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 January 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
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 January 31, 1994.
5,308,909 Shares outstanding
ROANOKE ELECTRIC STEEL CORPORATION
FORM 10-Q
CONTENTS
Page
1. Part I- Financial Information 3 - 10
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 - 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8 - 9
Review by Independent Certified Public Accountants 10
2. Part II - Other Information 11
Item 1. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
3. Signatures 12
4. Exhibit Index pursuant to Regulation S-K 13
5. Exhibits
a. Executive Officer Incentive Arrangement 14
b. Roanoke Electric Steel Corporation Employees'
Stock Option Plan 14
c. Independent Accountants' Report 15
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
ROANOKE ELECTRIC STEEL CORPORATION
Consolidated Balance Sheets
ASSETS
(Unaudited) (Audited)
January 31, October 31,
1994 1993
CURRENT ASSETS
Cash and cash equivalents $ 1,645,923 $ 3,067,418
Investments 6,224,600 5,243,735
Accounts receivable 23,993,133 28,074,878
Inventories 24,231,908 24,069,180
Prepaid expenses 1,344,610 1,324,123
Total current assets 57,440,174 61,779,334
PROPERTY, PLANT AND EQUIPMENT
Land 3,243,426 3,243,426
Buildings 15,122,803 15,121,826
Other property and equipment 93,851,865 93,677,568
Assets under construction 5,225,508 2,897,377
Sub-total 117,443,602 114,940,197
Less--accumulated depreciation 50,489,205 48,728,280
66,954,397 66,211,917
OTHER ASSETS
Unamortized excess of cost of investment in
subsidiary over net assets acquired 248,629 295,247
Other 1,055,210 1,015,741
1,303,839 1,310,988
$ 125,698,410 $ 129,302,239
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 4,965,500 $ 4,965,500
Notes payable 5,000,000 6,000,000
Accounts payable 11,471,787 11,595,102
Dividend payable 637,069 636,589
Employees' taxes withheld 252,307 207,069
Accrued profit-sharing contribution 567,721 1,680,246
Accrued wages and expenses 1,189,645 1,536,585
Accrued income taxes 789,620 69,538
Total current liabilities 24,873,649 26,690,629
LONG-TERM DEBT
Notes payable 28,307,625 30,486,500
Less--current portion 4,965,500 4,965,500
23,342,125 25,521,000
DEFERRED INCOME TAXES 10,701,093 13,887,033
POSTRETIREMENT LIABILITIES 60,500 -
STOCKHOLDERS' EQUITY
Common stock--no par value--authorized 10,000,000
shares, issued 5,906,738 shares in 1994 and
5,901,538 in 1993 751,151 722,151
Capital in excess of stated value 9,349,429 9,349,429
Retained earnings 57,815,331 54,326,865
67,915,911 64,398,445
Less--treasury stock, 597,829 shares--at cost 1,194,868 1,194,868
Total stockholders' equity 66,721,043 63,203,577
$ 125,698,410 $ 129,302,239
The accompanying notes to consolidated financial statements are an integral
part of this statement.
ROANOKE ELECTRIC STEEL CORPORATION
Consolidated Statements of Earnings
(Unaudited)
Three Months Ended
January 31,
1994 1993
NET SALES $ 46,712,540 $ 35,999,788
COST OF SALES 40,658,423 32,039,655
GROSS EARNINGS 6,054,117 3,960,133
OTHER OPERATING EXPENSES
Administrative 3,307,537 2,533,262
Interest, net 454,737 435,282
Profit-sharing 567,721 172,903
4,329,995 3,141,447
EARNINGS BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLES 1,724,122 818,686
INCOME TAXES 692,526 300,830
NET EARNINGS BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLES 1,031,596 517,856
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLES FOR INCOME TAXES 3,093,940 -
NET EARNINGS $ 4,125,536 $ 517,856
Weighted average number of common shares
outstanding * 5,306,702 5,303,709
Net earnings per share of common stock
Net earnings before cumulative effect of
accounting change $ 0.20 $ 0.10
Cumulative effect of accounting change for
income taxes $ 0.58 $ -
Net earnings per share of common stock $ 0.78 $ 0.10
Cash dividends per share of common stock $ 0.12 $ 0.12
* 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)
Three Months Ended
January 31,
1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 4,125,536 $ 517,856
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 60,500 -
Depreciation and amortization 1,865,385 1,851,186
Deferred income taxes (92,000) (42,000)
Changes in assets and liabilities which provided
(used) cash, exclusive of changes shown seperately 3,081,070 2,016,268
Net cash provided by operating activities 5,946,551 4,343,310
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (2,558,243) (516,788)
Purchases of investments (980,865) (43,831)
Other (42,474) (17,695)
Net cash used in investing activities (3,581,582) (578,314)
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable--net (1,000,000) (500,000)
Cash dividends (637,069) (636,445)
Increase in dividends payable 480 -
Proceeeds from exercise of common stock options 29,000 -
Redemption of long-term debt (2,178,875) (2,178,875)
Net cash used in financing activities (3,786,464) (3,315,320)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,421,495) 449,676
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,067,418 1,766,134
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,645,923 $ 2,215,810
CHANGES IN ASSETS AND LIABILITIES WHICH PROVIDED
(USED) CASH, EXCLUSIVE OF CHANGES SHOWN SEPARATELY:
(Increase) decrease in accounts receivable $ 4,081,745 $ 3,557,213
(Increase) decrease in inventories (162,728) (715,896)
(Increase) decrease in prepaid expenses (20,487) (249,409)
Increase (decrease) in accounts payable (123,315) 887,794
Increase (decrease) in employees' taxes withheld 45,238 69,551
Increase (decrease) in accrued profit-sharing (1,112,525) (724,935)
Increase (decrease) in accrued wages and expenses (346,940) (711,114)
Increase (decrease) in accrued income taxes 720,082 (96,936)
Total $ 3,081,070 $ 2,016,268
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 592,639 $ 561,346
Income taxes $ 64,444 $ 439,766
The accompanying notes to consolidated financial statements are an integral
part of this statement.
ROANOKE ELECTRIC STEEL CORPORATION
Notes to Consolidated Financial Statements
January 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 January 31, 1994 and the
results of operations and cash flows for the three months ended
January 31, 1994 and 1993.
Note 2. Inventories include the following major classifications:
(Unaudited) (Audited)
January 31, October 31,
1994 1993
Scrap Steel $ 1,157,412 $ 2,651,005
Melt Supplies 2,029,225 2,034,790
Billets 2,866,328 2,400,164
Mill Supplies 2,793,694 2,745,971
Finished Steel 15,385,249 14,237,250
$ 24,231,908 $ 24,069,180
Note 3. Effective November 1, 1993, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions". The
Company currently provides certain health care benefits for eligible
retired and terminated employees, and SFAS No. 106 requires the
Company to accrue the estimated cost of retiree benefit payments
during the years the employee provides services. The Company
previously expensed the cost of these benefits as claims were
incurred. SFAS No. 106 allows recognition of the cumulative effect
of the liability in the year of adoption or the amortization of the
obligation over a period of up to twenty years. The Company has
elected to recognize this obligation of approximately $1,381,000
over a period of twenty years. Cash flows are not affected by
implementation of this Statement, but implementation decreased net
earnings from continuing operations for the three months ended
January 31, 1994 by $26,935 ($.01 per share).
The following table sets forth the health care plan's funded status
at November 1, 1993.
Accumulated postretirement benefit obligation:
Retirees $ 277,000
Fully eligible plan participants 566,000
Other active plan participants 538,000
1,381,000
Fair value of plan assets -
Accumulated postretirement benefit obligation
in excess of plan assets 1,381,000
Unrecognized transition obligation 1,381,000
Accrued postretirement benefit cost $ -
Net postretirement benefit cost for the three months ended
January 31, 1994 consisted of the following components:
Service cost for 1994 $ 31,750
Interest cost for 1994 on accumulated postretirement
benefit obligation 29,500
Amortization of transition obligation for 1994 17,250
Estimated expected benefit payments in 1994 (18,000)
Return on plan assets -
$ 60,500
The assumed health care cost trend rate used in measuring the
accumulated postretirement benefit obligation as of November 1, 1993
was 13% for 1993, decreasing linearly each successive year until it
reached 6.5% in 2004, after which it remains constant. A
one-percentage-point increase in the assumed health care cost trend
rate for each year would increase the accumulated postretirement
benefit obligation as of November 1, 1993 by approximately $103,000
and the net postretirement health care cost by approximately
$26,000. The assumed discount rate used in determining the
accumulated postretirement benefit obligation was 8%.
Note 4. 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.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for tax
purposes, and operating loss and tax credit carryforwards. As of
November 1, 1993, the Company had total deferred tax liabilities of
$12,111,290 and deferred tax assets of $1,318,197. Deferred tax
liabilities result exclusively from excess tax depreciation, and
deferred tax assets result, primarily, from reserves not currently
deductible of $625,430 and alternative minimum tax credit carryforwards
of $302,318. There were no valuation allowances.
The Company's effective tax rate during fiscal 1993 was 36.79%. The
provision for income tax expense for the three months ended
January 31, 1994 was $692,526, of which $784,526 and $(92,000) is
current and deferred tax expense, respectively.
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
January 31,
1994 and 1993
Amount Percent
Net Sales 10,712,752 29.8
Cost of Sales 8,618,768 26.9
Administrative Expenses 774,275 30.6
Interest Expense 19,455 4.5
Profit-sharing Expense 394,818 228.3
Earnings before Income Taxes and Cumulative
Effect of Change in Accounting Principles 905,436 110.6
Income Taxes 391,696 130.2
Net Earnings before Cumulative Effect of
Change in Accounting Principles 513,740 99.2
Cumulative Effect of Change in Accounting
Principles for Income Taxes 3,093,940 *
Net Earnings 3,607,680 696.7
* Cannot be calculated
Sales for the periods compared increased significantly as a result of
increases in selling prices and tons shipped for both merchant bar products
and fabricated products (bar joists and rebar). Improved selling prices
for billets also contributed to the sales increase, eventhough billet
shipments declined. The increased bar product shipments were due to much
improved market conditions, while merchant bar selling prices improved as a
result of higher scrap costs prompting industry-wide price increases.
Shipments of fabricated products increased primarily due to successful job
bidding and an easing of competition within the construction industry,
while fabricated product selling prices continued to trend upward
influenced by higher raw material costs. Billet selling prices increased
mainly due to improved domestic demand and rising scrap prices which
normally trigger changes in billet pricing. The decrease in billet tons
shipped resulted entirely from a decline in export business caused by
selling prices not keeping pace with rising production costs; however,
domestic shipments nearly doubled last year's first quarter tonnage. Cost
of sales increased as a result of 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 2.0% primarily a result of the higher selling
prices for all product classes and increased production levels for raw
steel, merchant bar and fabricated products which reduced unit costs for
fixed expenses, in spite of higher scrap costs. The increase in gross
profit margins at the higher shipment levels resulted in significant
improvements in gross profit and net earnings for the period.
Administrative expenses increased mainly as a result of increased executive
and other compensation, based on various incentive arrangements, together
with higher insurance expenses and professional fees. Interest expense
increased as higher interest rates more than offset lower average
borrowings and increased capitalized interest and interest income.
Profit-sharing expense, computed as a percentage of pretax income,
increased due to the improvement in earnings. The effective income tax
rate increased in 1994 due to lower tax-exempt investment income. The 1994
quarter 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 $2,522,180 during the period to $32,566,525
mainly as a result of capital expenditures, dividends and current
maturities of long-term debt amounting to $2,558,243, $637,069 and
$2,178,875, respectively, which exceeded working capital provided from
operations. Borrowings against the Registrant's $37,500,000 lines of
credit were $5,000,000 leaving a balance of $32,500,000 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 January 31, 1994, there were commitments for the purchase of plant and
equipment amounting to $2,987,763. 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
25.9% during the quarter, due to current maturities reducing long-term debt
by $2,178,875, while stockholders' equity increased as net earnings of
$4,125,536 exceeded dividends of $637,069.
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, as previously filed with the commission.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On January 17, 1994, the Annual Meeting of Shareholders was held
and the following persons were elected as Directors of the Registrant:
Frank A. Boxley Thomas L. Robertson
T.A. Carter Donald G. Smith
George B. Cartledge, Jr. Paul E. Torgersen
John W. Hancock, Jr. Gordon C. Willis
Charles I. Lunsford, II John D. Wilson
William L. Neal
Votes for 11 nominees - 4,592,560.
Votes withheld for nominees as a group or individual nominees 4,492.
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 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 3/15/94 Donald G. Smith
Donald G. Smith, Chairman, President,
Treasurer and Chief Executive Officer
(Principal Financial Officer)
Date 3/15/94 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 14
(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 Employee's 14
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 15
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
Suite 1401 Telephone: (919) 721-2300
500 West Fifth Street Facsimile: (919) 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 January 31, 1994 and the
related consolidated statements of earnings and cash flows for the
three-month periods ended January 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.
As discussed in Notes 3 & 4 to the consolidated financial statements, the
Corporation changed its method of accounting for income taxes and
postretirement benefits in the three-month period ended January 31, 1994.
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 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
March 8, 1994
Deloitte Touche
Tohmatsu
International
