                      | Class A, 80,000,000 shares authorized with 15,107,154 and
15,103,839 issued and outstanding as of December 31, 2002
and 2001, respectively |         |             | 151     |  |         |         | 151     | 
|                                                |                                      | Class B, 8,690,400 shares authorized with 7,140,400
issued and outstanding as of December 31, 2002
and 2001                                |         |             | 72      |  |         |         | 72      | 
|                                                | Capital in Excess of Par Value       |                                                                                                                                            |         | 130,277     |         |  |         | 130,270 |        
|                                                | Retained Earnings                    |                                                                                                                                            |         | (2,311      | )       |  |         | 50,022  |        
|                                                | Accumulated Other Comprehensive Loss |                                                                                                                                            |         | (48,680     | )       |  |         | (9,942  | )      
|                                                |                                      |                                                                                                                                            |         |             |         | 
|                                                |                                      | Total Stockholders Equity                                                                                                                 |         |             | 79,509  |  |         |         | 170,573 | 
|                                                |                                      |                                                                                                                                            |         |             |         | 
|                                                |                                      | Total Liabilities and Stockholders Equity                                                                                                 |         | $           | 652,400 |  |         | $       | 673,307 | 
|                                                |                                      |                                                                                                                                            |         |             |         | 

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

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

|                                                                   |                                                                          |                          |            |                         |           |   |            |           |           |      |            |           |           | 
|------------------------------------------------------------------ | ------------------------------------------------------------------------ | ------------------------ | ---------- | ----------------------- | --------- | - | ---------- | --------- | --------- | ---- | ---------- | --------- | --------- | 
|                                                                   |                                                                          |                          |            | Years Ended December 31 |          
|                                                                   |                                                                          |                          |            |                         |          
|                                                                   |                                                                          |                          |            | 2002                    |           |   | 2001       |           |           | 2000 |           
|                                                                   |                                                                          |                          |            |                         |           |   |            |           |           |      |           
|Sales                                                              |                                                                          |                          |            |                         |           |   |            |           |           |      |            |          
|                                                                   | Unaffiliated Customers                                                   |                          | $          | 1,120,368               |           |   | $          | 908,541   |           |      | $          | 1,070,031 |          
|                                                                   | Affiliates                                                               |                          |            | 6,633                   |           |   |            | 15,005    |           |      |            | 29,780    |          
|                                                                   |                                                                          |                          |            |                         |           |   |            |           |          
|                                                                   |                                                                          | Total Sales              |            |                         | 1,127,001 |   |            |           | 923,546   |      |            |           | 1,099,811 | 
|                                                                   |                                                                          |                          |            |                         |           |   |            |           |          
|Costs and Expenses                                                 |                                                                          |                          |            |                         |           |   |            |           |           |      |            |          
|                                                                   | Costs of Goods Sold (excludes Depreciation and
Amortization shown below) |                          |            | 1,162,187               |           |   |            | 1,067,673 |           |      |            | 1,183,215 |          
|                                                                   | Depreciation and Amortization                                            |                          |            | 24,783                  |           |   |            | 25,992    |           |      |            | 56,711    |          
|                                                                   | Selling and Administrative Expenses                                      |                          |            | 17,066                  |           |   |            | 20,612    |           |      |            | 26,699    |          
|                                                                   |                                                                          |                          |            |                         |           |   |            |           |          
|                                                                   |                                                                          | Total Costs and Expenses |            |                         | 1,204,036 |   |            |           | 1,114,277 |      |            |           | 1,266,625 | 
|                                                                   |                                                                          |                          |            |                         |           |   |            |           |          
|Operating Loss                                                     |                                                                          |                          | (77,035    | )                       |           |   | (190,731   | )         |           |      | (166,814   | )        
|Interest Income                                                    |                                                                          |                          | 36         |                         |           |   | 437        |           |           |      | 949        |          
|Interest Expense                                                   |                                                                          |                          | (10,442    | )                       |           |   | (8,815     | )         |           |      | (5,240     | )        
|Insurance Recovery                                                 |                                                                          |                          | 31,383     |                         |           |   | 81,533     |           |           |      | 91,006     |          
|Other  Net                                                        |                                                                          |                          | (5,981     | )                       |           |   | (2,087     | )         |           |      | (1,905     | )        
|                                                                   |                                                                          |                          |            |                         |           |   |            |           |          
|Loss Before Income Taxes
and Equity in Unconsolidated Subsidiaries |                                                                          |                          | (62,039    | )                       |           |   | (119,663   | )         |           |      | (82,004    | )        
|Income Tax (Provision) Benefit                                     |                                                                          |                          | 2,456      |                         |           |   |           |           |           |      | (37,262    | )        
|                                                                   |                                                                          |                          |            |                         |           |   |            |           |          
|Loss Before Equity in Unconsolidated Subsidiaries                  |                                                                          |                          | (59,583    | )                       |           |   | (119,663   | )         |           |      | (119,266   | )        
|Equity in Income of Unconsolidated Subsidiaries                    |                                                                          |                          | 7,250      |                         |           |   | 8,145      |           |           |      | 1,947      |          
|                                                                   |                                                                          |                          |            |                         |           |   |            |           |          
|Net Loss                                                           |                                                                          | $                        | (52,333    | )                       |           | $ | (111,518   | )         |           | $    | (117,319   | )        
|                                                                   |                                                                          |                          |            |                         |           |   |            |           |          
|Net Loss Per Share  Basic and Diluted                             |                                                                          | $                        | (2.35      | )                       |           | $ | (5.01      | )         |           | $    | (5.29      | )        
|                                                                   |                                                                          |                          |            |                         |           |   |            |           |          
|Weighted-Average Shares Outstanding                                |                                                                          |                          | 22,247,400 |                         |           |   | 22,241,651 |           |           |      | 22,157,980 |          
|                                                                   |                                                                          |                          |            |                         |           |   |            |           |          

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

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

|                                     |                                                 |                |        |                         |         |   |         |          |         |      |         |          |         |  
|------------------------------------ | ----------------------------------------------- | -------------- | ------ | ----------------------- | ------- | - | ------- | -------- | ------- | ---- | ------- | -------- | ------- | -
|                                     |                                                 |                |        | Years Ended December 31 |        
|                                     |                                                 |                |        |                         |        
|                                     |                                                 |                |        | 2002                    |         |   | 2001    |          |         | 2000 |        
|                                     |                                                 |                |        |                         |         |   |         |          |         |      |        
|Class A and Class B Common Stock     |                                                 |                |        |                         |         |   |         |          |         |      |         |         
|                                     | Beginning Balance                               |                | $      | 223                     |         |   | $       | 223      |         |      | $       | 222      |        
|                                     | Common Stock Issued for Benefit Plans           |                |        |                        |         |   |         |         |         |      |         | 1        |        
|                                     |                                                 |                |        |                         |         |   |         |          |        
|                                     |                                                 | Ending Balance |        |                         | 223     |   |         |          | 223     |      |         |          | 223     |  
|                                     |                                                 |                |        |                         |         |   |         |          |        
|Capital in Excess of Par Value       |                                                 |                |        |                         |         |   |         |          |         |      |         |         
|                                     | Beginning Balance                               |                |        | 130,270                 |         |   |         | 130,233  |         |      |         | 129,943  |        
|                                     | Common Stock Issued for Benefit Plans           |                |        |                        |         |   |         |         |         |      |         | 256      |        
|                                     | Common Stock Issued for ODEP                    |                |        | 7                       |         |   |         | 37       |         |      |         | 34       |        
|                                     |                                                 |                |        |                         |         |   |         |          |        
|                                     |                                                 | Ending Balance |        |                         | 130,277 |   |         |          | 130,270 |      |         |          | 130,233 |  
|                                     |                                                 |                |        |                         |         |   |         |          |        
|Retained Earnings                    |                                                 |                |        |                         |         |   |         |          |         |      |         |         
|                                     | Beginning Balance                               |                |        | 50,022                  |         |   |         | 162,430  |         |      |         | 282,409  |        
|                                     | Net Loss                                        |                |        | (52,333                 | )       |   |         | (111,518 | )       |      |         | (117,319 | )      
|                                     | Cash Dividends Declared                         |                |        |                        |         |   |         | (890     | )       |      |         | (2,660   | )      
|                                     |                                                 |                |        |                         |         |   |         |          |        
|                                     |                                                 | Ending Balance |        |                         | (2,311  | ) |         |          | 50,022  |      |         |          | 162,430 |  
|                                     |                                                 |                |        |                         |         |   |         |          |        
|Accumulated Other Comprehensive Loss |                                                 |                |        |                         |         |   |         |          |         |      |         |         
|                                     | Beginning Balance                               |                |        | (9,942                  | )       |   |         | (40      | )       |      |         | (2,799   | )      
|                                     | Additional Minimum Pension Liability Adjustment |                |        | (38,738                 | )       |   |         | (9,902   | )       |      |         | 2,759    |        
|                                     |                                                 |                |        |                         |         |   |         |          |        
|                                     |                                                 | Ending Balance |        |                         | (48,680 | ) |         |          | (9,942  | )    |         |          | (40     | )
|                                     |                                                 |                |        |                         |         |   |         |          |        
|Total Stockholders Equity           |                                                 | $              | 79,509 |                         |         | $ | 170,573 |          |         | $    | 292,846 |         
|                                     |                                                 |                |        |                         |         |   |         |          |        
|Comprehensive Loss                   |                                                 |                |        |                         |         |   |         |          |         |      |         |         
|                                     | Net Loss                                        |                | $      | (52,333                 | )       |   | $       | (111,518 | )       |      | $       | (117,319 | )      
|                                     | Additional Minimum Pension Liability Adjustment |                |        | (38,738                 | )       |   |         | (9,902   | )       |      |         | 2,759    |        
|                                     |                                                 |                |        |                         |         |   |         |          |        
|                                     | Comprehensive Loss                              |                | $      | (91,071                 | )       |   | $       | (121,420 | )       |      | $       | (114,560 | )      
|                                     |                                                 |                |        |                         |         |   |         |          |        

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

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

|                                                     |                                                          |                                              |                                       |                                                      |   |                         |         |            |      |        |         |          |   |        |         |  
|---------------------------------------------------- | -------------------------------------------------------- | -------------------------------------------- | ------------------------------------- | ---------------------------------------------------- | - | ----------------------- | ------- | ---------- | ---- | ------ | ------- | -------- | - | ------ | ------- | -
|                                                     |                                                          |                                              |                                       |                                                      |   | Years Ended December 31 |        
|                                                     |                                                          |                                              |                                       |                                                      |   |                         |        
|                                                     |                                                          |                                              |                                       |                                                      |   | 2002                    |         |            | 2001 |        |         | 2000     |  
|                                                     |                                                          |                                              |                                       |                                                      |   |                         |         |            |      |        |         |          |  
|Cash Flows From Operating Activities                 |                                                          |                                              |                                       |                                                      |   |                         |         |            |      |        |         |         
|                                                     | Net Loss                                                 |                                              | $                                     | (52,333                                              | ) |                         | $       | (111,518   | )    |        | $       | (117,319 | )
|                                                     | Adjustments to Reconcile Net Loss to Net Cash            |                                              |                                       |                                                      |   |                         |         |            |      |        |         |          |  
|                                                     |                                                          | Provided by (Used for) Operating Activities: |                                       |                                                      |   |                         |         |            |      |        |         |          |   |       
|                                                     |                                                          |                                              | Deferred Taxes                        |                                                      |   |                        |         |            |      |       |         |          |   | 42,386 |        
|                                                     |                                                          |                                              | Depreciation and Amortization         |                                                      |   | 24,783                  |         |            |      | 25,992 |         |          |   | 56,711 |        
|                                                     |                                                          |                                              | Loss on Sale of Assets                |                                                      |   | 4,155                   |         |            |      |       |         |          |   |       |        
|                                                     |                                                          |                                              | Equity in Unconsolidated Subsidiaries |                                                      |   | (7,250                  | )       |            |      | (8,145 | )       |          |   | (1,947 | )      
|                                                     |                                                          |                                              | Environmental Remediation Recovery    |                                                      |   |                        |         |            |      | (7,391 | )       |          |   |       |        
|                                                     |                                                          |                                              | Common Stock Issued for Benefit Plans |                                                      |   | 7                       |         |            |      | 37     |         |          |   | 291    |        
|                                                     |                                                          |                                              | Changes in Assets and Liabilities:    |                                                      |   |                         |         |            |      |        |         |          |   |        |        
|                                                     |                                                          |                                              |                                       | Accounts Receivable                                  |   |                         | (11,770 | )          |      |        | 59,120  |          |   |        | 50,779  |  
|                                                     |                                                          |                                              |                                       | Inventories                                          |   |                         | 13,569  |            |      |        | 37,068  |          |   |        | 2,319   |  
|                                                     |                                                          |                                              |                                       | Prepaid Expenses                                     |   |                         | (2,206  | )          |      |        | (18,282 | )        |   |        | (7,092  | )
|                                                     |                                                          |                                              |                                       | Accounts Payable and Accrued Liabilities             |   |                         | (13,987 | )          |      |        | 7,785   |          |   |        | 20,981  |  
|                                                     |                                                          |                                              |                                       | Deferred Insurance Recovery                          |   |                         | 13,900  |            |      |        | (44,000 | )        |   |        | 19,329  |  
|                                                     |                                                          |                                              |                                       | Other  Net                                          |   |                         | 70      |            |      |        | (449    | )        |   |        | 3,116   |  
|                                                     |                                                          |                                              |                                       |                                                      |   |                         |         |            |     
|                                                     |                                                          |                                              |                                       | Net Cash Provided by (Used for) Operating Activities |   |                         | (31,062 | )          |      |        | (59,783 | )        |   |        | 69,554  |  
|                                                     |                                                          |                                              |                                       |                                                      |   |                         |         |            |     
|Cash Flows From Investing Activities                 |                                                          |                                              |                                       |                                                      |   |                         |         |            |      |        |         |         
|                                                     | Capital Expenditures                                     |                                              |                                       | (4,716                                               | ) |                         |         | (22,422    | )    |        |         | (29,156  | )
|                                                     | Investment in Unconsolidated Subsidiaries                |                                              |                                       | (18,359                                              | ) |                         |         | (865       | )    |        |         | (1,290   | )
|                                                     | Proceeds from Disposal of Assets                         |                                              |                                       | 1,946                                                |   |                         |         |           |      |        |         |         |  
|                                                     | Distributions from Unconsolidated Subsidiaries           |                                              |                                       | 6,244                                                |   |                         |         | 2,713      |      |        |         | 5,823    |  
|                                                     | Proceeds from Divestiture in Unconsolidated Subsidiaries |                                              |                                       | 4,700                                                |   |                         |         |           |      |        |         |         |  
|                                                     | Change in Restricted Cash                                |                                              |                                       |                                                     |   |                         |         | 2,700      |      |        |         | (2,700   | )
|                                                     | Other  Net                                              |                                              |                                       |                                                     |   |                         |         |           |      |        |         | (399     | )
|                                                     |                                                          |                                              |                                       |                                                      |   |                         |         |            |     
|                                                     |                                                          |                                              |                                       | Net Cash Used for Investing Activities               |   |                         | (10,185 | )          |      |        | (17,874 | )        |   |        | (27,722 | )
|                                                     |                                                          |                                              |                                       |                                                      |   |                         |         |            |     
|Cash Flows From Financing Activities                 |                                                          |                                              |                                       |                                                      |   |                         |         |            |      |        |         |         
|                                                     | Drawdowns on Subordinated Debt                           |                                              |                                       | 45,000                                               |   |                         |         | 40,000     |      |        |         |         |  
|                                                     | Drawdowns on Revolving Line                              |                                              |                                       | 1,132,009                                            |   |                         |         | 1,206,945  |      |        |         | 453,000  |  
|                                                     | Principal Payments on Revolving Line                     |                                              |                                       | (1,136,377                                           | ) |                         |         | (1,167,896 | )    |        |         | (491,300 | )
|                                                     | Cash Dividend Payments                                   |                                              |                                       |                                                     |   |                         |         | (890       | )    |        |         | (2,660   | )
|                                                     |                                                          |                                              |                                       |                                                      |   |                         |         |            |     
|                                                     |                                                          |                                              |                                       | Net Cash (Used for) Provided by Financing Activities |   |                         | 40,632  |            |      |        | 78,159  |          |   |        | (40,960 | )
|                                                     |                                                          |                                              |                                       |                                                      |   |                         |         |            |     
|Net Increase (Decrease) in Cash and Cash Equivalents |                                                          |                                              | (615                                  | )                                                    |   |                         | 502     |            |      |        | 872     |         
|Cash and Cash Equivalents  Beginning of Year        |                                                          |                                              | 3,235                                 |                                                      |   |                         | 2,733   |            |      |        | 1,861   |         
|                                                     |                                                          |                                              |                                       |                                                      |   |                         |         |            |     
|Cash and Cash Equivalents  End of Year              |                                                          | $                                            | 2,620                                 |                                                      |   | $                       | 3,235   |            |      | $      | 2,733   |         
|                                                     |                                                          |                                              |                                       |                                                      |   |                         |         |            |     

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

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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 than Rouge Steel, Rouge Industries wholly-owned subsidiaries
include QS Steel Inc. (QS Steel) and Eveleth Taconite Company (Eveleth).
QS Steel holds minority ownership interests in two Michigan-based joint
ventures. Eveleth holds a 45% interest in Eveleth Mines LLC (EVTAC), 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 restructuring of the Companys long-term debt (see Notes 2 and 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. Both Rouge
Steels and EVTACs additional minimum pension liability adjustments appear on
Rouge Industries balance sheet and statement of changes in stockholders
equity in 2002.

Segment Information

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

Revenue Recognition

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

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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, 2002 and 2001.
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, 2002. However, the ability of the Companys debtors to honor
their obligations to the Company is dependent upon the automotive and steel
industry economic sectors.

Significant Customers

The Companys significant customers are Ford Motor Company (Ford),
DaimlerChrysler AG (DaimlerChrysler) and General Motors Corporation (GM).
Sales to Ford totaled $367,933,000 in 2002, $334,732,000 in 2001, $420,504,000
in 2000. Sales to DaimlerChrysler totaled $110,448,000 in 2002, $87,628,000 in 2001 and
$96,043,000 in 2000.
Sales to GM totaled $109,186,000 in 2002, $92,110,000 in 2001 and $103,916,000
in 2000.

Inventories

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

Nonmonetary Transactions

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

Property, Plant, and Equipment

Property, plant, and equipment are recorded at cost. Replacements and major
improvements are capitalized; maintenance and repairs are expensed as incurred.
Gains or losses on asset dispositions are included in the determination of net
income. Based on its recent operating losses, the Company has made estimates
of undiscounted cash flows over the remaining useful lives of its operating
assets to determine if

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the assets are impaired. At December 31, 2002, the Company determined that no
impairment existed. Estimates of future cash flows in volatile market
conditions are inherently subjective and these estimates of future expected
cash flows may change by a material amount in the future.

Depreciation and Amortization

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

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

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

As a result of the explosion and fire at the Rouge Complex Powerhouse (the
Powerhouse) (see Note 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, ending December 31, 2000. No amortization was recorded in
2001 or 2002 with respect to the temporary facilities. In 2002, the Company
wrote off the fully depreciated temporary steam and electrical distribution
assets.

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).

Stock-Based Compensation

In December 2002, the Financial Accounting
Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 148, Accounting for
Stock-Based Compensation  Transition and Disclosure  an
amendment of SFAS No. 123. SFAS No. 148 amends SFAS No. 123,
Accounting for Stock-Based Compensation, to provide
alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee
compensation. In addition, SFAS No. 148 amends the disclosure
requirements of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of
the method used on reported results. The Company continues to account
for stock-based compensation using Accounting Principles Board
Statement No. 25, Accounting for Stock Issued to
Employees, and has not adopted the recognition provisions of
SFAS No. 123, as amended by SFAS No. 148. However, the Company has
adopted the disclosure provisions of SFAS No. 148 for the current
fiscal year and has included this information in Note 8.

Environmental Accounting

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

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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.

New Accounting Pronouncements

During 2002, the Company adopted SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64,
Amendment of FASB Statement No. 13 and Technical Corrections as of April 2002,
SFAS No. 146, Accounting for Costs Associated with Exit or Disposal
Activities, and SFAS No. 147, Acquisitions of Certain Financial
Institutions. These pronouncements did not have a significant impact on the
Companys results of operations or financial position. In
November 2002, the FASB released FASB Interpretation No.
45 (FIN 45), Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others: an
Interpretation of FASB Statements No. 5, 57 and 107 and Rescission of FASB
Interpretation No. 34. FIN 45 establishes new disclosure and liability
requirements for direct and indirect debt guarantees with specified
characteristics. The initial measurement and recognition requirements of FIN
45 are effective prospectively for guarantees issued or modified after December
31, 2002. However, the disclosure requirements are effective for interim and
annual financial statement periods ending after December 15, 2002. The Company
has adopted the disclosure provisions of FIN 45 and does not expect the full
adoption of FIN 45 to have a material impact on the Companys results of
operations or financial position. The Company will be required to adopt SFAS
No. 143, Accounting for Asset Retirement Obligations (SFAS No. 143) on
January 1, 2003. The Company is evaluating the impact of SFAS No. 143 on its
financial position and results of operations.

NOTE 2  LIQUIDITY MATTERS

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

During the mid-1990s, the Company was experiencing a relatively stable market
environment. Then in 1998, an unprecedented amount of steel imports began
flooding the U.S. causing domestic steel prices to decline dramatically. Next,
in 2000, natural gas prices began to rise causing a considerable increase in
the Companys cost of goods sold. In addition, in late 2001, a fire occurred
at Double Eagle Steel Coating Company (Double Eagle), the Companys joint
venture electrogalvanizing line, which caused that facility to lose production
for nine months.

The Company continues to face difficult market conditions, although steel
product prices in the spot market and demand for the Companys products
improved during 2002. The low prices during the past three years, the cash
strain caused by the Powerhouse explosion and the Double Eagle fire and
contractual issues related to the startup and operation of the new power plant
caused significant operating losses and put considerable pressure on the
Companys liquidity. During the three years ended December 31, 2002, the
Company incurred net losses of $281,170,000. The Company responded to the
liquidity deterioration

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by refinancing its revolving loan facility, procuring two subordinated credit
facilities and selling or restructuring three joint ventures. During the year
ended December 31, 2002, the Companys borrowings increased from $145,549,000
to $186,181,000.

The Companys liquidity is dependent on its operating performance (which is
closely related to business conditions in the domestic steel industry), the
implementation of operating and capital cost reduction programs, receipt of
proceeds from the Double Eagle insurance claim, the impact of the tariffs
imposed in response to the Bush Administrations Section 201 relief, and its
sources of financing. The Company depends on borrowings to fund operations
(see Note 5). In the event that market conditions deteriorate, causing
operating losses to continue, and the Company is unable to secure additional
financing sources to fund its operations, it may be required to seek bankruptcy
protection or commence liquidation or other administrative proceedings.

NOTE 3  INVENTORIES

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

|                         |                                          |                          |        |             |         |  |        |         |         | 
|------------------------ | ---------------------------------------- | ------------------------ | ------ | ----------- | ------- |  | ------ | ------- | ------- | 
|                         |                                          |                          |        | December 31 |        
|                         |                                          |                          |        |             |        
|                         |                                          |                          |        | 2002        |         |  | 2001   |        
|                         |                                          |                          |        |             |         |  |        |        
|Production               |                                          |                          |        |             |         |  |        |        
|                         | Raw Materials                            |                          | $      | 47,302      |         |  | $      | 58,631  |        
|                         | Semifinished and Finished Steel Products |                          |        | 169,342     |         |  |        | 175,552 |        
|                         |                                          |                          |        |             |         | 
|                         |                                          | Total Production at FIFO |        |             | 216,644 |  |        |         | 234,183 | 
|                         | LIFO Reserves                            |                          |        | (9,046      | )       |  |        | (14,292 | )      
|                         |                                          |                          |        |             |         | 
|                         |                                          | Total Production at LIFO |        |             | 207,598 |  |        |         | 219,891 | 
|Nonproduction and Sundry |                                          |                          | 12,970 |             |         |  | 13,046 |        
|                         |                                          |                          |        |             |         | 
|                         |                                          | Total Inventories        |        | $           | 220,568 |  |        | $       | 232,937 | 
|                         |                                          |                          |        |             |         | 

In 2002, the liquidation of LIFO inventories decreased costs of goods sold and,
therefore, decreased the operating loss by approximately $5,000,000.

NOTE 4  INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES

At December 31, 2002, the Companys investments in unconsolidated subsidiaries
consist of a 50% interest in Double Eagle, a 45% interest in Eveleth Mines LLC
(EVTAC), a 48% interest in Spartan Steel Coating, L.L.C. (Spartan Steel)
and a 49% interest in Delaco Processing, L.L.C. (Delaco Steel Processing).
All of the Companys investments in unconsolidated subsidiaries are accounted
for under the equity method. On March 1, 2002, Rouge Industries and its joint
venture partner liquidated their interests in Bing Blanking, L.L.C. (Bing
Blanking), in which the Company owned a 40% interest. On December 31, 2002,
the Company sold its 11.1% interest in TWB Company, L.L.C. (TWB). See Note
10.

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
$17,472,000, $32,906,000 and $41,232,000 for 2002, 2001 and 2000, respectively,
is included in the Companys costs and expenses and inventory.
Of the amount in 2002, $4,146,000 was directly related to the Double
Eagle fire and was included in costs and expenses but not 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, 2002, the Companys share of the underlying net assets of Double
Eagle exceeded its investment by $13,966,000. 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

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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. On December 15,
2001, a major fire at Double Eagle halted production at the plant. The Company
and its joint venture partner, United States Steel Corporation (U.S. Steel)
rebuilt Double Eagle and returned the facility to production in September 2002.

Eveleth Taconite Company (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.
In 2002, the Company recorded its share of EVTACs net income and additional
minimum pension liability adjustment, resulting in the Companys investment in
EVTAC being reduced to $0. The Company believes that it does not have future
obligations related to the funding of EVTACs operations or liabilities.

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

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

|                       |  |             |         |  |      |   |         | 
|---------------------- |  | ----------- | ------- |  | ---- | - | ------- | 
|                       |  | December 31 |        
|                       |  |             |        
|                       |  | 2002        |         |  | 2001 |  
|                       |  |             |         |  |      |  
|Current Assets         |  | $           | 61,001  |  |      | $ | 119,532 | 
|Noncurrent Assets      |  |             | 235,008 |  |      |   | 270,418 | 
|Current Liabilities    |  |             | 40,022  |  |      |   | 76,350  | 
|Noncurrent Liabilities |  |             | 131,805 |  |      |   | 141,718 | 

The balance sheet information for 2002 presented above does not include amounts
for Bing Blanking or TWB because the Company no longer holds an interest in
either company. See Note 10.

Approximately 50% of the net sales presented below represents activity related
to the Company.

|             |  |                         |         |  |      |   |         |      |  |   |         | 
|------------ |  | ----------------------- | ------- |  | ---- | - | ------- | ---- |  | - | ------- | 
|             |  | Years Ended December 31 |        
|             |  |                         |        
|             |  | 2002                    |         |  | 2001 |   |         | 2000 | 
|             |  |                         |         |  |      |   |         |      | 
|Net Sales    |  | $                       | 344,980 |  |      | $ | 355,079 |      |  | $ | 354,459 | 
|Gross Profit |  |                         | 39,468  |  |      |   | 33,528  |      |  |   | 31,021  | 
|Net Income   |  |                         | 22,664  |  |      |   | 16,885  |      |  |   | 7,270   | 

NOTE 5  DEBT

The Company had borrowings of $186,181,000 outstanding as of December 31, 2002
and $145,549,000 outstanding as of December 31, 2001 under the facilities
described below.

The Company has a $200,000,000 revolving loan agreement (the Credit
Agreement) which expires on March 13, 2004. Rouge Steel is the borrower under
the Credit Agreement and Rouge Industries is a guarantor. The Credit Agreement
is secured by substantially all the assets of the Company. Borrowings under
the Credit Agreement are limited to specified percentages of receivables and
inventories. There is

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one financial covenant in the Credit Agreement, which is an excess availability
minimum of $25,000,000. There is also a subjective acceleration clause in the
Credit Agreement which causes the Company to classify its debt outstanding
under the Credit Agreement as current. At December 31, 2002, the Companys
receivables and inventories supported availability under the Credit Agreement
of $156,201,000, of which it could borrow up to $129,901,000 without a covenant
default. The Company had borrowings outstanding under the Credit Agreement of
$101,181,000 as of December 31, 2002. The Credit Agreement bears an unused
line fee of 0.375%. Interest on loans under the Credit Agreement is calculated
by one of two methods: (i) the prime rate plus a margin ranging from 0.25% to
1.00%, depending upon excess availability or (ii) the London Interbank Offered
Rate plus a margin ranging from 2.25% to 3.00%, depending upon the Companys
excess availability under the Credit Agreement during the prior quarter.

During 2002, the Company secured a $10,000,000 loan from Cleveland-Cliffs Inc
(the Cliffs Facility). The Cliffs Facility expires on June 30, 2007 and
bears interest at 10% per year. The Cliffs Facility is subordinate to the
Credit Agreement, has a second security interest in the accounts receivable and
inventory of the Company and contains cross default provisions with the Credit
Agreement. As of December 31, 2002, the Company had borrowings outstanding
under the Cliffs Facility of $10,000,000.

The Company also has a $75,000,000 credit facility from Ford (the Ford
Facility). The Ford Facility expires on June 30, 2004 and bears interest at
approximately the same rate as the Credit Agreement. The Ford Facility is
subordinate to the Credit Agreement and the Cliffs Facility, has a third
security interest in the accounts receivable and inventory of the Company and
contains cross default provisions with the Credit Agreement. As of December
31, 2002, the Company had borrowings outstanding under the Ford Facility of
$75,000,000.

Cash paid for interest was $5,308,517 in 2002, $8,607,000 in 2001 and 4,005,000
in 2000.

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. The Companys portion of EVTACs Additional
Minimum Pension Liability Adjustment, to the extent that it was less than the
Companys basis in EVTAC, is included in Accumulated Other Comprehensive Income
(dollars in thousands):

|                                        |                             |                                   |         |               |         |   |                              |        |         |      |         |         |         |   |        |        |         |   |        |       |        |   |        |        |        | 
|--------------------------------------- | --------------------------- | --------------------------------- | ------- | ------------- | ------- | - | ---------------------------- | ------ | ------- | ---- | ------- | ------- | ------- | - | ------ | ------ | ------- | - | ------ | ----- | ------ | - | ------ | ------ | ------ | 
|                                        |                             |                                   |         | Pension Plans |         |   | Postretirement Benefit Plans |       
|                                        |                             |                                   |         |               |         |   |                              |       
|                                        |                             |                                   |         | 2002          |         |   | 2001                         |        |         | 2000 |         |         | 2002    |   |        | 2001   |         |   | 2000   |      
|                                        |                             |                                   |         |               |         |   |                              |        |         |      |         |         |         |   |        |        |         |   |        |      
|Change in Benefit Obligation            |                             |                                   |         |               |         |   |                              |        |         |      |         |         |         |   |        |        |         |   |        |       |        |   |        |       
|Benefit Obligation at Beginning of Year |                             | $                                 | 175,678 |               |         | $ | 149,950                      |        |         | $    | 141,446 |         |         | $ | 87,981 |        |         | $ | 71,768 |       |        | $ | 68,594 |       
|                                        | Service Cost                |                                   |         | 6,517         |         |   |                              | 6,250  |         |      |         | 7,006   |         |   |        | 4,653  |         |   |        | 4,053 |        |   |        | 4,346  |       
|                                        | Interest Cost               |                                   |         | 13,451        |         |   |                              | 12,312 |         |      |         | 11,125  |         |   |        | 6,922  |         |   |        | 6,048 |        |   |        | 5,459  |       
|                                        | Participants Contributions |                                   |         | 303           |         |   |                              | 323    |         |      |         | 329     |         |   |        |       |         |   |        |      |        |   |        |       |       
|                                        | Plan Amendments             |                                   |         |              |         |   |                              | (11    | )       |      |         | 9,728   |         |   |        |       |         |   |        |      |        |   |        | (231   | )     
|                                        | Actuarial (Gain) Loss       |                                   |         | 11,944        |         |   |                              | 12,280 |         |      |         | (15,673 | )       |   |        | 28,355 |         |   |        | 6,735 |        |   |        | (5,951 | )     
|                                        | Total Benefit Payments      |                                   |         | (6,749        | )       |   |                              | (5,426 | )       |      |         | (4,011  | )       |   |        | (1,294 | )       |   |        | (623  | )      |   |        | (449   | )     
|                                        |                             |                                   |         |               |         |   |                              |        |         |      |         |         |         |   |        |        |         |  
|                                        |                             | Benefit Obligation at End of Year |         | $             | 201,144 |   |                              | $      | 175,678 |      |         | $       | 149,950 |   |        | $      | 126,617 |   |        | $     | 87,981 |   |        | $      | 71,768 | 
|                                        |                             |                                   |         |               |         |   |                              |        |         |      |         |         |         |   |        |        |         |  

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|                                                                 |                                          |                                          |         |               |         |   |                              |         |         |      |         |         |         |   |          |         |         |   |         |         |         |   |         |         |         |  
|---------------------------------------------------------------- | ---------------------------------------- | ---------------------------------------- | ------- | ------------- | ------- | - | ---------------------------- | ------- | ------- | ---- | ------- | ------- | ------- | - | -------- | ------- | ------- | - | ------- | ------- | ------- | - | ------- | ------- | ------- | -
|                                                                 |                                          |                                          |         | Pension Plans |         |   | Postretirement Benefit Plans |        
|                                                                 |                                          |                                          |         |               |         |   |                              |        
|                                                                 |                                          |                                          |         | 2002          |         |   | 2001                         |         |         | 2000 |         |         | 2002    |   |          | 2001    |         |   | 2000    |        
|                                                                 |                                          |                                          |         |               |         |   |                              |         |         |      |         |         |         |   |          |         |         |   |         |        
|Change in Plan Assets                                            |                                          |                                          |         |               |         |   |                              |         |         |      |         |         |         |   |          |         |         |   |         |         |         |   |        |        
|Fair Value of Plan Assets at Beginning of Year                   |                                          | $                                        | 135,993 |               |         | $ | 163,775                      |         |         | $    | 146,253 |         |         | $ |         |         |         | $ |        |         |         | $ |        |        
|                                                                 | Actual Return on Plan Assets             |                                          |         | (8,228        | )       |   |                              | (23,094 | )       |      |         | 20,538  |         |   |          |        |         |   |         |        |         |   |         |        |        
|                                                                 | Employer Contributions                   |                                          |         | 444           |         |   |                              | 476     |         |      |         | 861     |         |   |          | 1,294   |         |   |         | 623     |         |   |         | 449     |        
|                                                                 | Participants Contributions              |                                          |         | 303           |         |   |                              | 323     |         |      |         | 329     |         |   |          |        |         |   |         |        |         |   |         |        |        
|                                                                 | Total Benefit Payments                   |                                          |         | (6,749        | )       |   |                              | (5,426  | )       |      |         | (4,011  | )       |   |          | (1,294  | )       |   |         | (623    | )       |   |         | (449    | )      
|                                                                 | Other                                    |                                          |         | (103          | )       |   |                              | (61     | )       |      |         | (195    | )       |   |          |        |         |   |         |        |         |   |         |        |        
|                                                                 |                                          |                                          |         |               |         |   |                              |         |         |      |         |         |         |   |          |         |         |  
|                                                                 |                                          | Fair Value of Plan Assets at End of Year |         | $             | 121,660 |   |                              | $       | 135,993 |      |         | $       | 163,775 |   |          | $       |        |   |         | $       |        |   |         | $       |        |  
|                                                                 |                                          |                                          |         |               |         |   |                              |         |         |      |         |         |         |   |          |         |         |  
|Funded Status                                                    |                                          | $                                        | (79,484 | )             |         | $ | (39,685                      | )       |         | $    | 13,825  |         |         | $ | (126,617 | )       |         | $ | (87,981 | )       |         | $ | (71,768 | )      
|Unrecognized Actuarial (Gain) Loss                               |                                          |                                          | 46,102  |               |         |   | 14,366                       |         |         |      | (37,647 | )       |         |   | 33,357   |         |         |   | 5,173   |         |         |   | (1,571  | )      
|Unrecognized Prior Service Cost                                  |                                          |                                          | 12,544  |               |         |   | 14,548                       |         |         |      | 16,547  |         |         |   | (71      | )       |         |   | (79     | )       |         |   | (88     | )      
|Adjustment to Book Value                                         |                                          |                                          |        |               |         |   |                             |         |         |      |        |         |         |   | 354      |         |         |   | 183     |         |         |   | 139     |        
|Adjustment for Sept. 30th Measurement Date                       |                                          |                                          | 13      |               |         |   | 13                           |         |         |      | 2       |         |         |   |         |         |         |   |        |         |         |   |        |        
|                                                                 |                                          |                                          |         |               |         |   |                              |         |         |      |         |         |         |   |          |         |         |  
|                                                                 |                                          | Net Amount Recognized                    |         | $             | (20,825 | ) |                              | $       | (10,758 | )    |         | $       | (7,273  | ) |          | $       | (92,977 | ) |         | $       | (82,704 | ) |         | $       | (73,288 | )
|                                                                 |                                          |                                          |         |               |         |   |                              |         |         |      |         |         |         |   |          |         |         |  
|Amount
Recognized in the Consolidated
Balance Sheets Consists of |                                          |                                          |         |               |         |   |                              |         |         |      |         |         |         |   |          |         |         |   |         |         |         |   |         |        
|                                                                 | Prepaid Benefit Cost                     | $                                        | 6,122   |               |         | $ | 5,979                        |         |         | $    | 4,818   |         |         | $ |         |         |         | $ |        |         |         | $ |        |        
|                                                                 | Accrued Benefit Liability                |                                          |         | (26,947       | )       |   |                              | (16,737 | )       |      |         | (12,091 | )       |   |          | (92,977 | )       |   |         | (82,704 | )       |   |         | (73,288 | )      
|                                                                 | Additional Minimum Liability             |                                          |         | (55,493       | )       |   |                              | (23,852 | )       |      |         | (607    | )       |   |          |        |         |   |         |        |         |   |         |        |        
|                                                                 | Intangible Asset                         |                                          |         | 12,142        |         |   |                              | 13,910  |         |      |         | 567     |         |   |          |        |         |   |         |        |         |   |         |        |        
|                                                                 | Accumulated Other Comprehensive Income   |                                          |         | 43,351        |         |   |                              | 9,942   |         |      |         | 40      |         |   |          |        |         |   |         |        |         |   |         |        |        
|                                                                 |                                          |                                          |         |               |         |   |                              |         |         |      |         |         |         |   |          |         |         |  
|                                                                 |                                          | Net Amount Recognized                    |         | $             | (20,825 | ) |                              | $       | (10,758 | )    |         | $       | (7,273  | ) |          | $       | (92,977 | ) |         | $       | (82,704 | ) |         | $       | (73,288 | )
|                                                                 |                                          |                                          |         |               |         |   |                              |         |         |      |         |         |         |   |          |         |         |  
|Weighted-Average Assumptions                                     |                                          |                                          |         |               |         |   |                              |         |         |      |         |         |         |   |          |         |         |   |         |         |         |   |         |        
|                                                                 | Discount Rate                            |                                          |         | 6.75          | %       |   |                              | 7.50    | %       |      |         | 8.00    | %       |   |          | 6.75    | %       |   |         | 7.50    | %       |   |         | 8.00    | %      
|                                                                 | 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 10.0% (trending
to 5.0% by 2010) was used for the postretirement benefit obligation in 2002,
8.0% was used in 2001 and 6.0% in 2000. A measurement date of September 30 was
used for the pension plans and the postretirement benefit plans.

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

|                                                     |                                    |                           |       |               |        |   |                              |         |       |      |       |         |       |   |       |       |        |   |       |       |        |   |       |       |       | 
|---------------------------------------------------- | ---------------------------------- | ------------------------- | ----- | ------------- | ------ | - | ---------------------------- | ------- | ----- | ---- | ----- | ------- | ----- | - | ----- | ----- | ------ | - | ----- | ----- | ------ | - | ----- | ----- | ----- | 
|                                                     |                                    |                           |       | Pension Plans |        |   | Postretirement Benefit Plans |        
|                                                     |                                    |                           |       |               |        |   |                              |        
|                                                     |                                    |                           |       | 2002          |        |   | 2001                         |         |       | 2000 |       |         | 2002  |   |       | 2001  |        |   | 2000  |      
|                                                     |                                    |                           |       |               |        |   |                              |         |       |      |       |         |       |   |       |       |        |   |       |      
|Components of Net Periodic Benefit Cost
Service Cost |                                    | $                         | 6,517 |               |        | $ | 6,250                        |         |       | $    | 7,006 |         |       | $ | 4,653 |       |        | $ | 4,053 |       |        | $ | 4,346 |      
|                                                     | Interest Cost                      |                           |       | 13,451        |        |   |                              | 12,312  |       |      |       | 11,125  |       |   |       | 6,922 |        |   |       | 6,048 |        |   |       | 5,459 |      
|                                                     | Expected Return on Plan Assets     |                           |       | (11,997       | )      |   |                              | (14,536 | )     |      |       | (13,020 | )     |   |       |      |        |   |       |      |        |   |       |      |      
|                                                     | Amortization of Prior Service Cost |                           |       | 2,004         |        |   |                              | 2,004   |       |      |       | 1,257   |       |   |       | (9    | )      |   |       | (9    | )      |   |       | 47    |      
|                                                     | Recognized Actuarial (Gain) Loss   |                           |       | 536           |        |   |                              | (2,056  | )     |      |       | (360    | )     |   |       |      |        |   |       | (9    | )      |   |       |      |      
|                                                     |                                    |                           |       |               |        |   |                              |         |       |      |       |         |       |   |       |       |        |  
|                                                     |                                    | Net Periodic Benefit Cost |       | $             | 10,511 |   |                              | $       | 3,974 |      |       | $       | 6,008 |   |       | $     | 11,566 |   |       | $     | 10,083 |   |       | $     | 9,852 | 
|                                                     |                                    |                           |       |               |        |   |                              |         |       |      |       |         |       |   |       |       |        |  

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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 |        
|                               |  |             |        
|                               |  | 2002        |         |  | 2001 |   |         | 2000 | 
|                               |  |             |         |  |      |   |         |      | 
|Projected Benefit Obligation   |  | $           | 201,144 |  |      | $ | 168,395 |      |  | $ | 2,215 | 
|Accumulated Benefit Obligation |  |             | 197,978 |  |      |   | 165,597 |      |  |   | 2,137 | 
|Fair Value of Plan Assets      |  |             | 121,660 |  |      |   | 127,511 |      |  |   |      | 

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, 2002 (dollars in thousands):

|                                                        |  |                |        |  |                |   |         |  
|------------------------------------------------------- |  | -------------- | ------ |  | -------------- | - | ------- | -
|                                                        |  | One Percentage |        |  | One Percentage |  
|                                                        |  | Point Increase |        |  | Point Decrease |  
|                                                        |  |                |        |  |                |  
|Effect on Total of Service and Interest Cost Components |  | $              | 3,359  |  |                | $ | (2,158  | )
|Effect on Postretirement Benefit Obligation             |  |                | 24,491 |  |                |   | (15,550 | )

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 |      
|         |                           |   |                         |      
|         |                           |   | 2002                    |       |  | 2001 |   |   | 2000 |  
|         |                           |   |                         |       |  |      |   |   |      |  
|Current  |                           | $ | 2,456                   |       |  | $    |  |   |      | $ | 5,123   |        
|Deferred |                           |   |                        |       |  |      |  |   |      |   | (42,385 | )      
|         |                           |   |                         |       |  |      |   |   |     
|         | Total (Provision) Benefit |   | $                       | 2,456 |  |      | $ |  |      |   | $       | (37,262 | )
|         |                           |   |                         |       |  |      |   |   |     

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 2002 and 2001.

The Accumulated Other Comprehensive Income (Loss) of $(48,680,000),
$(9,942,000) and $(40) for 2002, 2001 and 2000, respectively, are shown net of
the deferred tax impact of $0 in all three years.

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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 |      
|                             |                                         |                           |         |                         |      
|                             |                                         |                           |         | 2002                    |       |   | 2001     |         |   | 2000 |        
|                             |                                         |                           |         |                         |       |   |          |         |   |      |        
|Pre-Tax Income (Loss)        |                                         | $                         | (62,039 | )                       |       | $ | (119,663 | )       |   | $    | (82,004 | )      
|                             |                                         |                           |         |                         |       |   |          |         |  
|Computed (Provision) Benefit |                                         | $                         | 21,714  |                         |       | $ | 41,882   |         |   | $    | 28,701  |        
|Source of Difference:        |                                         |                           |         |                         |       |   |          |         |   |      |         |        
|                             | Income from Unconsolidated Subsidiaries |                           |         | (2,538                  | )     |   |          | (2,851  | ) |      |         |        |        
|                             | Change in Valuation Allowance           |                           |         | (17,459                 | )     |   |          | (39,058 | ) |      |         | (63,012 | )      
|                             | Basis Adjustment in Deferred Tax Assets |                           |         | 800                     |       |   |          |        |   |      |         | (1,988  | )      
|                             | Other                                   |                           |         | (61                     | )     |   |          | 27      |   |      |         | (963    | )      
|                             |                                         |                           |         |                         |       |   |          |         |  
|                             |                                         | Total (Provision) Benefit |         | $                       | 2,456 |   |          | $       |  |      |         | $       | (37,262 | )
|                             |                                         |                           |         |                         |       |   |          |         |  

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

|                                                                |                               |   |             |   |  |      |          |   | 
|--------------------------------------------------------------- | ----------------------------- | - | ----------- | - |  | ---- | -------- | - | 
|                                                                |                               |   | December 31 |  
|                                                                |                               |   |             |  
|                                                                |                               |   | 2002        |   |  | 2001 |         
|                                                                |                               |   |             |   |  |      |         
|Assets                                                          |                               |   |             |   |  |      |          |  
|                                                               
|Basis of Consolidated Subsidiary                                |                               | $ | (2,915      | ) |  | $    | 12,061   |  
|Postretirement and Other Benefits                               |                               |   | 45,877      |   |  |      | 38,969   |  
|Other                                                           |                               |   | 6,458       |   |  |      | 6,295    |  
|Operating Loss and Alternative
Minimum Tax Credit Carryforwards |                               |   | 130,593     |   |  |      | 115,273  |  
|                                                                |                               |   |             |   |  |     
|Gross Deferred Tax Assets                                       |                               |   | 180,013     |   |  |      | 162,598  |  
|Valuation Allowance                                             |                               |   | (129,544    | ) |  |      | (112,085 | )
|                                                                |                               |   |             |   |  |     
|Gross Deferred Tax Assets
After Valuation Allowance             |                               |   | 50,469      |   |  |      | 50,513   |  
|                                                                |                               |   |             |   |  |     
|Liabilities                                                     |                               |   |             |   |  |      |          |  
|                                                               
|Property, Plant, and Equipment                                  |                               |   | (39,060     | ) |  |      | (38,685  | )
|Inventories                                                     |                               |   | (11,409     | ) |  |      | (11,828  | )
|                                                                |                               |   |             |   |  |     
|Gross Deferred Tax Liabilities                                  |                               |   | (50,469     | ) |  |      | (50,513  | )
|                                                                |                               |   |             |   |  |     
|                                                                | Total Net Deferred Tax Assets |   | $           |  |  |      | $        |  | 
|                                                                |                               |   |             |   |  |     

Unused regular tax loss carryforwards were approximately $289,529,000 and
$237,335,000 at December 31, 2002 and December 31, 2001, respectively. The tax
loss carryforwards will expire between 2020 and 2022. Alternative minimum tax
credit carryforwards amounted to $ 29,258,000 and $31,714,000 at December 31,
2002 and 2001, respectively. The alternative minimum tax credit may be carried
forward indefinitely.

In 2001 and 2002, 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.

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The Company received cash refunds of $2,456,000, $0 and $5,123,000 in 2002,
2001 and 2000, respectively. The refund in 2002 was related to the
implementation of a provision in the Job Creation and Worker Assistance Act of
2002 allowing for a five-year carryback of net operating losses.

NOTE 8  COMMON STOCK

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

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

The Company has an outside director equity plan (the ODEP), a 1994 stock
incentive plan, a 1998 stock incentive plan and a 2002 stock incentive plan
(the 1994 stock incentive plan, the 1998 stock incentive plan and the 2002
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
the fair market value on the date of grant. Under the plans, the Company is
authorized to grant options to its directors and employees for up to 1,600,000
shares of common stock. Of this amount, options are outstanding for 1,309,283
shares at December 31, 2002. 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 in 2000, 2001 or 2002. If
compensation cost for the ODEP and the SIP had been determined based upon the
fair value at the grant dates for awards under these plans consistent with the
method set forth in SFAS No. 123, Accounting for Stock-Based Compensation,
the Companys net loss and net loss per share would have resulted in the pro
forma amounts indicated below:

|                                                                                                                 |  |             |     |   |         |                         |     |   |          |   |     |      |          |   |  | 
|---------------------------------------------------------------------------------------------------------------- |  | ----------- | --- | - | ------- | ----------------------- | --- | - | -------- | - | --- | ---- | -------- | - |  | 
|                                                                                                                 |  |             |     |   |         | Years Ended December 31 |    
|                                                                                                                 |  |             |     |   |         |                         |    
|                                                                                                                 |  |             |     |   |         | 2002                    |     |   | 2001     |   |     | 2000 |         
|                                                                                                                 |  |             |     |   |         |                         |     |   |          |   |     |      |         
|Net Loss (dollars in thousands)                                                                                  |  | As Reported |     | $ | (52,333 | )                       |     | $ | (111,518 | ) |     | $    | (117,319 | )
|                                                                                                                 |  | Pro Forma   |     |   | (52,702 | )                       |     |   | (111,460 | ) |     |      | (117,596 | )
|Compensation
Expense (Net of Income
Taxes) Excluded from Net Income
Based on SFAS No. 123 (dollars in
thousands) |  | $           | 369 |   |         | $                       | (58 | ) |          | $ | 277 |     
|Net Loss Per Share                                                                                               |  | As Reported |     | $ | (2.35   | )                       |     | $ | (5.01    | ) |     | $    | (5.29    | )
|                                                                                                                 |  | Pro Forma   |     |   | (2.37   | )                       |     |   | (5.01    | ) |     |      | (5.31    | )

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 2002, 2001 and 2000:

|                        |  |         |       |   |         |  |       |         |  |  |       |  
|----------------------- |  | ------- | ----- | - | ------- |  | ----- | ------- |  |  | ----- | -
|                        |  | 2002    |       |   | 2001    |  |       | 2000    | 
|                        |  |         |       |   |         |  |       |         | 
|Dividend Yield          |  |         | 0.00  | % |         |  | 3.06  | %       |  |  | 1.54  | %
|Risk-Free Interest Rate |  |         | 4.69  |   |         |  | 4.76  |         |  |  | 6.55  |  
|Expected Volatility     |  |         | 79.93 |   |         |  | 60.84 |         |  |  | 41.16 |  
|Expected Life           |  | 7 years |       |   | 7 years |  |       | 7 years | 

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A summary of the status of the Companys stock-based compensation plans as of
December 31, 2002, 2001 and 2000 and changes during the years then ended is
presented below:

|                                                               |  |        |           |   |       |           |      |        |  |  |         |   |           |        |       |  |       |  |         |           |  |   |       | 
|-------------------------------------------------------------- |  | ------ | --------- | - | ----- | --------- | ---- | ------ |  |  | ------- | - | --------- | ------ | ----- |  | ----- |  | ------- | --------- |  | - | ----- | 
|                                                               |  | 2002   |           |   | 2001  |           |      | 2000   | 
|                                                               |  |        |           |   |       |           |      |        | 
|                                                               |  |        |           |   |       | Weighted- |      |        |  |  |         |   | Weighted- |        |       |  |       |  |         | Weighted- | 
|                                                               |  |        |           |   |       | Average   |      |        |  |  |         |   | Average   |        |       |  |       |  |         | Average   | 
|                                                               |  | Shares |           |   | Price |           |      | Shares |  |  | Price   |   |           | Shares |       |  | Price | 
|                                                               |  |        |           |   |       |           |      |        |  |  |         |   |           |        |       |  |       | 
|Outstanding at January 1                                       |  |        | 903,980   |   |       | $         | 9.76 |        |  |  | 650,875 |   |           | $      | 14.18 |  |       |  | 505,725 |           |  | $ | 16.98 | 
|Granted                                                        |  |        | 411,303   |   |       |           | 1.34 |        |  |  | 314,504 |   |           |        | 2.02  |  |       |  | 201,200 |           |  |   | 7.83  | 
|Forfeited                                                      |  |        | (6,000    | ) |       |           | 7.88 |        |  |  | (61,399 | ) |           |        | 17.04 |  |       |  | (56,050 | )         |  |   | 16.63 | 
|                                                               |  |        |           |   |       |           |      |        |  |  |         |   |           |        |       |  |       |  |         |           | 
|Outstanding at December 31                                     |  |        | 1,309,283 |   |       | $         | 7.12 |        |  |  | 903,980 |   |           | $      | 9.76  |  |       |  | 650,875 |           |  | $ | 14.18 | 
|                                                               |  |        |           |   |       |           |      |        |  |  |         |   |           |        |       |  |       | 
|Options Exercisable at Year-End                                |  |        | 1,025,281 |   |       | $         | 8.67 |        |  |  | 698,903 |   |           | $      | 11.63 |  |       |  | 514,490 |           |  | $ | 15.80 | 
|Weighted-Average Fair Value of
Options Granted During the Year |  |        |           |   |       | $         | 1.01 |        |  |  |         |   |           | $      | 0.99  |  |       |  |         |           |  | $ | 3.65  | 

The following table presents summarized information about stock options
outstanding at December 31, 2002:

|                 |  |                     |         |  |                     |     |       |                |  |   |                   |  |  |                |         |  |  |   |       | 
|---------------- |  | ------------------- | ------- |  | ------------------- | --- | ----- | -------------- |  | - | ----------------- |  |  | -------------- | ------- |  |  | - | ----- | 
|                 |  | Options Outstanding |         |  | Options Exercisable |    
|                 |  |                     |         |  |                     |    
|                 |  | Number              |         |  | Weighted-Average    |     |       | Weighted-      |  |   | Number            |  |  | Weighted-      |        
|Range of         |  | Outstanding at      |         |  | Remaining           |     |       | Average        |  |   | Exercisable at    |  |  | Average        |        
|Exercise Prices  |  | December 31, 2002   |         |  | Contractual Life    |     |       | Exercise Price |  |   | December 31, 2002 |  |  | Exercise Price |        
|                 |  |                     |         |  |                     |     |       |                |  |   |                   |  |  |                |        
|$0.77 to $1.49   |  |                     | 450,263 |  |                     | 9.1 | years |                |  | $ | 1.29              |  |  |                | 234,872 |  |  | $ | 1.27  | 
|$2.05 to $4.69   |  |                     | 277,444 |  |                     | 8.3 |       |                |  |   | 2.23              |  |  |                | 208,833 |  |  |   | 2.24  | 
|$7.88 to $8.75   |  |                     | 316,300 |  |                     | 6.6 |       |                |  |   | 8.24              |  |  |                | 316,300 |  |  |   | 8.24  | 
|$11.44 to $28.88 |  |                     | 265,276 |  |                     | 3.6 |       |                |  |   | 20.81             |  |  |                | 265,276 |  |  |   | 20.81 | 

NOTE 9  EARNINGS PER SHARE

The calculation of diluted net income per share for the years ended December
31, 2002, 2001 and 2000 did not require an adjustment to net income for the
effect of dilutive securities. The weighted-average shares outstanding were
not adjusted for the effect of potentially dilutive securities consisting
solely of stock options because their impact would have been anti-dilutive as
of December 31, 2002, 2001 and 2000.

NOTE 10  COMMITMENTS AND CONTINGENCIES

Commitments to Ford

The Company purchases various services from Ford including environmental,
maintenance and other miscellaneous services. In addition, the Company leases
certain office space from Ford under cancelable operating leases. The cost of
these services were approximately $5,830,000 in 2002, $5,972,000 in 2001 and
7,148,000 in 2000.

The Company also jointly owns with Ford certain power and utility assets which
are operated under a renewable ten-year agreement, which was set to expire on
December 31, 1999, but has been extended thereafter on a rolling 30-day basis
unless terminated by either party upon 30 days notice. On February 1, 1999, an
explosion and fire at the 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

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to virtually all of the facilities of Rouge Steel. 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 has a long-term agreement for electricity and steam
with Dearborn Industrial Generation, L.L.C., an affiliate of CMS Energy
Corporation (CMS) which operates a co-generation power plant. See Note 11 for
a more detailed discussion of the Powerhouse explosion.

Other Commitments

Pursuant to a purchase and sale agreement executed in connection with the
restructuring of EVTAC in 1996, Rouge Steel was 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 six-year pellet purchase agreement containing a
take-or-pay obligation expired on December 31, 2002. The Company did not renew
or extend this agreement with EVTAC. EVTAC has contracts in place to support
pellet production into the second quarter of 2003.
If EVTAC is unable to secure orders or contracts to sustain pellet
production beyond the second quarter of 2003, EVTAC may discontinue operations.
This action, should it be required, is not anticipated have a material impact
on the results of operations or financial position of the Company.

During 2002, Rouge Steel and Cleveland-Cliffs amended their Pellet Sales and
Purchase and Trade Agreement (the Pellet Agreement Amendment). The Pellet
Agreement Amendment provides, among other things, that beginning in 2003, Rouge
Steel will purchase from Cleveland-Cliffs all of the iron pellets that it
requires. The Pellet Agreement Amendment contains minimum pellet purchases of
approximately $75,200,000 per year from 2003 through 2007 with an aggregate
five-year minimum pellet purchase of approximately $564,000,000. The Pellet
Agreement Amendment expires on December 31, 2012 with provisions allowing for
earlier termination if Rouge Steel no longer requires the pellets.

The Company had a coke tolling agreement containing take-or-pay provisions with
New Boston Coke Corporation (New Boston), whose total productive capacity was
dedicated to the Company. The agreement was scheduled to terminate on December
31, 2002 but New Boston closed its facilities earlier in the year. After the
first quarter of 2002, the Company procured an alternate source of coke and had
no further obligation with respect to New Boston.

The Company has a contract for the supply of oxygen and nitrogen that expires
in 2011 and a contract for the supply of hydrogen that expires in 2005. The
contracts contain minimum oxygen, nitrogen and hydrogen purchases of
$9,360,000, $1,344,000 and $972,000 per year, respectively. Oxygen, nitrogen
and hydrogen purchases aggregated approximately $21,718,000 in 2002,
$23,846,000 in 2001 and $21,781,000 in 2000.

The Company has noncancellable operating lease commitments for its waste oxide
reclamation facility. Annual lease payments under the amended agreement during
2002 were $9,305,000 and during 2003 and 2004 will be $13,389,000. The Company
also has noncancellable operating lease commitments for mobile equipment.
These leases will expire in 2005 and 2007. Payments made under these lease
agreements total $1,308,000 per year.

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Delaco Processing, L.L.C. Loan Guarantee

Rouge Industries and Delaco Steel Corporation (the Delaco Guarantors) have
agreed to jointly and severally guarantee a $2,223,000 credit facility for
Delaco Steel Processing (the Delaco Guarantee). As of December 31, 2002,
Delaco Steel Processing, the Companys 49% owned steel slitting and blanking
joint venture, had borrowings of $1,263,000 outstanding under its credit
facility. The Delaco Guarantors agreed to the Delaco Guarantee in order to
induce the bank to make a loan to Delaco Steel Processing. The obligations
under the guarantee remain in effect until Delaco Steel Processing repays all
amounts due to the bank. In the event that Delaco Steel Processing does not
have sufficient funding to meet its obligations as they become due, the Delaco
Guarantors would be required to fund such obligations. The Delaco Guarantors
also have agreed to jointly and severally insure that Delaco Steel Processing
maintains a positive Net Worth at all times. There is no collateral with
respect to the Delaco Guarantee, nor are there any recourse provisions that
would enable the Company to recover any amounts paid under the Delaco
Guarantee.

Rouge Steel Loan Guarantee

Rouge Industries, QS Steel and Eveleth (the Rouge Guarantors) have agreed to
guarantee a $200,000,000 credit facility (the Credit Facility) for Rouge
Steel (the Rouge Guarantee). As of December 31, 2002 Rouge Steel had
borrowings outstanding under the Credit Facility of $101,181,000. The Rouge
Guarantors agreed to the Rouge Guarantee in order to induce Congress Financial
Corporation (Congress) to make a loan to Rouge Steel. The obligations of the
Rouge Guarantors expire on March 13, 2004. The Rouge Guarantors agreed jointly
and severally to be liable for the payment of loans made by Congress to Rouge
Steel. There is no collateral with respect to the Rouge Guarantee, nor are
there any recourse provisions that would enable the Rouge Guarantors to recover
any amounts paid under the Rouge Guarantee.

Bing Blanking, L.L.C. Loan Guarantee

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

Environmental Matters

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

Rouge Steel and Ford co-signed a Corrective Action Consent Order which
committed both companies to a four-phase remediation program throughout the
Rouge Complex. Ford has indicated its concurrence with Rouge Steels position
that, under the Ford Indemnity, the demolition of Rouge Steels coke oven
batteries, including full environmental remediation, will be Fords
responsibility.

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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, such current investigations, if taken in the aggregate,
could have a materially adverse effect on the Companys consolidated financial
position or results of operations.

Litigation

Environmental Lawsuit. In 2002, the Company agreed to a consent decree (the
Consent Decree) in a multimedia enforcement action filed by the EPA, Wayne
County (the County) and the MDEQ against Rouge Steel in the United States
District Court for the District of Michigan (the Court). In 2000, the EPA
filed a complaint (the EPA Complaint) against Rouge Steel in the Court. The
EPA Complaint alleged violations of the Clean Air Act, the State of Michigans
(the States) opacity emissions standards and certain violations of RCRA. At
the same time, the County filed a complaint (the County Complaint) against
Rouge Steel in the Court. The County Complaint alleged violations of the
opacity emissions standards of the Wayne County Air Pollution Control
Ordinance. The Countys allegations of non-compliance with the Clean Air Act
paralleled those in the EPA Complaint. The County and the EPA agreed to
jointly settle the claims resulting in the consolidation of the actions.
Subsequently, through a stipulation filed with the Court in 2002, the State
joined with the County and the EPA as a party to the settlement of this matter.
The County Complaint also alleged claims under the Michigan Environmental
Protection Act for the creation of a public nuisance. The County presented the
Company with an order to abate the alleged public nuisance and proposed a
settlement penalty of $252,000 for 15 fallout incidents alleged to have been
caused by the Company. However, in 2001, the County relinquished enforcement
of air quality matters to the State. The State indicated that it will review
the fallout allegations, but has not yet reported a decision on the matter.
The Consent Decree imposed $462,488 in penalties to be paid in four
installments.

The Consent Decree also includes a requirement for the Company to demonstrate
compliance with visible emission (opacity) standards at each of the two blast
furnaces, the basic oxygen furnace (BOF) roof monitor and the BOF
electrostatic precipitator stack by February 2003. The Company demonstrated
compliance at its smaller blast furnace in September 2002 and BOF electrostatic
precipitator stack in October 2002. There were four exceedances at the BOF
roof monitor during the October 2002 compliance demonstration test. The
compliance demonstration at the Companys larger blast furnace was successfully
completed in February 2003.

The occurrence of exceedances during a compliance demonstration triggers a
process of identification and implementation of additional operating and
maintenance practices and/or emission control technologies, acceptable to the
EPA, to achieve compliance with opacity standards. Such corrective actions
could require substantial capital expenditures for additional pollution control
equipment. With respect to the BOF roof monitor exceedances, the Company is
required to notify the EPA of its proposed operating and maintenance practices
and/or emission control technology changes by March 10, 2003. The Company has
identified and implemented corrective actions that it believes will not require
substantial capital expenditures.

Notice of Intent for Dispute Resolution.In 2000, Rouge Steel, Ford and
Dearborn Industrial Generation, L.L.C. (DIG) entered a Memorandum of
Agreement (MOA) regarding additional obligations of each party with respect
to the co-generation power plant built and operated by DIG. The failure of DIG
to

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acknowledge a contractually mandated blast furnace gas delivery date and to
purchase all of the blast furnace gas the Company generates as provided for in
the Blast Furnace Gas Purchase Agreement has been financially injurious to the
Company. The Company also has incurred substantial damages resulting from
DIG-related steam quality and reliability and electrical outage issues.

In addition, DIG has asserted certain claims against the Company pursuant to
the MOA. The Companys attempts to negotiate a settlement agreement with DIG
on all open matters have been unsuccessful to date and the Company has given
notice to DIG that it intends pursue the alternate dispute resolution provision
of its agreements, including arbitration.

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, if taken in the aggregate, could have a
materially adverse effect on the Companys results of operations or financial
position.

NOTE 11  INSURANCE CLAIMS

Powerhouse Explosion

On February 1, 1999, an explosion and fire at the Powerhouse resulted in the
interruption of the supply of electricity, process and heating steam, turbo
air, mill water and other utilities to virtually all of the facilities of Rouge
Steel. The loss of power resulted in a 93-day shutdown of Rouge Steels steel
making facilities. The Powerhouse is owned 60% by Rouge Steel and 40% by Ford.
Ford was responsible for the day-to-day management, operation and maintenance
of the Powerhouse.

The Companys insurance program relating to the Powerhouse provided coverage
for damage to property destroyed, interruption of business operations,
including profit recovery, and expenditures incurred to minimize the period and
total cost of disruption.

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

During 2001, the Company received cash proceeds representing final settlement
with its insurers regarding Rouge Steels insurable first-party and Powerhouse
property damage and business interruption costs. As a result of the
settlement, the Company recorded $81,533,000 of insurance recoveries in 2001,
of which $63,151,000 represents gain on the net book value of the Powerhouse
property destroyed. Total recoveries and final proceeds of the claim amount to
$343,253,000.

Based on current engineering information and applicable legal requirements, the
Company has evaluated the amount and probability of certain ancillary costs
relating to the explosion, principally cleanup, demolition and abatement
activities. As a result of these obligations with respect to its share of
expenditures required to mitigate safety and environmental risks associated
with the final disposition of the Powerhouse, in 2001, the Company recorded an
accrual of $14,600,000 for these anticipated costs. Through December 31, 2002,
the Company has incurred approximately $9,200,000 of expenditures for the
Powerhouse cleanup and demolition.

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Double Eagle Fire

On December 15, 2001, a major fire at Double Eagle halted production. The
Company and its joint venture partner, United States Steel Corporation, rebuilt
Double Eagle and returned the facility to production in September 2002.

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



| | 1. |  | Damage to Double Eagle property as a result of the fire -
Non-capitalizable costs for repairs are being 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.
Capitalizable costs are being capitalized as incurred. Gains from
proceeds relating to capitalizable repair costs will be recorded when
the claim is settled.
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | Rouge Steel business interruption costs  Costs to coat steel at toll
processors are expensed as incurred, with related estimated insurance
recoveries recorded as they are considered to be probable.                                                                                                                                                                                                                                

Pursuant to the accounting methodology described above, during 2002, the
Company recorded insurance recoveries with respect to the Double Eagle fire of
$31,383,000. At December 31, 2002, the Company had a deferred insurance
recovery liability with respect to the Double Eagle fire of $13,900,000, which
represents advances from insurers in excess of recoverable costs recorded. The
deferred insurance recovery was recorded in connection with capitalized repair
costs and will be recognized in income when the claim is settled. Recoverable
costs are net of a deductible of $7,500,000 and reserves of $3,400,000 at
December 31, 2002. Advances from the insurance carriers total $33,300,000
through December 31, 2002. Additional advances of $10,049,000 were received
through February 3, 2003.

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SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

Accounts Receivable Allowances (amounts in thousands)

|            |  |              |        |  |               |         |       |            |  |   |           |         |  |   |        | 
|----------- |  | ------------ | ------ |  | ------------- | ------- | ----- | ---------- |  | - | --------- | ------- |  | - | ------ | 
|            |  |              |        |  |               | Charged |       |            |  |   |           |         |  |   |       
|            |  | Balance      |        |  | (Credited) to |         |       |            |  |   |           | Balance | 
|Years Ended |  | at Beginning |        |  | Costs and     |         |       |            |  |   |           | at End  | 
|December 31 |  | of Period    |        |  | Expenses      |         |       | Write-Offs |  |   | of Period |        
|            |  |              |        |  |               |         |       |            |  |   |           |        
|2002        |  | $            | 13,970 |  |               | $       | 5,330 |            |  | $ | (5,166    | )       |  | $ | 14,134 | 
|2001        |  |              | 9,823  |  |               |         | 5,750 |            |  |   | (1,603    | )       |  |   | 13,970 | 
|2000        |  |              | 15,997 |  |               |         | 904   |            |  |   | (7,078    | )       |  |   | 9,823  | 

Valuation Allowance for Deferred Tax Assets (amounts in thousands)

|            |  |              |         |  |               |         |        |            |  |   |           |         |  |   |         | 
|----------- |  | ------------ | ------- |  | ------------- | ------- | ------ | ---------- |  | - | --------- | ------- |  | - | ------- | 
|            |  |              |         |  |               | Charged |        |            |  |   |           |         |  |   |        
|            |  | Balance      |         |  | (Credited) to |         |        |            |  |   |           | Balance | 
|Years Ended |  | at Beginning |         |  | Costs and     |         |        |            |  |   |           | at End  | 
|December 31 |  | of Period    |         |  | Expenses      |         |        | Write-Offs |  |   | of Period |        
|            |  |              |         |  |               |         |        |            |  |   |           |        
|2002        |  | $            | 112,085 |  |               | $       | 17,459 |            |  | $ |          |         |  | $ | 129,544 | 
|2001        |  |              | 73,027  |  |               |         | 39,058 |            |  |   |          |         |  |   | 112,085 | 
|2000        |  |              | 10,015  |  |               |         | 63,012 |            |  |   |          |         |  |   | 73,027  | 

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SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

|                            |  |                                          |         |   |         |   |         |         |  |   |         |   |  |   |         |  
|--------------------------- |  | ---------------------------------------- | ------- | - | ------- | - | ------- | ------- |  | - | ------- | - |  | - | ------- | -
|                            |  | First                                    |         |   | Second  |   |         | Third   |  |   | Fourth  |  
|                            |  | Quarter                                  |         |   | Quarter |   |         | Quarter |  |   | Quarter |  
|                            |  |                                          |         |   |         |   |         |         |  |   |         |  
|                            |  | (in thousands, except per share amounts) |        
|2002                        |  |                                          |         |   |         |   |         |         |  |   |         |   |  |   |         |  
|Total Sales                 |  | $                                        | 248,805 |   |         | $ | 289,357 |         |  | $ | 303,540 |   |  | $ | 285,299 |  
|Gross Margin                |  |                                          | (42,944 | ) |         |   | (15,500 | )       |  |   | (2,254  | ) |  |   | 729     |  
|Net Income (Loss)           |  |                                          | (41,499 | ) |         |   | (8,740  | )       |  |   | 5,278   |   |  |   | (7,372  | )
|Net Income (Loss) Per Share |  |                                          | (1.87   | ) |         |   | (0.39   | )       |  |   | 0.24    |   |  |   | (0.33   | )
|2001                        |  |                                          |         |   |         |   |         |         |  |   |         |   |  |   |         |  
|Total Sales                 |  | $                                        | 230,195 |   |         | $ | 252,306 |         |  | $ | 217,508 |   |  | $ | 223,537 |  
|Gross Margin                |  |                                          | (58,093 | ) |         |   | (58,850 | )       |  |   | (44,941 | ) |  |   | (8,235  | )
|Net Loss                    |  |                                          | (59,756 | ) |         |   | 8,668   |         |  |   | (46,333 | ) |  |   | (14,097 | )
|Net Loss Per Share          |  |                                          | (2.69   | ) |         |   | 0.39    |         |  |   | (2.08   | ) |  |   | (0.63   | )

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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 2003 Proxy Statement which will be filed with the
Securities and Exchange Commission not later than April 30, 2003 (the Proxy
Statement). 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.




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.




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.

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.




Item 14. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Based on their most recent evaluation, which was completed within 90 days
of the filing of this annual report on Form 10-K, the Companys Chief Executive
Officer and Chief Financial Officer believe the Companys disclosure controls
and procedures were adequate and were designed to ensure that material
information relating to the Company, including its consolidated subsidiaries,
would be made known to them by others within the Company.

Changes in Internal Controls

There were no significant changes in the Companys internal controls that could
significantly affect its disclosure controls and procedures subsequent to the
date of their evaluation.

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PART IV




Item 15. 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 43.
|
| | (2) |  | A list of financial statement schedules required to
be filed by Item 8 is located on page 43.                                                
|
| | (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 (Rouge Steel) and Rouge
Merger Sub, Inc. (incorporated herein by reference to Exhibit 2.1
to the Registrants Registration Statement on Form 8-B (the Form
8-B)).                                                                                                                                        
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                 
|3.1     |  | Amended and Restated Certificate of Incorporation of the
Registrant (incorporated herein by reference to Exhibit 3.1 to the
Form 8-B).                                                                                                                                                                                                                                                                          
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                 
|3.2     |  | Amended and Restated By-Laws of the Registrant
(incorporated herein by reference to Exhibit 3.2 to the Form 8-B).                                                                                                                                                                                                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                 
|4.1     |  | Amended and Restated Stockholders Agreement dated as of
November 14, 1996, among the Registrant, Carl L. Valdiserri and
Worthington Industries, Inc. (Worthington) (incorporated herein
by reference to Exhibit 10.3 to the Registrants 1996 Annual Report
on Form 10-K (Commission File Number 1-12852) (the 1996 Form
10-K)).                                                                            
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                 
|4.2     |  | First Amendment to Amended and Restated Stockholders
Agreement dated July 20, 1997, by and among Rouge Steel, the
Registrant, Carl L. Valdiserri and Worthington (incorporated herein
by reference to Exhibit 4.1 to the Form 8-B).                                                                                                                                                                             
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.1    |  | Loan and Security Agreement dated March 13, 2001 among
Rouge Steel, the Registrant, QS Steel Inc. (QS Steel), Eveleth
Taconite Company (Eveleth), the financial institutions parties
thereto and Congress Financial Corporation (Congress)
(incorporated herein by reference to Exhibit 10.8 to the
Registrants 2000 Annual Report on Form 10-K (Commission File
Number 1-12852) (the 2000 Form 10-K)).

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|        |  |                                                                                                                                                                                                                                                                                                                                                                                    
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                    
|Number  |  | Description of Exhibit                                                                                                                                                                                                                                                                                                                                                             
|        |  |                                                                                                                                                                                                                                                                                                                                                                                    
|10.2    |  | Amendment No. 1 to Loan and Security Agreement dated as of
November 21, 2001 by and among Rouge Steel, the Registrant, QS
Steel, Eveleth, the financial institutions party thereto and
Congress (incorporated herein by reference to Exhibit 99.3 to
the Registrants Current Report on Form 8-K dated December 5,
2001 (the December 5, 2001 8-K)).                             
|        |  |                                                                                                                                                                                                                                                                                                                                                                                    
|10.3    |  | Amendment No. 2 to Loan and Security Agreement dated as of
July 12, 2002 by and among Rouge Steel, the Registrant, QS
Steel, Eveleth, the financial institutions party thereto and
Congress (incorporated herein by reference to Exhibit 10.2 to
the Registrants Quarterly Report on Form 10-Q for the
Quarterly Period Ended September 30, 2002 (the Third Quarter
2002 10-Q)).
|        |  |                                                                                                                                                                                                                                                                                                                                                                                    
|10.4    |  | Subordinated Loan and Security Agreement dated as of November
21, 2001 among Rouge Steel, the Registrant, QS Steel, Eveleth
and Ford Motor Company (Ford) (incorporated herein by
reference to Exhibit 99.2 to the December 5, 2001 8-K).                                                                                                                                        
|        |  |                                                                                                                                                                                                                                                                                                                                                                                    
|10.5    |  | Amendment No. 2 to Subordinated Loan and Security Agreement
dated as of July 12, 2002 among Rouge Steel, the Registrant,
QS Steel, Eveleth and Ford (incorporated herein by reference
to Exhibit 10.3 to the Third Quarter 2002 10-Q).                                                                                                                                             
|        |  |                                                                                                                                                                                                                                                                                                                                                                                    
|10.6+   |  | Amendment No. 3 to Subordinated Loan and Security Agreement
dated as of October 28, 2002 by and among Rouge Steel, the
Registrant, QS Steel, Eveleth and Ford.                                                                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                                                                                                    
|10.7    |  | Subordinated Loan and Security Agreement dated July 12, 2002
by and among Rouge Steel, the Registrant, QS Steel, Eveleth
and Cleveland-Cliffs Inc (Cleveland-Cliffs) (incorporated
herein by reference to Exhibit 10.1 to the Third Quarter 2002
10-Q).                                                                                                                          
|        |  |                                                                                                                                                                                                                                                                                                                                                                                    
|10.8    |  | Amended and Restated Intercreditor and Subordination Agreement
dated as of July 12, 2002 by and among Congress,
Cleveland-Cliffs and Ford (incorporated herein by reference to
Exhibit 10.5 to the Third Quarter 2002 10-Q).                                                                                                                                                       
|        |  |                                                                                                                                                                                                                                                                                                                                                                                    
|10.9    |  | Purchase and Sale Agreement dated as of December 15, 1989,
between Ford and Marico Acquisition Corp. (Marico)
(incorporated herein by reference to Exhibit 10.10 to the
Companys Registration Statement on Form S-1 (Registration No.
33-74698) (the S-1 Registration Statement)).                                                                                            
|        |  |                                                                                                                                                                                                                                                                                                                                                                                    
|10.10+  |  | Oxygen, Nitrogen, and Argon Supply Agreement dated as of
December 1, 2002, between Praxair, Inc. and Rouge Steel.                                                                                                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                    
|10.11   |  | Powerhouse Joint Operating Agreement dated as of December 15,
1989, between Rouge Steel and Ford (incorporated herein by
reference to Exhibit 10.21 to the S-1 Registration Statement).                                                                                                                                                                                            

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|        |  |                                                                                                                                                                                                                                                                                                     
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                     
|Number  |  | Description of Exhibit                                                                                                                                                                                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                                     
|10.12   |  | Natural Gas Operating Agreement dated as of December 15, 1989
between Rouge Steel and Ford (incorporated herein by reference
to Exhibit 10.25 to the S-1 Registration Statement).                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                     
|10.13   |  | Joint Venture Agreement dated as of November 30, 1984 (the
Joint Venture Agreement), between United States Steel
Corporation (USS) and Rouge Steel (incorporated herein by
reference to Exhibit 10.23 to the S-1 Registration Statement).                                                       
|        |  |                                                                                                                                                                                                                                                                                                     
|10.14   |  | Amendment to Joint Venture Agreement (incorporated herein by
reference to Exhibit 10.24 to the S-1 Registration Statement).                                                                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                     
|10.15   |  | Operating Agreement of Delaco Processing, L.L.C. dated as of
September 3, 1997 by and between QS Steel and Delaco Supreme
Tool & Gear Co. (incorporated herein by reference to Exhibit
10.18 to the Registrants 1997 Annual Report on Form 10-K
(Commission File Number 1-12858)).                 
|        |  |                                                                                                                                                                                                                                                                                                     
|10.16   |  | Operating Agreement of Spartan Steel Coating, L.L.C. dated as
of November 14, 1996 among QS Steel and Worthington Steel
(incorporated herein by reference to Exhibit 10.18 to the 1996
Form 10-K).                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                     
|10.17   |  | Member Control Agreement of Eveleth Mines LLC dated as of
December 2, 1996 between Virginia Horn Taconite Company,
Eveleth and Ontario Eveleth Company (incorporated herein by
reference to Exhibit 10.21 to the 1996 Form 10-K).                                                                   
|        |  |                                                                                                                                                                                                                                                                                                     
|10.18   |  | Pellet Sale and Purchase Agreement dated as of January 1, 1997
by and between Eveleth Mines LLC and Rouge Steel (incorporated
herein by reference to Exhibit 10.20 to the 1996 Form 10-K).                                                                                                          
|        |  |                                                                                                                                                                                                                                                                                                     
|10.19   |  | Pellet Sale and Purchase and Trade Agreement dated as of
January 1, 1991 by and between The Cleveland-Cliffs Iron
Company (Cliffs) and the Registrant (the Pellet Sales and
Purchase and Trade Agreement) (incorporated herein by
reference to Exhibit 10.31 to the S-1 Registration
Statement).
|        |  |                                                                                                                                                                                                                                                                                                     
|10.20   |  | Letter Agreement dated May 16, 2002 between Rouge Steel and
Cliffs amending the Pellet Sales and Purchase and Trade
Agreement (incorporated herein by reference to Exhibit 10.6
to the Third Quarter 2002 10-Q).                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                     
|10.21   |  | Electricity Sales Agreement between Rouge Steel and Dearborn
Industrial Generation, L.L.C. dated as of January 13, 1999
(incorporated herein by reference to Exhibit 10.27 to the 2000
Form 10-K).                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                     
|10.22   |  | Steam Sales Agreement between Rouge Steel and Dearborn
Industrial Generation, L.L.C. dated as of January 13, 1999
(incorporate herein by reference to Exhibit 10.28 to the 2000
Form 10-K).                                                                                                         

73



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|        |  |                                                                                                                                                                                                                                                   
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                   
|Number  |  | Description of Exhibit                                                                                                                                                                                                                            
|        |  |                                                                                                                                                                                                                                                   
|10.23   |  | Ground Lease Between Rouge Steel and Dearborn Industrial
Generation, L.L.C. dated as of June 30, 1999 (incorporated
herein by reference to Exhibit 10.29 to the 2000 Form 10-K).                                                                  
|        |  |                                                                                                                                                                                                                                                   
|10.24   |  | Purchase Option Agreement by and between Dearborn Industrial
Generation, L.L.C., Rouge Steel and Ford dated as of May 31,
2000 (incorporated herein by reference to Exhibit 10.30 to the
2000 Form 10-K).                                         
|        |  |                                                                                                                                                                                                                                                   
|10.25   |  | Easement Agreement by and among Rouge Steel, Ford, Double
Eagle Steel Coating Company and Dearborn Industrial
Generation, L.L.C. dated as of May 31, 2000 (incorporated
herein by reference to Exhibit 10.31 to the 2000 Form 10-K).              
|        |  |                                                                                                                                                                                                                                                   
|10.26   |  | Blast Furnace Gas Purchase Agreement by and among Rouge Steel
and Dearborn Industrial Generation, L.L.C. dated as of January
13, 1999 (incorporated herein by reference to Exhibit 10.32 to
the 2000 Form 10-K).                                  
|        |  |                                                                                                                                                                                                                                                   
|10.27   |  | Amended and Restated Information Systems Services Agreement
between Rouge Steel and Perot Systems Corporation dated as of
April 1, 2000 (incorporated herein by reference to Exhibit
10.33 to the 2000 Form 10-K).                                
|        |  |                                                                                                                                                                                                                                                   
|10.28   |  | Master Lease between Bank One, Michigan and Rouge Steel dated
as of May 14, 1997 (incorporated herein by reference to
Exhibit 10.34 to the 2000 Form 10-K).                                                                                       
|        |  |                                                                                                                                                                                                                                                   
|10.29   |  | Consent Decree dated as of June 11, 2002 between Rouge Steel,
the U.S. Department of Justice, Wayne County and the Michigan
Department of Environmental Quality (incorporated herein by
reference to Exhibit 10.7 to the Third Quarter 2002 10-Q).
|        |  |                                                                                                                                                                                                                                                   
|10.30** |  | Rouge Steel Company Savings Plan for Salaried Employees
(incorporated herein by reference to Exhibit 4.1 to the
Companys Registration Statement on Form S-8 (Registration No.
33-88520) (the Form S-8 Registration Statement)).                
|        |  |                                                                                                                                                                                                                                                   
|10.31** |  | Amendment to Rouge Steel Company Savings Plan for Salaried
Employees (incorporated herein by reference to Exhibit 10.3 to
the Form 8-B).                                                                                                          
|        |  |                                                                                                                                                                                                                                                   
|10.32   |  | Rouge Steel Company Tax-Efficient Savings Plan for Hourly
Employees (incorporated herein by reference to Exhibit 4.2 to
the Form S-8 Registration Statement).                                                                                     
|        |  |                                                                                                                                                                                                                                                   
|10.33   |  | Amendment to Rouge Steel Company Tax-Efficient Savings Plan
for Hourly Employees (incorporated herein by reference to
Exhibit 10.4 to the Form 8-B).                                                                                              
|        |  |                                                                                                                                                                                                                                                   
|10.34   |  | Rouge Steel Company Profit Sharing Plan for Salaried Employees
(incorporated herein by reference to Exhibit 10.38 to the S-1
Registration Statement).                                                                                             
|        |  |                                                                                                                                                                                                                                                   
|10.35** |  | Rouge Steel Company Incentive Compensation Plan (incorporated
herein by reference to Exhibit 10.39 to the S-1 Registration
Statement).                                                                                                            

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|        |  |                                                                                                                                                                                                                                                  
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                  
|Number  |  | Description of Exhibit                                                                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                  
|10.36** |  | Rouge Steel Company Amended and Restated Stock Incentive Plan
(incorporated herein by reference to Exhibit 10.1 to the Form
8-B).                                                                                                                
|        |  |                                                                                                                                                                                                                                                  
|10.37** |  | First Amendment to Rouge Steel Company Amended and Restated
Stock Incentive Plan (incorporated herein by reference to
Exhibit 10.34 to the Registrants 1999 Annual Report on Form
10-K (Commission File Number 1-12852) (the 1999 Form 10-K)).
|        |  |                                                                                                                                                                                                                                                  
|10.38** |  | Rouge Steel Company 1998 Stock Incentive Plan (incorporated
herein by reference to Exhibit 10.35 to the 1999 Form 10-K).                                                                                                                         
|        |  |                                                                                                                                                                                                                                                  
|10.39** |  | First Amendment to Rouge Steel Company 1998 Stock Incentive
Plan (incorporated herein by reference to Exhibit 10.36 to the
1999 Form 10-K).                                                                                                      
|        |  |                                                                                                                                                                                                                                                  
|10.40** |  | Rouge Steel Company Retirement Plan for Salaried Employees
(incorporated herein by reference to Exhibit 10.41 to the S-1
Registration Statement).                                                                                                
|        |  |                                                                                                                                                                                                                                                  
|10.41** |  | Amended and Restated Supplemental Executive Retirement Plan
(incorporated herein by reference to Exhibit 10.38 to the 1999
Form 10-K).                                                                                                           
|        |  |                                                                                                                                                                                                                                                  
|10.42** |  | Amended and Restated Rouge Steel Company Benefit Restoration
Plan (incorporated herein by reference to Exhibit 10.39 to the
1999 Form 10-K).                                                                                                     
|        |  |                                                                                                                                                                                                                                                  
|10.43** |  | Rouge Steel Company Amended and Restated Outside Director
Equity Plan (incorporated herein by reference to Exhibit 10.2
to the Form 8-B).                                                                                                        
|        |  |                                                                                                                                                                                                                                                  
|21+     |  | List of Subsidiaries.                                                                                                                                                                                                                            
|        |  |                                                                                                                                                                                                                                                  
|23+     |  | Consent of PricewaterhouseCoopers LLP.                                                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                  
|99.1+   |  | CEO Certification                                                                                                                                                                                                                                
|        |  |                                                                                                                                                                                                                                                  
|99.2+   |  | CFO Certification                                                                                                                                                                                                                                



---

|+   |  | Filed herewith.                                                                                
|--- |  | -----------------------------------------------------------------------------------------------
|   
|**  |  | Compensatory plans in which the Registrants directors and executive
officers participate.     
|   
|(b) |  | The Company did not file a Current Report on Form 8-K during the
fourth quarter of 2002.       
|   
|(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.                 

75



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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, on the
18th day of February 2003.

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

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

|                                           |  |                                                     |  |                  
|------------------------------------------ |  | --------------------------------------------------- |  | -----------------
|Signatures                                 |  | Title                                               |  | Date             
|                                           |  |                                                     |  |                  
|                                          
|/s/ Carl L. ValdiserriCarl L. Valdiserri   |  | Chief Executive Officer and Chairman of
the Board   |  | February 18, 2003
|                                          
|/s/ Gary P. LatendresseGary P. Latendresse |  | Vice Chairman, Chief Financial Officer
and Director |  | February 18, 2003
|                                          
|/s/ John A. KaplanJohn A. Kaplan           |  | Director                                            |  | February 18, 2003
|                                          
|/s/ John E. LobbiaJohn E. Lobbia           |  | Director                                            |  | February 18, 2003
|                                          
|/s/ Peter J. PestilloPeter J. Pestillo     |  | Director                                            |  | February 18, 2003
|                                          
|/s/ Shamel T. RushwinShamel T. Rushwin     |  | Director                                            |  | February 18, 2003
|                                          
|/s/ Clayton P. ShannonClayton P. Shannon   |  | Director                                            |  | February 18, 2003

76



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##### Table of Contents



CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Carl L. Valdiserri, certify that:



|1. |  | I have reviewed this annual report on Form 10-K of Rouge Industries,
Inc.;                                                                                                                                                                                                                                              
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the period presented in this annual report;                    
|  
|4. |  | The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                                



| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing
the equivalent function):
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material weaknesses
in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





---



##### Table of Contents





| | b) |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



|6. |  | The registrants other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|      |  |                   |  |                                                                              
|----- |  | ----------------- |  | -----------------------------------------------------------------------------
|Date: |  | February 14, 2003 |  | /s/ Carl L. ValdiserriCarl L. Valdiserri
Chairman and Chief Executive Officer





---



##### Table of Contents



CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Gary P. Latendresse, certify that:



|1. |  | I have reviewed this annual report on Form 10-K of Rouge Industries,
Inc.;                                                                                                                                                                                                                                              
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the period presented in this annual report;                    
|  
|4. |  | The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                                



| | a) |  | designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this annual report is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this annual report (the Evaluation
Date); and                                                                                                  
|
| | c) |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing
the equivalent function):
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material weaknesses
in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        





---



##### Table of Contents





|6. |  | The registrants other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|      |  |                   |  |                                                                                     
|----- |  | ----------------- |  | ------------------------------------------------------------------------------------
|Date: |  | February 14, 2003 |  | /s/ Gary P. LatendresseGary P. Latendresse
Vice Chairman and
Chief Financial Officer





---



##### Table of Contents



10-K EXHIBIT INDEX

|            |  |                                                                                                                                                               
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT NO. |  | DESCRIPTION                                                                                                                                                   
|            |  |                                                                                                                                                               
|EX- 10.6    |  | Amendment No. 3 to Subordinated Loan and Security Agreement
dated as of October 28, 2002 by and among Rouge Steel, the
Registrant, QS Steel, Eveleth and Ford.
|            |  |                                                                                                                                                               
|EX- 10.10   |  | Oxygen, Nitrogen, and Argon Supply Agreement dated as of
December 1, 2002, between Praxair, Inc. and Rouge Steel.                                             
|            |  |                                                                                                                                                               
|EX-21       |  | List of Subsidiaries.                                                                                                                                         
|            |  |                                                                                                                                                               
|EX-23       |  | Consent of PricewaterhouseCoopers LLP.                                                                                                                        
|            |  |                                                                                                                                                               
|EX-99.1     |  | Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002                                        
|            |  |                                                                                                                                                               
|EX-99.2     |  | Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002                                        

81