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

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2002

OR

For the transition period from __________ to __________

Commission File Number 1-12852

ROUGE INDUSTRIES, INC.

(313) 317-8900

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

     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.

Table of Contents

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

TABLE OF CONTENTS

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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.

     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.

     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,

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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.

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

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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.

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Item 6. Selected Financial Data.

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

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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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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:

     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:

     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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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.

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).

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Item 8. Financial Statements and Supplementary Data.

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

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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

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