UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to __________________
Commission file number 0-2389
ROANOKE ELECTRIC STEEL CORPORATION
(Exact name of Registrant as specified in its charter)
Virginia 54-0585263
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
102 Westside Blvd., N.W., Roanoke, Virginia 24017
(Address of principal executive offices) (Zip Code)
(703) 342-1831
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if
changed since last report)
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, and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of April 30, 1994.
5,317,309 Shares outstanding
ROANOKE ELECTRIC STEEL CORPORATION
FORM 10-Q
CONTENTS
Page
1. Part I - Financial Information 3 - 9
Item 1. Financial Statements:
a. Consolidated Balance Sheets 3
b. Consolidated Statements of Earnings 4
c. Consolidated Statements of Cash Flows 5
d. Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7 - 8
Review by Independent Certified Public Accountants 9
2. Part II - Other Information 10
Item 1. Legal Proceedings 10
Item 6. Exhibits and Reports on Form 8-K 10
3. Signatures 11
4. Exhibit Index pursuant to Regulation S-K 12
5. Exhibits
a. Executive Officer Incentive Arrangement 13
b. Roanoke Electric Steel Corporation Employees'
Stock Option Plan 13
c. Independent Accountants' Report 14
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
ROANOKE ELECTRIC STEEL CORPORATION
Consolidated Balance Sheets
ASSETS
(Unaudited) (Audited)
April 30, October 31,
1994 1993
CURRENT ASSETS
Cash and cash equivalents $ 325,309 $ 3,067,418
Investments 5,490,043 5,243,735
Accounts receivable 30,789,206 28,074,878
Inventories 25,694,398 24,069,180
Prepaid expenses 1,000,166 1,324,123
Total current assets 63,299,122 61,779,334
PROPERTY, PLANT AND EQUIPMENT
Land 3,243,426 3,243,426
Building 15,165,846 15,121,826
Other property and equipment 94,332,410 93,677,568
Assets under construction 6,637,725 2,897,377
Sub-total 119,379,407 114,940,197
Less--accumulated depreciation 52,257,459 48,728,280
67,121,948 66,211,917
OTHER ASSETS
Unamortized excess of cost of investment in
subsidiary over net assets acquired 202,012 295,247
Other 1,070,509 1,015,741
1,272,521 1,310,988
$ 131,693,591 $ 129,302,239
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 4,965,500 $ 4,965,500
Notes payable 6,500,000 6,000,000
Accounts payable 15,941,051 11,595,102
Dividend payable 638,077 636,589
Employees' taxes withheld 246,824 207,069
Accrued profit-sharing contribution 1,102,986 1,680,246
Accrued wages and expenses 1,162,499 1,536,585
Accrued income taxes 355,359 69,538
Total current liabilities 30,912,296 26,690,629
LONG-TERM DEBT
Notes payable 27,378,750 30,486,500
Less--current portion 4,965,500 4,965,500
22,413,250 25,521,000
DEFERRED INCOME TAXES 10,617,093 13,887,033
POSTRETIREMENT LIABILITIES 121,000 -
STOCKHOLDERS' EQUITY
Common stock--no par value--authorized 10,000,000
shares, issued 5,915,138 shares in 1994 and
5,902,738 in 1993 857,051 722,151
Capital in excess of stated value 9,349,429 9,349,429
Retained earnings 58,618,340 54,326,865
68,824,820 64,398,445
Less--treasury stock, 597,829 shares--at cost 1,194,868 1,194,868
Total stockholders' equity 67,629,952 63,203,577
$ 131,693,591 $ 129,302,239
The accompanying notes to consolidated financial statements are an integral
part of this statement.
<TABLE>
ROANOKE ELECTRIC STEEL CORPORATION
Consolidated Statements of Earnings
<CAPTION>
(Unaudited)111 (Unaudited)
Three Months Ended Six Months Ended
April 30, April 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
NET SALES $ 50,599,134 $ 40,975,239 $ 97,311,674 $ 76,975,027
COST OF SALES 43,996,969 35,517,107 84,655,392 67,556,762
GROSS EARNINGS 6,602,165 5,458,132 12,656,282 9,418,265
OTHER OPERATING EXPENSES
Administrative 3,214,440 3,096,340 6,521,977 5,629,602
Interest, net 446,274 420,464 901,011 855,746
Profit-sharing 535,265 388,752 1,102,986 561,655
4,195,979 3,905,556 8,525,974 7,047,003
EARNINGS BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLES 2,406,186 1,552,576 4,130,308 2,371,262
INCOME TAXES 964,559 603,334 1,657,085 904,164
NET EARNINGS BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLES 1,441,627 949,242 2,473,223 1,467,098
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLES FOR INCOME TAXES - - 3,093,940 -
NET EARNINGS $ 1,441,627 $ 949,242 $ 5,567,163 $ 1,467,098
Weighted average number of common shares outstanding * 5,315,262 5,304,119 5,310,936 5,303,911
Net earnings per share of common stock
Net earnings before cumulative effect of accounting change $ .27 $ .18 $ .47 $ .28
Cumulative effect of accounting change for income taxes $ - $ - $ .58 $ -
Net earnings per share of common stock $ .27 $ .18 $ 1.05 $ .28
Cash dividends per share of common stock $ .12 $ .12 $ .24 $ .24
</TABLE>
* Adjusted for stock options exercised.
The accompanying notes to consolidated financial statements are an integral
part of this statement.
ROANOKE ELECTRIC STEEL CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
April 30,
1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 5,567,163 $ 1,467,098
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Cumulative effect of change in accounting
for income taxes (3,093,940) -
Postretirement liabilities 121,000 -
Depreciation and amortization 3,729,764 3,717,118
Gain on sale of property, plant and equipment (19,524) (48,400)
Deferred income taxes (176,000) (78,000)
Changes in assets and liabilities which provided
(used) cash, exclusive of changes shown seperately (295,410) 2,313,853
Net cash provided by operating activities 5,833,053 7,371,669
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (4,560,227) (1,598,810)
Proceeds from sale of property, plant and equipment 39,124 53,000
Purchases of investments (246,308) (98,551)
Other (60,703) (45,811)
Net cash used in investing activities (4,828,114) (1,690,172)
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable--net 500,000 (2,000,000)
Cash dividends (1,275,686) (1,272,950)
Increase in dividends payable 1,488 60
Proceeeds from exercise of common stock options 134,900 3,625
Redemption of long-term debt (3,107,750) (3,107,750)
Net cash used in financing activities (3,747,048) (6,377,015)
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,742,109) (695,518)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,067,418 1,766,134
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 325,309 $ 1,070,616
CHANGES IN ASSETS AND LIABILITIES WHICH PROVIDED
(USED) CASH, EXCLUSIVE OF CHANGES SHOWN SEPARATELY:
(Increase) decrease in accounts receivable $ (2,714,328) $ 882,568
(Increase) decrease in inventories (1,625,218) 1,557,097
(Increase) decrease in prepaid expenses 323,957 23,308
Increase (decrease) in accounts payable 4,345,949 774,574
Increase (decrease) in employees' taxes withheld 39,755 22,723
Increase (decrease) in accrued profit-sharing (577,260) (336,183)
Increase (decrease) in accrued wages and expenses (374,086) (362,976)
Increase (decrease) in accrued income taxes 285,821 (247,258)
Total $ (295,410) $ 2,313,853
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 1,155,468 $ 1,093,139
Income taxes $ 1,547,264 $ 1,229,422
The accompanying notes to consolidated financial statements are an integral
part of this statement.
ROANOKE ELECTRIC STEEL CORPORATION
Notes to Consolidated Financial Statements
April 30, 1994
Note 1. In the opinion of the Registrant, the accompanying unaudited
consolidated financial statements contain all adjustments (consisting
of only normal recurring accruals) necessary to present fairly the
financial position as of April 30, 1994 and the results of operations
for the three months and six months ended April 30, 1994 and 1993 and
cash flows for the six months ended April 30, 1994 and 1993.
Note 2. Inventories include the following major classifications:
(Unaudited) (Audited)
April 30, October 31,
1994 1993
Scrap Steel $ 1,939,335 $ 2,651,005
Melt Supplies 2,019,845 2,034,790
Billets 2,756,618 2,400,164
Mill Supplies 2,890,814 2,745,971
Finished Steel 16,087,786 14,237,250
$ 25,694,398 $ 24,069,180
Note 3. The Company adopted Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes", effective
November 1, 1993. The cumulative effect of adopting SFAS No. 109 on
the Company's statements was to increase income by $3,093,940
($.58 per share) for the three months ended January 31, 1994 and the
six months ended April 30, 1994.
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain
significant factors which have affected the Company's earnings during the
periods included in the accompanying consolidated statements of earnings.
A summary of the period to period changes in the principal items included
in the consolidated statements of earnings is shown below:
Comparison of Increases (Decreases)
Three Months Ended Six Months Ended
April 30, April 30,
1994 and 1993 1994 and 1993
Amount Percent Amount Percent
Net Sales 9,623,895 23.5 20,336,647 26.4
Cost of Sales 8,479,862 23.9 17,098,630 25.3
Administrative Expenses 118,100 3.8 892,375 15.9
Interest Expense 25,810 6.1 45,265 5.3
Profit-sharing Expense 146,513 37.7 541,331 96.4
Earnings before Income Taxes and
Cumulative Effect of Change
in Accounting Principles 853,610 55.0 1,759,046 74.2
Income Taxes 361,225 59.9 752,921 83.3
Net Earnings before Cumulative
Effect of Change in Accounting
Principles 492,385 51.9 1,006,125 68.6
Cumulative Effect of Change in
Accounting Principles for
Income Taxes - - 3,093,940 *
Net Earnings 492,385 51.9 4,100,065 279.5
* Cannot be Calculated
The significant increase in sales for both the six month and three month
periods compared was due to substantial increases in tons shipped of
merchant bar products and fabricated products (bar joists and rebar)
together with improved selling prices for bar products and billets,
eventhough billet tons shipped and fabricated product selling prices
declined. The increased bar product shipments were due to improved market
conditions, while merchant bar selling prices improved as a result of
higher scrap costs which prompted industry-wide price increases.
Successful job bidding resulted in increased fabricated product shipments,
while competition within the construction industry caused the decline in
selling prices. Billet selling prices increased primarily due to improved
domestic demand and higher scrap prices which normally trigger changes in
billet pricing. The decrease in billet tons shipped resulted mainly from a
decline in the more competitive export business caused by selling prices
not keeping pace with rising production costs; however, during both periods
compared, domestic shipments showed significant improvements over last
year's tonnage. Cost of sales increased for both the six month and three
month periods compared primarily due to the increases in both tons shipped
of merchant bar and fabricated products and the cost of scrap steel, our
main raw material, in spite of the reduction in billet tons shipped.
Inflation in general was not significant. Gross profit as a percentage of
sales increased by approximately .8% for the six months compared due mainly
to the higher selling prices for merchant bar products and billets and the
increased production levels for raw steel, merchant bar and fabricated
products which reduced unit costs for fixed expenses, which more than
offset the higher scrap costs and lower selling prices for fabricated
products. Gross profit as a percentage of sales declined by approximately
.3% for the three months compared primarily as a result of higher scrap
costs and lower fabricated product prices, in spite of improved merchant
bar and billet selling prices and the increased production levels. The
increase in gross profit margins at the higher shipment levels was the
reason for the increase in both gross profit and net earnings for the six
months compared. For the three months compared, both the gross profit and
net earnings improved as a result of the significant increase in volume,
eventhough margins were lower. Administrative expenses increased in both
periods compared mainly as a result of increased executive and other
compensation, based on various incentive arrangements, together with higher
insurance expenses and the recognition of post-retirement benefits.
Interest expense increased in both periods compared due to higher interest
rates, in spite of lower average borrowings and increased capitalized
interest and interest income. Profit-sharing expense, computed as a
percentage of pretax income, increased in both periods compared as a result
of the improvements in earnings. For both periods compared, the effective
income tax rate increased in 1994, resulting from lower tax-exempt
investment income. The 1994 six month period reflects the adoption of an
accounting principles change in reporting for income taxes, resulting in
the cumulative effect of $3,093,940 of increased income through a deferred
tax benefit.
Working capital decreased $2,701,879 during the period to $32,386,826
mainly as a result of capital expenditures, dividends and current
maturities of long-term debt amounting to $4,560,227, $1,275,686 and
$3,107,750, respectively, which exceeded working capital provided from
operations. Borrowings against the Registrant's $37,500,000 lines of
credit were $6,500,000 leaving a balance of $31,000,000 for future use. As
a condition of our loan agreements, the real estate and equipment at the
Roanoke plant and the capital stock of Socar, Inc. have been pledged as
security for the loans. In addition, the terms do not allow consolidated
current assets or the assets of Socar, Inc. to be pledged. However,
additional capital resources are available to the Company as the secured
creditors are over-collateralized and the Company's lenders and other
financial institutions have expressed confidence and their willingness to
provide additional long-term financing.
At April 30, 1994, there were commitments for the purchase of plant and
equipment amounting to $4,871,503. Funding for these expenditures will
come from internally generated funds or the use of the credit lines
mentioned above.
The percentage of long-term debt to total capital decreased from 28.8% to
24.9% during the first half of the year, due to current maturities reducing
long-term debt by $3,107,750, while stockholders' equity increased as net
earnings of $5,567,163 exceeded dividends of $1,275,686.
REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The financial statements included in this filing on Form 10-Q have been
reviewed by Deloitte & Touche, Independent Certified Public Accountants, in
accordance with established professional standards and procedures for such
a review. All adjustments or additional disclosures proposed by Deloitte &
Touche have been reflected in the data presented.
The report of Deloitte & Touche commenting upon their review is included as
an Exhibit to this report.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
To the best of Registrant's information and belief no new legal
proceedings were instituted against Registrant or any of its
wholly-owned subsidiaries during the period covered by this report
and there were no material developments in or terminations of the
legal proceedings reported earlier by Registrant on Form 10-K for
fiscal year ended October 31, 1993 and Form 10-Q for the quarter
ended January 31, 1994, as previously filed with the commission.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits.
(10) (a) Executive Officer Incentive Arrangement (incorporated
herein by reference to Exhibit 10(a) to the Company's
Annual Report on Form 10-K for the fiscal year
ended October 31, 1993)
(10) (b) Roanoke Electric Steel Corporation Employees' Stock
Option Plan (incorporated herein by reference to
Exhibit 10(b) to the Company's Annual Report on Form 10-K
for the fiscal year ended October 31, 1992)
(15) Independent Accountants' Report
b. Reports on Form 8-K.
No reports on Form 8-K have been filed during the quarter for
which this report is filed.
Items 2, 3, 4 and 5 are omitted because the information required by these
items is not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ROANOKE ELECTRIC STEEL CORPORATION
Registrant
Date 6/6/94 Donald G. Smith
Donald G. Smith, Chairman, President,
Treasurer and Chief Executive Officer
(Principal Financial Officer)
Date 6/6/94 John E. Morris
John E. Morris, Vice President-Finance
and Assistant Treasurer
(Chief Accounting Officer)
EXHIBIT INDEX
Exhibit No. Exhibit Page
(10) (a) Executive Officer Incentive Arrangement (incorporated 13
herein by reference to Exhibit 10(a) to the Company's
Annual Report on Form 10-K for the fiscal year ended
October 31, 1993)
(b) Roanoke Electric Steel Corporation Employees' Stock 13
Option Plan (incorporated herein by reference to
Exhibit 10(b) to the Company's Annual Report on
Form 10-K for the fiscal year ended October 31, 1992)
(15) Independent Accountants' Report 14
EXHIBIT NO. 10
(a)
EXECUTIVE OFFICER INCENTIVE ARRANGEMENT
Incorporated herein by reference to Exhibit 10(a) to the Company's
Annual Report on Form 10-K for the fiscal year ended October 31, 1993.
(b)
ROANOKE ELECTRIC STEEL CORPORATION
EMPLOYEES' STOCK OPTION PLAN
Incorporated herein by reference to Exhibit 10(b) to the Company's
Annual Report on Form 10-K for the fiscal year ended October 31, 1992.
EXHIBIT 15
DELOITTE & TOUCHE
Suite 1401 Telephone: (910) 721-2300
500 West Fifth Street Facsimile: (910) 721-2301
P.O. Box 20129
Winston-Salem, North Carolina 27120-0129
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors
Roanoke Electric Steel Corporation:
We have reviewed the accompanying consolidated balance sheet of Roanoke
Electric Steel Corporation and subsidiaries as of April 30, 1994, and the
related consolidated statements of earnings and cash flows for the
three-month and six-month periods ended April 30, 1994 and 1993. These
financial statements are the responsibility of the Corporation's
management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data and of making inquires of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion regarding
the financial statements taken as a whole. Accordingly, we do not express
such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to such consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Roanoke Electric Steel
Corporation and subsidiaries as of October 31, 1993, and the related
consolidated statements of earnings, stockholders' equity, and cash flows
for the year then ended (not presented herein); and in our report dated
November 19, 1993, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set
forth in the accompanying consolidated balance sheet as of October 31, 1993
is fairly stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
Deloitte & Touche
June 1, 1994
Deloitte Touche
Tohmatsu
International
