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 July 31, 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 July 31, 1994.
5,347,909 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)
July 31, October 31,
1994 1993
CURRENT ASSETS
Cash and cash equivalents $ 1,004,398 $ 3,067,418
Investments 5,519,529 5,243,735
Accounts receivable 29,938,761 28,074,878
Inventories 23,935,044 24,069,180
Prepaid expenses 1,387,053 1,324,123
Total current assets 61,784,785 61,779,334
PROPERTY, PLANT AND EQUIPMENT
Land 3,243,426 3,243,426
Buildings 15,220,301 15,121,826
Other property and equipment 96,766,825 93,677,568
Assets under construction 8,105,025 2,897,377
Sub-total 123,335,577 114,940,197
Less--accumulated depreciation 54,085,620 48,728,280
69,249,957 66,211,917
OTHER ASSETS
Unamortized excess of cost of investment in
subsidiary over net assets acquired 155,394 295,247
Other 1,068,335 1,015,741
1,223,729 1,310,988
$ 132,258,471 $ 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 14,966,037 11,595,102
Dividend payable 641,749 636,589
Employees' taxes withheld 312,824 207,069
Accrued profit-sharing contribution 1,902,737 1,680,246
Accrued wages and expenses 1,185,187 1,536,585
Accrued income taxes 302,307 69,538
Total current liabilities 30,776,341 26,690,629
LONG-TERM DEBT
Notes payable 26,449,875 30,486,500
Less--current portion 4,965,500 4,965,500
21,484,375 25,521,000
DEFERRED INCOME TAXES 10,588,093 13,887,033
POSTRETIREMENT LIABILITIES 181,500 -
STOCKHOLDERS' EQUITY
Common stock--no par value--authorized 10,000,000
shares,issued 5,945,738 shares in 1994 and
5,902,738 in 1993 1,320,526 722,151
Capital in excess of stated value 9,349,429 9,349,429
Retained earnings 59,753,075 54,326,865
70,423,030 64,398,445
Less--treasury stock, 597,829 shares--at cost 1,194,868 1,194,868
Total stockholders' equity 69,228,162 63,203,577
$ 132,258,471 $ 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) (Unaudited)
Three Months Ended Nine Months Ended
July 31, July 31,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
NET SALES $ 54,674,077 $ 40,901,762 $ 151,985,751 $ 117,876,789
COST OF SALES 47,015,734 34,855,410 131,671,126 102,412,172
GROSS EARNINGS 7,658,343 6,046,352 20,314,625 15,464,617
OTHER OPERATING EXPENSES
Administrative 3,381,756 3,144,504 9,903,733 8,774,106
Interest, net 500,284 411,263 1,401,295 1,267,009
Profit-sharing 799,751 548,449 1,902,737 1,110,104
4,681,791 4,104,216 13,207,765 11,151,219
EARNINGS BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLES 2,976,552 1,942,136 7,106,860 4,313,398
INCOME TAXES 1,199,950 758,228 2,857,035 1,662,392
EARNINGS BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLES 1,776,602 1,183,908 4,249,825 2,651,006
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLES FOR INCOME TAXES - - 3,093,940 -
NET EARNINGS $ 1,776,602 $ 1,183,908 $ 7,343,765 $ 2,651,006
Weighted average number of common
shares outstanding * 5,333,176 5,304,563 5,318,431 5,304,131
Earnings per share of common stock
Earnings before cumulative effect of
of accounting change $ .33 $ .22 $ .80 $ .50
Cumulative effect of accounting change
for income taxes $ - $ - $ .58 $ -
Net earnings per share of common stock $ .33 $ .22 $ 1.38 $ .50
Cash dividends per share of common stock $ .12 $ .12 $ .36 $ .36
</TABLE>
* Adjusted for stock options exercised.
The accompanying notes to consolidated financial statements are an integral
part of this statement.
<TABLE>
ROANOKE ELECTRIC STEEL CORPORATION
Consolidated Statements of Cash Flows
<CAPTION>
(Unaudited)
Nine Months Ended
July 31,
1994 1993
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 7,343,765 $ 2,651,006
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Cumulative effect of change in accounting for income tax (3,093,940) -
Postretirement liabilities 181,500 -
Depreciation and amortization 5,612,778 5,607,574
Gain on sale of property, plant and equipment (19,577) (47,092)
Deferred income taxes (205,000) (102,000)
Changes in assets and liabilities which provided
(used) cash, exclusive of changes shown separately 1,787,875 14,267
Net cash provided by operating activities 11,607,401 8,123,755
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (8,521,965) (2,988,947)
Proceeds from sale of property, plant and equipment 39,374 53,400
Sales (purchases) of investments (275,794) 320,162
Other (61,391) (79,723)
Net cash used in investing activities (8,819,776) (2,695,108)
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable--net 500,000 1,000,000
Cash dividends (1,917,555) (1,909,575)
Increase in dividends payable 5,160 144
Proceeds from exercise of common stock options 598,375 8,700
Redemption of long-term debt (4,036,625) (4,036,625)
Net cash used in financing activities (4,850,645) (4,937,356)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,063,020) 491,291
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,067,418 1,766,134
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,004,398 $ 2,257,425
CHANGES IN ASSETS AND LIABILITIES WHICH PROVIDED
(USED) CASH, EXCLUSIVE OF CHANGES SHOWN SEPARATELY:
(Increase) decrease in accounts receivable $ (1,863,883) $ 502,889
(Increase) decrease in inventories 134,136 (1,126,269)
(Increase) decrease in prepaid expenses (62,930) (777,401)
Increase (decrease) in accounts payable 3,370,935 1,788,013
Increase (decrease) in employees' taxes withheld 105,755 (15,021)
Increase (decrease) in accrued profit-sharing 222,491 212,266
Increase (decrease) in accrued wages and expenses (351,398) (288,680)
Increase (decrease) in accrued income taxes 232,769 (281,530)
Total $ 1,787,875 $ 14,267
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 1,744,665 $ 1,487,916
Income taxes $ 2,829,266 $ 2,045,922
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of this statement.
ROANOKE ELECTRIC STEEL CORPORATION
Notes to Consolidated Financial Statements
July 31, 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 July 31, 1994 and the results of operations
for the three months and nine months ended July 31, 1994 and 1993
and cash flows for the nine months ended July 31, 1994 and 1993.
Note 2. Inventories include the following major classifications:
(Unaudited) (Audited)
July 31, October 31,
1994 1993
Scrap Steel $ 2,649,856 $ 2,651,005
Melt Supplies 2,367,972 2,034,790
Billets 2,519,896 2,400,164
Mill Supplies 2,847,315 2,745,971
Finished Steel 13,550,005 14,237,250
$ 23,935,044 $ 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
nine months ended July 31, 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 Nine Months Ended
July 31, July 31,
1994 and 1993 1994 and 1993
Amount Percent Amount Percent
Net Sales 13,772,315 33.7 34,108,962 28.9
Cost of Sales 12,160,324 34.9 29,258,954 28.6
Administrative Expenses 237,252 7.5 1,129,627 12.9
Interest Expense 89,021 21.6 134,286 10.6
Profit-sharing Expense 251,302 45.8 792,633 71.4
Earnings before Income Taxes and
Cumulative Effect of Change
in Accounting Principles 1,034,416 53.3 2,793,462 64.8
Income Taxes 441,722 58.3 1,194,643 71.9
Earnings before Cumulative Effect
of Change in Accounting Principles 592,694 50.1 1,598,819 60.3
Cumulative Effect of Change in
Accounting Principles for
Income Taxes - - 3,093,940 *
Net Earnings 592,694 50.1 4,692,759 177.0
* Cannot be Calculated
Sales increased significantly for both the nine month and three month
periods compared as a result of substantial increases in tons shipped of
merchant bar products, fabricated products (bar joists and rebar) and
billets, together with improved selling prices for bar products and
billets. Fabricated product selling prices showed only a slight
improvement for the three month period and virtually no change for the nine
months compared. Much improved market conditions resulted in the increased
bar product shipments for both periods, while merchant bar selling prices
improved mainly as a result of higher scrap costs which prompted
industry-wide price increases. Shipments of fabricated products increased
primarily due to successful job bidding and an easing of competition in
recent months within the construction industry. Fabricated product selling
prices began to climb during the three month period, influenced mainly by
higher raw material costs and less competitive conditions, but the increase
had no significant impact on selling prices for the nine month period.
Higher domestic demand resulted in the increased billet tons shipped which
more than offset a decline in the more competitive export business. Billet
selling prices increased as a result of the higher priced domestic
shipments and higher scrap prices which normally trigger changes in billet
pricing. Cost of sales increased for both the nine month and three month
periods compared as a result of the increased tons shipped of all product
classes, together with a significant rise in the cost of scrap steel, our
main raw material. Inflation in general was not significant. Gross profit
as a percentage of sales increased by approximately .2% for the nine months
compared primarily as a result of 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, and more than offset the higher scrap costs. Gross profit as a
percentage of sales declined by approximately .8% for the three months
compared due mainly to the higher scrap costs and growth in the lower
margin fabricated product and billet shipments, in spite of improved
selling prices for all product classes and 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 nine
months compared. For the three months compared, both 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, professional fees and the recognition of postretirement
benefits. Interest expense increased for the nine months compared as
higher interest rates more than offset lower average borrowings and
increased capitalized interest and interest income. Interest expense
increased for the three months compared due to higher interest rates and
reduced capitalized interest and interest income, in spite of lower average
borrowings. 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 nine 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 $4,080,261 during the period to $31,008,444
mainly as a result of capital expenditures, dividends and current
maturities of long-term debt amounting to $8,521,965, $1,917,555 and
$4,036,625, 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 July 31, 1994, there were commitments for the purchase of plant and
equipment amounting to $3,349,781. 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
23.7% during the nine months, due to current maturities reducing long-term
debt by $4,036,625, while stockholders' equity increased as net earnings of
$7,343,765 exceeded dividends of $1,917,555.
REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The financial statements included in this filing on Form 10-Q have been
reviewed by Deloitte & Touche LLP, 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 LLP have been reflected in the data presented.
The report of Deloitte & Touche LLP 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 quarters
ended January 31, 1994 and April 30, 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 September 7, 1994 Donald G. Smith
Donald G. Smith, Chairman, President,
Treasurer and Chief Executive Officer
(Principal Financial Officer)
Date September 7, 1994 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 13
(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 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 NO. 15
DELOITTE & TOUCHE LLP
Suite 1401 Telephone: (910) 721-2300
500 West Fifth Street Facsimile: (910) 721-2301
Winston-Salem, North Carolina 27152
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 July 31, 1994, and the
related consolidated statements of earnings and cash flows for the
three-month and nine-month periods ended July 31, 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 LLP
September 2, 1994
Deloitte Touche
Tohmatsu
International
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial information extracted from the 3rd
Quarter Consolidated Balance Sheets and Statement of Earnings and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1994
<PERIOD-END> JUL-31-1994
<CASH> 1,004,398
<SECURITIES> 5,519,529
<RECEIVABLES> 29,938,761
<ALLOWANCES> 0
<INVENTORY> 23,935,044
<CURRENT-ASSETS> 61,784,785
<PP&E> 123,335,577
<DEPRECIATION> 54,085,620
<TOTAL-ASSETS> 132,258,471
<CURRENT-LIABILITIES> 30,776,341
<BONDS> 21,484,375
<COMMON> 1,320,526
0
0
<OTHER-SE> 67,907,636
<TOTAL-LIABILITY-AND-EQUITY> 132,258,471
<SALES> 151,985,751
<TOTAL-REVENUES> 151,985,751
<CGS> 131,671,126
<TOTAL-COSTS> 131,671,126
<OTHER-EXPENSES> 11,806,470
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,401,295
<INCOME-PRETAX> 7,106,860
<INCOME-TAX> 2,857,035
<INCOME-CONTINUING> 4,249,825
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 3,093,940
<NET-INCOME> 7,343,765
<EPS-PRIMARY> 1.38
<EPS-DILUTED> 1.38
</TABLE>
