DEARBORN, Mich. - Company Posts First Quarter Loss of $12.9 Million, Due in Part to Unplanned Production Outagesgreenspun.com : LUSENET : Grassroots Information Coordination Center (GICC) : One Thread
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Title: Rouge Industries Posts First Quarter Loss of $12.9 Million
Story Filed: Wednesday, April 26, 2000 8:29 AM EST
DEARBORN, Mich., Apr 26, 2000 /PRNewswire via COMTEX/ -- Rouge Industries, Inc. (NYSE: ROU) reported a net loss of $12.9 million or $0.58 per share for the first quarter of 2000 compared to a net loss of $11.6 million or $0.52 per share in the first quarter of 1999. The loss in the first quarter of 2000 was due in large part to the continuing effects of last year's Powerhouse explosion and four unplanned production outages during the quarter.
Steel product shipments totaled 744,000 tons, 203,000 tons or 38% higher than the first quarter of 1999 and 9,000 tons higher than the fourth quarter of last year. Raw steel production in the first quarter totaled 671,000 tons, 434,000 tons higher than the first quarter of last year but 69,000 tons lower than the fourth quarter of 1999. In order to offset the consequences of the unplanned production outages, the Company purchased 90,000 tons of slabs, of which 47,000 tons were received during the first quarter.
The most significant of these outages occurred at the basic oxygen facility ("BOF") on January 7. Repairs to the cooling hood and air evacuation system at one of the two BOF vessels necessitated a cutback of normal production rates for nearly two months during the quarter.
The second most significant outage occurred on March 31 at the temporary substation built following the 1999 Powerhouse explosion and resulted in the complete loss of utility services to the entire Rouge Complex. Utility services were gradually restored over a 36-hour period; however, several Rouge Steel operations suffered extensive property damage.
Included in operating income is $14.4 million of estimated property damage and business interruption costs for these two events plus two other minor outages. The Company does not anticipate a financial impact in subsequent quarters as a result of these events. Although the Company does not expect a recurrence of these events, the temporary utility systems are susceptible to problems and future power outages are still a concern.
In addition to the events discussed above, the Company's operating income in the first quarter was also adversely impacted by $5.5 million of direct and indirect costs attributable to the 1999 Powerhouse explosion. These costs include $4.5 million of additional property damage and business interruption costs and $1 million of professional services that are not covered by the insurance policy.
The Company, after considering insurance policy deductibles and policy limitations, has recorded $15.6 million of income for anticipated insurance recovery. This recovery includes a $2.8 million reduction to the previously recorded reserve.
The reserve at the end of the first quarter is now $37.2 million which is deemed appropriate given the complexity of the insurance claim process and the progress made to date relative to insurance payments received. During the first quarter, the Company received an additional insurance claim advance of $25 million bringing the total amount collected to $184 million. The Company's long-term debt as of the end of the first quarter totaled $55 million, down from $105 million at year-end 1999.
"We consider ourselves to be very fortunate that these most recent occurrences didn't result in greater damage to our equipment and we are relieved that our work force only sustained one minor injury from these events. It is a tribute to the skill and resourcefulness of our employees that they could safely deal with these situations and resume production as quickly as they did.
It was truly a remarkable accomplishment. We continue to be reminded how fragile our temporary utility supply system is and we will be greatly relieved when the new power plant comes on line late in the third quarter," said Carl L. Valdiserri, the Company's chairman and chief executive officer.
"I believe we have taken a conservative approach as to the reserves booked for equipment damage and business interruption expenses and we will expend every energy to maximize the insurance recovery amount," continued Valdiserri.
"We are off to a good start in the second quarter from a production standpoint and the order book continues to be strong. Construction of the new power plant is progressing and the planning for the switchover, which will be a substantial undertaking, is being discussed daily to minimize any chance of a future unplanned power outage," concluded Valdiserri.
The Company and the United Auto Workers opened labor contract negotiations on April 14, 2000. The current five-year agreement, covering 2,400 production, maintenance and laboratory workers, expires on August 1, 2000.
Safe Harbor Statement
This press release contains forward-looking information about the Company. A number of factors could cause the Company's actual results to differ materially from those anticipated, including changes in the general economic climate, the supply of or demand for and the pricing of steel products in the Company's markets, potential environmental liabilities and higher than expected costs. For further information on these and other factors that could impact the Company and the statements contained herein, reference should be made to the Company's filings with the Securities and Exchange Commission.
-- (Dee360Degree@aol.com), April 27, 2000