UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(x) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 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.)
P.O. Box 13948, Roanoke, Virginia 24038-3948
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 342-1831
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
(Title of class)
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 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. (x)
State the aggregate market value of the voting stock held by nonaffiliates
of the Registrant.
Aggregate market value at December 30, 1994: $78,428,171
Indicate the number of shares outstanding of each of the Registrant's classes
of common stock, as of December 30, 1994.
5,348,909 Shares outstanding
Portions of the following documents are incorporated by reference:
(1) 1994 Annual Report to Stockholders in Part II.
(2) Proxy Statement dated December 12, 1994 in Part III.
PART I
ITEM 1. BUSINESS
(a) General Development of Business.
During the fiscal year ended October 31, 1994, the Registrant
continued for the most part to operate its business as it has the past four
years by manufacturing merchant steel bar products, fabricating open-web
steel joists and concrete reinforcing steel, and extracting scrap steel and
other materials from junked automobiles. In December 1988, however, the
Registrant's rebar subsidiary, RESCO Steel Products Corporation, purchased
the assets of another rebar fabricating facility located in Salem, Virginia
at a cost of $775,000, doubling its production capacity. Due to adverse
economic conditions, and in order to initiate cost saving measures, in
November 1990, the two rebar facilities were consolidated into one plant,
now operating out of the newer location. Roanoke Technical Treatment &
Services, Inc., a Roanoke, Virginia subsidiary, was formed in 1990 to
license a process for the treatment of electric arc furnace dust. The
subsidiary is awaiting various approvals and permits and is uncertain as to
a specific time for start-up. In March 1991, the Registrant closed its
merchant steel bar rolling mill located in Salem, Virginia due to a decline
in order rates. The products manufactured at the Salem plant were produced
at the Roanoke plant, which is considerably more efficient. During fiscal
year 1994, the Registrant's auto shredding subsidiary, Shredded Products
Corporation, completed construction of its new modern facility in Rocky
Mount, Virginia, and in November 1994 began operations at the new locality,
at a total investment in excess of $8,000,000 for plant and equipment.
The new facility, with its own landfill, is expected to provide
considerable savings in waste disposal costs. In addition, cost savings
and better metal recoveries are expected from the more technologically
advanced equipment. The other subsidiaries of the Registrant, John W.
Hancock, Jr., Inc. and Socar, Inc., have had no material changes in
operations or in the mode of conducting their business for the past five
years. John W. Hancock, Jr. founded both the Hancock joist subsidiary and
its parent, Roanoke Electric Steel Corporation, and served on the
Registrant's Board of Directors as Chairman of the Executive Committee
until his death in March 1994.
PART I
(con'd.)
The Registrant currently anticipates no material changes in operations
during the next fiscal year unless there are unforeseen changes in market
conditions and profitability.
(b) Financial Information about Industry Segments.
The Registrant's business consists of one industry segment or
line of business, which is the extracting of scrap metal from discarded
automobiles and the manufacturing, fabricating and marketing of merchant
steel bar products, reinforcing bars, open-web steel joists and billets.
The industry segment consists of three classes of products - merchant steel
products, fabricated bar joists and reinforcing bars and billets.
FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS
AND CLASSES OF PRODUCTS OR SERVICES
1994 1993 1992
Sales to Unaffiliated Customers:
Merchant Steel $96,782,588 $75,531,009 $66,182,893
Bar Joists & Rebar $78,854,207 $56,503,380 $52,204,497
Billets $40,172,433 $35,259,989 $27,648,911
$215,809,228 $167,294,378 $146,036,301
Net Earnings from Operations $8,766,435 $4,750,106 $2,655,006
Identifiable Assets $140,473,510 $130,620,435 $125,558,910
(c) Narrative Description of Business.
(1)(i) The Registrant manufactures merchant steel products
consisting of Angles, Plain Rounds, Flats, Channels and Reinforcing Bars of
various sizes and lengths. The principal markets for the Registrant's
products are steel fabricators and steel service centers. The products are
distributed directly to customers from orders solicited by a paid sales
staff of the Registrant.
PART I
(con'd.)
The Registrant's subsidiary, Shredded Products Corporation, is
involved in the extraction of scrap iron and steel and other metals from
junked automobiles and other waste materials. Almost all of the ferrous
material is used by the Parent as raw materials. The non-ferrous metals
are sold to unrelated purchasers.
Two other subsidiaries, John W. Hancock, Jr., Inc. and Socar,
Inc., are engaged in the manufacturing of long-and short-span steel
joists. Joists are open-web steel horizontal supports for floors and
roofs, used primarily in the construction of commercial and industrial
buildings such as shopping centers, factories, warehouses, hospitals,
schools, office buildings, nursing homes, and the like. Joists are
cheaper and lighter than structural steel or reinforced concrete. The
joists are distributed by these subsidiaries to their customers from orders
solicited by manufacturer's representatives and pursuant to successful bids
placed directly by the companies.
The Registrant's subsidiary, RESCO Steel Products Corporation,
fabricates concrete reinforcing steel by cutting and bending rebars to
contractors' specifications. The rebars are distributed to contractors
from orders solicited by a paid sales staff and pursuant to successful bids
placed directly by the subsidiary.
(ii) The Registrant has not recently introduced a new product or
begun to do business in a new industry segment that will require the
investment of a material amount of assets or that otherwise is material.
(iii) The Registrant's main raw material, scrap steel, is
supplied for the most part by scrap dealers within a 200 mile radius of the
mill. It is purchased through the David J. Joseph Company who are scrap
brokers. The Shredded Products subsidiary supplies 8,000 to 11,000 tons of
scrap per month. Although scrap is generally available to the Registrant,
the price of scrap steel is highly responsive to changes in demand,
including demand in foreign countries as well as in the United States. The
ability to maintain satisfactory profit margins in times when scrap is
relatively high priced is dependent upon the levels of steel prices, which
are determined by market forces. Alloys and other materials needed for the
melting process are provided by various domestic and foreign companies.
PART I
(con'd.)
Shredded Products Corporation often experiences difficulty in
purchasing scrap automobiles at a satisfactory level. Competition from an
increasing number of shredding operations and reluctance by dealers to sell
scrap automobiles due to market conditions are the main causes. High
offering prices generally increase the supply; however, the increased cost
to produce sometimes is very competitive with the price of similar scrap
that can be purchased on the outside.
Substantially all of John W. Hancock, Jr., Inc.'s steel
components are purchased from the Parent, which is located conveniently
nearby and, therefore such components are generally available to the
Company as needed.
RESCO Steel Products Corporation purchases most of its steel
components from suppliers within its market area, determined mainly by
freight cost. Such components would be generally available to the Company,
since the Parent could produce and supply this raw material, as needed.
Socar, Inc. receives most of its raw steel material from the
Parent and other nearby suppliers, the determinant usually being freight
cost. The availability of raw materials is not of major concern to the
Company, since the Parent could supply most of its needs.
(iv) The Registrant currently holds no patents, trade marks,
licenses, franchises or concessions that are material to its business
operations.
(v) The business of the Registrant is not seasonal.
(vi) The Registrant does not offer extended payment terms to its
customers nor is it normally required to carry significant amounts of
inventory to meet rapid delivery requirements of customers; although, at
times market conditions have required the stockpiling of popular bar
products for rapid delivery. Working capital practices generally remain
constant during the course of business except when the Registrant
determines it to be advantageous to stockpile raw materials due to price
considerations.
(vii) During fiscal year 1994, sales (tons) by the Registrant to
John W. Hancock, Jr., Inc., Socar, Inc. and RESCO Steel Products Corporation,
PART I
(con'd.)
wholly-owned subsidiaries, were approximately 8%, 7% and 1% of the
Registrant's total sales (tons), respectively. The largest nonaffiliated
customer purchased approximately 24% of total sales (tons) ---13% of total
sales (dollars). Alternative marketing arrangements were available to the
Registrant, so that the loss of this nonaffiliate would not have had a
materially adverse effect on the Registrant and its subsidiaries taken as
a whole.
(viii) The Registrant is of the opinion that the amount of its
backlog is not generally material to an understanding of the business. All
backlog is shipped within the current fiscal year.
(ix) None of the business of the Registrant is subject to
renegotiation of profits or termination of contracts or subcontracts at the
election of the Government.
(x) The Registrant competes with steel-producing mills of
similar size operative within its market region and also larger mills
producing similar products. The market region in which the Registrant
sells its products consists of the majority of states east of the
Mississippi River. Price, including transportation cost, is the major
determinant in securing business. Even though economic recession had
intensified competition into the mid - 1980's, selling prices and demand
improved substantially in 1988, easing competitive conditions within the
industry. The same conditions continued during most of 1989; however, by
year end prices and demand were declining. In 1990, selling prices dropped
further with a softening in demand. This trend continued through most of
1991 with sharp declines in selling prices due to poor demand and excess
inventories and capacity at most mills, although by year end prices rose
slightly. In comparison to the 1991 recession lows, order rates in 1992
showed some improvement while selling prices remained flat. In 1993,
market conditions and demand improved significantly, while industry-wide
selling prices increased to offset higher raw material costs. Demand in
1994 was fueled by continued improvement in business conditions and
economic growth, with higher raw material costs again forcing selling
prices upward, although some of the increased selling prices were demand
driven.
PART I
(con'd.)
The joist business is highly competitive. Due to similarity of
product, relatively small price differences are often determinative in
placing business. Ability to meet the customer's time requirements for
delivery also is important in securing business. Competing successfully
becomes more difficult with the distance to point of delivery due to
transportation costs. In 1988, reduced bookings were caused by intensified
competition; however, higher raw material costs brought selling prices up,
but not enough to maintain profit margins. Although 1989 was still very
competitive, selling prices and order rates increased and profit margins
improved slightly. In 1990, selling prices and order rates declined as a
result of a weakened construction industry, causing increased competition.
The severely depressed activity in the construction industry, due to
overbuilding, again in 1991 resulted in drastic declines in selling prices
and demand. In spite of depressed conditions, 1992 brought improved
shipments due mainly to successful job bidding; however, in order to book
a higher percentage of quotations, selling prices consequently suffered.
Again in 1993, successful job bidding resulted in improved shipment levels,
while higher raw material costs pushed selling prices upward, even though
the construction industry remained depressed and highly competitive. In
1994, an easing of competitive conditions within the construction industry
led to increased shipment levels, while selling prices were again forced
upward by higher raw material costs.
Billets are semi-finished products used by the Registrant in its
rolling mill process to manufacture various merchant bar products. With
the addition of new casting equipment in recent years, the Registrant has
anticipated a growing billet market of nonaffiliated customers who further
fabricate the billets for various end uses. In 1988 and 1989, billet sales
improved significantly due to higher selling prices and increased order
rates. Competition within the industry caused a drop in selling prices in
1990, with demand slowing. In 1991, selling prices trended further
downward, while order rates fell due to the sagging economy. Billet sales
improved significantly in 1992 as a result of increased domestic demand and
entry into the much more competitive export markets, although selling
prices still continued to slump. Again in 1993, increased export
PART I
(con'd.)
business and improved domestic demand resulted in significantly higher
billet shipments. Selling prices also rose in reaction to higher scrap
steel costs. Shipments of billets declined slightly in 1994 due to a lack
of export shipments, although domestic shipments improved significantly.
While the export markets were much more competitive, domestic demand
improved dramatically. Higher billet prices were also driven by higher
scrap steel costs, but the increased domestic billet shipments, which bring
a higher price, also contributed.
(xi) During the last three fiscal years, the Registrant was not
involved in any material research and development activities.
(xii) The Registrant has been notified by the United States
Environmental Protection Agency (EPA) and the County of Roanoke of its
potential liability and responsibility for materials at a landfill site and
adjacent streams near Salem, Virginia. The Registrant has entered into a
cost-sharing agreement with the County of Roanoke for response action
(cleanup) at the landfill site and filed a plan with EPA for the cleanup of
the streams. Total costs to the Registrant in connection with the landfill
and streams are uncertain. Provisions were made for $2,000,000 in
settlement costs through fiscal year 1994 and are reflected in consolidated
liabilities. While the cost of future remedial action or future claims is
difficult to project, management believes it would not have a materially
adverse effect on the consolidated financial position, results of
operations and competitive position of the Registrant.
The Registrant currently disposes of the furnace dust through a
contract with an approved waste disposal firm. The Registrant believes it
is in substantial compliance with applicable federal, state and local
regulations. However, future changes in regulations may require
expenditures which could adversely affect earnings in subsequent years.
The Registrant has constructed over the years pollution control
equipment at an aggregate cost of over $7,600,000. Annual operating
expenses and depreciation of all pollution control equipment and waste
disposal costs are in excess of $4,000,000 in the aggregate. The
Registrant is expected to spend approximately $1,000,000 to $2,000,000
PART I
(con'd.)
for additional pollution control and waste disposal equipment and facilities
during subsequent fiscal years. Adoption of the Clean Air Act Amendments of
1990 is not anticipated to have a materially adverse effect on the Registrant's
operations, capital resources or liquidity, nor should any incremental increase
in capital expenditures occur due to the Act.
(xiii) At October 31, 1994, the Registrant employed 499 persons
at its Roanoke plant, with no employment at its Salem division, idle since
mid-1991. The Registrant's subsidiaries, John W. Hancock, Jr., Inc.,
Socar, Inc., Shredded Products Corporation and RESCO Steel Products
Corporation employed 245, 232, 37 and 43 persons, respectively.
(d) Financial Information about Foreign and Domestic Operations and
Export Sales.
When the Registrant's billet production exceeds its required
needs, this semi-finished product is offered for sale. During past years,
a portion of the excess billets has been sold to brokers who represent
foreign purchasers. In 1992, export (billet) sales to Mexico and Columbia
amounted to $2,500,259 and $1,951,636, respectively, near break-even
margins. During 1993, export (billet) sales to China and Mexico amounted
to $4,485,565 and $ 620,028, respectively, slightly below break-even
margins. There were no foreign sales of excess billets or other products
during fiscal year 1994. The information required by this paragraph by
geographical area, as to foreign and domestic operations, is not provided
since it is identical to the table in paragraph (b) with all information
pertaining to the United States.
ITEM 2. PROPERTIES
The Registrant owns 68 acres situated in the City of Roanoke,
Virginia, which comprises its main plant, of which 25 acres are used to
provide 330,000 square feet of manufacturing space with an annual billet
capacity of approximately 600,000 tons. A 30 acre site is owned in Salem,
Virginia, of which 10 acres were used to provide 51,355 square feet of
manufacturing space, until March 1991, when the plant was idled. The
PART I
(con'd.)
Registrant acquired in 1991 a 447 acre tract of land in Franklin County,
Virginia, 100 acres of which was transferred to Shredded Products
Corporation in a move of shredding operations from its Montvale location.
Part of this new Shredded Products property is being used as an approved
industrial landfill. The remaining 337 acres of this land will be marketed
as an industrial park for Franklin County.
Shredded Products Corporation operates in both Montvale and Rocky
Mount, Virginia. The Montvale plant is situated on a 75 acre site owned by
the Registrant, approximately 20 acres of which are regularly used in its
scrap processing operation, with an annual production capacity of
approximately 18,000 tons. The new Rocky Mount facility is located on a
100 acre site owned by Shredded Products Corporation, partially consisting
of a 25 acre industrial landfill used for the disposal of its auto fluff,
and another 25 acres of which are regularly used in its shredding
operation, with an annual production capacity of approximately 150,000
tons.
John W. Hancock, Jr., Inc. is located in Roanoke County near
Salem, Virginia. The plant is situated on a 37 acre site owned by Hancock,
Inc., 17 acres of which are regularly used in its operations. Buildings on
the site contain 131,614 square feet of floor space.
Socar, Inc. and its subsidiaries are located in Florence, South
Carolina, and in Continental and Bucyrus, Ohio. The Florence facility is
located on a 28 acre site owned by Socar, Inc., 16 acres of which are
regularly used in its operations. Buildings on the site contain 93,359
square feet of floor space. The plant located on a 31 acre site in
Continental, Ohio, owned by Socar, Inc., has 81,172 square feet of floor
space in manufacturing buildings, situated on 8 acres regularly used in its
operations. There is an idle facility in Bucyrus, Ohio, owned by Socar,
Inc. (leased to an unaffiliated manufacturer), and located on a 17 acre
site, 7 acres of which contain 118,228 square feet of building floor space.
RESCO Steel Products Corporation operates from a building
containing 43,340 square feet of floor space, located in Salem, Virginia,
on a 6.75 acre site owned by RESCO.
PART I
(con'd.)
The various buildings are of modern design, well-maintained, and
suitable and adequate for the requirements of the business.
ITEM 3. LEGAL PROCEEDINGS
A County of Roanoke landfill site, where the Registrant had
disposed of furnace dust from 1969 until 1976, was designated on the
National Priorities List as a Superfund site in 1989. The Registrant has
been notified by the United States Environmental Protection Agency (EPA)
and the County of Roanoke of its potential liability and responsibility for
materials at the landfill site and adjacent streams. The Registrant has
entered into a cost-sharing agreement with the County of Roanoke for
response action (cleanup) at the landfill site and is implementing a plan
approved by EPA for the cleanup of the streams. Total costs to the Registrant
in connection with the landfill and streams are uncertain. Provisions were
made for approximately $2,000,000 in settlement costs through fiscal year 1994
and are reflected in consolidated liabilities. While the cost of future
remedial action or future claims is difficult to project, management believes
it would not have a materially adverse effect on the consolidated financial
position, results of operations and competitive position of the Registrant.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of stockholders during
the fourth quarter of the fiscal year covered.
EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3) of Form 10-K, the following
list is included as an unnumbered Item in Part I of this report in lieu of
being included in the Proxy Statement for the Annual Meeting of
Shareholders held on January 16, 1995.
PART I
(con'd.)
The names, ages and positions of all of the executive officers of
the Registrant as of October 31, 1994 are listed below with their business
experience with the Registrant for the past five years. Officers are
elected annually by the Board of Directors at the first meeting of
directors following the annual meeting of shareholders. There are no family
relationships among these officers, nor any agreement or understanding
between any officer and any other person pursuant to which the officer was
selected.
Thomas J. Crawford, 39, has served as Secretary of the Registrant
since January 1985 and as Assistant Vice President since January 1993;
prior thereto, he had served as Manager of Inside Sales since 1984 and as a
Sales Representative since 1977. He has 17 years of service with the
Registrant.
Donald R. Higgins, 49, has served as Vice President - Sales of
the Registrant since January 1986; prior thereto, he had served as General
Sales Manager since 1984 and Assistant Sales Manager since 1978. He has 29
years of service with the Registrant.
John E. Morris, 53, has served as Vice President - Finance of the
Registrant since October 1988 and as Assistant Treasurer since 1985; prior
thereto, he had served as Controller since 1971. He has 23 years of
service with the Registrant.
William L. Neal, 67, has served as President of John W. Hancock,
Jr., Inc. (wholly-owned subsidiary of the Registrant) since October 1984
and as Director of the Registrant since January 1989; prior thereto, he had
served as Executive Vice President since December 1972. He has 39 years of
service with Hancock, Inc.
Donald G. Smith, 59, has served as Chairman of the Board of the
Registrant since February 1989, as Chief Executive Officer since November
1986, as President and Treasurer since January 1985 and as Director of the
Registrant since April 1984; prior thereto, he had served as Vice President
- - Administration since September 1980 and as Secretary since January 1967.
He has 37 years of service with the Registrant.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The specified information required by this item is incorporated by
reference to the information under the heading "Stock Activity" in the 1994
Annual Report to Stockholders.
ITEM 6. SELECTED FINANCIAL DATA
The specified information required by this item is incorporated by
reference to the information under the heading "5 Year Summary of
Operations" in the 1994 Annual Report to Stockholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The specified information required by this item is incorporated by
reference to the information under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the 1994
Annual Report to Stockholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The specified information required by this item is incorporated by
reference to the information under the headings "Independent Auditors'
Report", "Consolidated Financial Statements" and "Notes to Consolidated
Financial Statements" in the 1994 Annual Report to Stockholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The specified information required by this item is incorporated
by reference to the information under the heading "Information Concerning
Directors and Nominees" in the Proxy Statement dated December 12, 1994, as
filed with the Commission, or is included under the heading "Executive
Officers of the Registrant" in Part I of this 10-K filing. The disclosure
required by Item 405 of Regulation S-K is not applicable.
ITEM 11. EXECUTIVE COMPENSATION
The specified information required by this item is incorporated
by reference to the information under the headings "Executive
Compensation", "Compensation and Stock Option Committee Report on Executive
Compensation", "Compensation Committee Interlocks and Insider
Participation", "Performance Graph" and "Board of Directors and Committees
- -- Director Compensation" in the Proxy Statement dated December 12, 1994,
as filed with the Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The specified information required by this item is incorporated
by reference to the information under the headings "Security Ownership of
Certain Beneficial Owners" and "Security Ownership of Management" in the
Proxy Statement dated December 12, 1994, as filed with the Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The specified information required by this item is incorporated
by reference to the information under the heading "Compensation Committee
Interlocks and Insider Participation" in the Proxy Statement dated December
12, 1994, as filed with the Commission.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
(1) The following financial statements are filed as part of
the 1994 Annual Report to Stockholders which is incorporated by reference:
(a) Consolidated Balance Sheets
(b) Consolidated Statements of Stockholders' Equity
(c) Consolidated Statements of Earnings
(d) Consolidated Statements of Cash Flows
(e) Notes to Consolidated Financial Statements
(f) Independent Auditors' Report
Individual financial statements of the Registrant are not being
filed because the Registrant is primarily an operating company and its
subsidiaries do not have minority equity interests and/or long-term
indebtedness (including current portions) to any person outside the
consolidated group (excluding long-term indebtedness which is
collateralized by the Registrant by guarantee, pledge, assignment or
otherwise), in amounts which together exceed 5 percent of the total
consolidated assets.
PART IV
(con'd.)
(2) Pursuant to Regulation S-K the following Exhibit Index is
added immediately preceding the exhibits filed as part of the subject Form
10-K:
EXHIBIT INDEX
EXHIBIT NO. EXHIBIT PAGE
(3) (a) Articles of Incorporation 19
Incorporated by
Reference
(b) By-Laws, as amended 19
Incorporated by
Reference
(4) Instruments Defining the Rights of 20
Security Holders
(10) (a) Executive Officer Incentive Arrangement 21
Incorporated by
Reference
(b) Roanoke Electric Steel Corporation
Employees' Stock Option Plan 21
Incorporated by
Reference
(13) 1994 Annual Report to Stockholders 22
(21) Subsidiaries of the Registrant 23
(23) Consent of Independent Auditors 24
(27) Financial Data Schedule 25
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed by the Registrant during
the last quarter of the fiscal period covered by the Annual Report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By: Donald G. Smith
Donald G. Smith, Chairman, President,
Treasurer and Chief Executive Officer
(Principal Executive Officer, Principal
Financial Officer and Director)
Date: January 24, 1995
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
Name and Title Date
Donald G. Smith January 24, 1995
Donald G. Smith, Chairman, President,
Treasurer and Chief Executive Officer
(Principal Executive Officer, Principal
Financial Officer and Director)
John E. Morris January 24, 1995
John E. Morris, Vice President - Finance
and Assistant Treasurer (Principal
Accounting Officer)
Charles I. Lunsford, II January 24, 1995
Charles I. Lunsford, II Director
Paul E. Torgersen January 24, 1995
Paul E. Torgersen Director
William L. Neal January 24, 1995
William L. Neal Director
Thomas L. Robertson January 24, 1995
Thomas L. Robertson Director
Gordon C. Willis January 24, 1995
Gordon C. Willis Director
EXHIBIT NO. 3
(a)
ARTICLES OF INCORPORATION
Incorporated by reference to the previously filed Form 10-K for
October 31, 1990 on file in the Commission office.
(b)
BY-LAWS, AS AMENDED
Incorporated by reference to the previously filed Form 10-K for
October 31, 1993 on file in the Commission office.
.
EXHIBIT NO. 4
INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS
Pursuant to Item 601(b) (4) (iii) of Regulation S-K, the
Registrant hereby undertakes to furnish to the Commission, upon request,
copies of the instruments defining the rights of holders of the long-term
debt of Roanoke Electric Steel Corporation and its subsidiaries described
in its 1994 Annual Report to Stockholders and Form 10-K.
EXHIBIT NO. 10
(a)
EXECUTIVE OFFICER INCENTIVE ARRANGEMENT
Incorporated by reference to the previously filed Form 10-K for
October 31, 1993 on file in the Commission office.
(b)
ROANOKE ELECTRIC STEEL CORPORATION
EMPLOYEES' STOCK OPTION PLAN
Incorporated by reference to the previously filed Form 10-K for
October 31, 1992 on file in the Commission office.
EXHIBIT NO. 13
1994 ANNUAL REPORT TO STOCKHOLDERS
EXHIBIT NO. 21
SUBSIDIARIES OF THE REGISTRANT
Registrant: Roanoke Electric Steel Corporation
Organized Under
Subsidiary of Registrant Jurisdiction of
Shredded Products Corporation Virginia
John W. Hancock, Jr., Inc. Virginia
Socar, Incorporated South Carolina
RESCO Steel Products Corporation Virginia
Roanoke Technical Treatment and Services, Inc. Virginia
EXHIBIT NO. 23
DELOITTE & TOUCHE LLP
Suite 1401 Telephone: (910) 721-2300
500 West Fifth Street Facsimile: (910) 721-2301
P.O. Box 20129
Winston -Salem, North Carolina 27120-0129
CONSENT OF INDEPENDENT AUDITORS
Roanoke Electric Steel Corporation:
We hereby consent to the incorporation by reference in Registration
Statement Nos. 33-27359 and 33-35243 on Form S-8 of our report dated
November 18, 1994, appearing in and incorporated by reference in this
Annual Report on Form 10-K of Roanoke Electric Steel Corporation for the
year ended October 31, 1994.
Deloitte & Touche LLP
Winston-Salem, North Carolina
January 24, 1994
Deloitte Touche
Tohmatsu
International
EXHIBIT NO. 27
FINANCIAL DATA SCHEDULE
RESCO BUSINESS
Roanoke Electric Steel Corporation is comprised of the main plant located
in Roanoke, Virginia; one division in Salem, Va.; and five wholly-owned
subsidiaries with locations in Roanoke, Va., Salem, Va., Montvale, Va., Rocky
Mount, Va., Florence, S.C. and Continental, Ohio.
The main plant melts scrap steel in electric furnaces and continuously
casts the molten steel into billets. The billets are later rolled into Merchant
Steel Products consisting of Angles, Plain Rounds, Flats, Channels and
Reinforcing Bars of various lengths and sizes. The Salem Division also rolls the
above products from billets supplied by the main plant, but has been idle since
mid-1991 due to market conditions. Billets are also sold for export and to
domestic mills without melt facilities.
The finished products are sold to Steel Fabricators and Steel Service
Centers; however, a portion is used as raw materials by John W. Hancock, Jr.,
Inc. and RESCO Steel Products Corporation, two Salem, Va. subsidiaries, and
Socar, Incorporated, a subsidiary operating in Florence, S.C. and Continental,
Ohio.
John W. Hancock, Jr., Incorporated and Socar, Incorporated fabricate
open-web steel joists used as supports for roofs, ceilings and floors in the
construction of commercial and industrial buildings.
RESCO Steel Products Corporation fabricates concrete reinforcing steel by
cutting and bending rebars to contractors' specifications.
Shredded Products Corporation, another subsidiary with operations in
Montvale and Rocky Mount, Va., produces scrap steel and other metals from junked
automobiles and other waste materials. All of the ferrous scrap is used by the
main plant as raw materials. A substantial amount of non-ferrous metals produced
in the process is sold to unrelated customers.
Roanoke Technical Treatment & Services, Inc., a Roanoke, Va. subsidiary,
was formed in 1990 to license a process for the treatment of electric arc
furnace dust. The subsidiary is awaiting various approvals and permits and is
uncertain as to a specific time for start-up.
5 YEAR SUMMARY OF OPERATIONS
[CAPTION]
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Sales $215,809,228 $167,294,378 $146,036,301 $126,977,104 $166,796,343
Gross earnings 33,732,184 22,565,662 17,562,115 12,835,197 30,919,774
Interest expense, net 1,891,263 1,730,822 2,031,154 2,490,129 1,611,145
Income taxes 5,684,150 2,785,168 1,491,474 74,384 5,185,124
Earnings before cumulative effect of change
in accounting principles 8,766,435 4,750,106 2,655,006 227,230 8,353,178
Net earnings 11,860,375 4,750,106 2,655,006 227,230 8,353,178
Earnings per share of common stock before
cumulative effect of accounting change 1.65 .90 .50 .04 1.57
Earnings per share of common stock 2.23 .90 .50 .04 1.57
Dividends per share of common stock .61 .48 .48 .48 .53
Total assets at year end 140,473,510 130,620,435 125,558,910 124,648,573 129,813,963
Long-term debt at year end 20,729,166 25,521,000 20,486,500 25,452,000 20,907,970
</TABLE>
STOCK ACTIVITY
The Common Stock of Roanoke Electric Steel Corporation is traded nationally
over the counter on NASDAQ National Market System using the symbol RESC. At year
end, there were approximately 810 shareholders of record.
<TABLE>
<CAPTION>
1994 1993
STOCK PRICES STOCK PRICES CASH DIVIDENDS
HIGH LOW HIGH LOW 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C>
First Quarter 16 12 1/4 12 1/4 10 First Quarter $.12 $.12
Second Quarter 18 1/4 15 12 1/2 11 Second Quarter .12 .12
Third Quarter 17 3/4 14 1/2 12 3/4 11 3/4 Third Quarter .12 .12
Fourth Quarter 16 1/2 14 13 1/4 10 3/4 Fourth Quarter .12 .12
Extra .13
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of Roanoke Electric Steel
Corporation:
We have audited the accompanying consolidated balance sheets of
Roanoke Electric Steel Corporation and its wholly-owned subsidiaries as of
October 31, 1994 and 1993, and the related consolidated statements of earnings,
stockholders' equity and cash flows for each of the three years in the period
ended October 31, 1994. These financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Roanoke Electric Steel
Corporation and its wholly-owned subsidiaries at October 31, 1994 and 1993, and
the results of their operations and their cash flows for each of the three years
in the period ended October 31, 1994 in conformity with generally accepted
accounting principles.
As discussed in Notes 5 and 12 to the consolidated financial statements,
effective November 1, 1993, the Corporation changed its method of accounting for
income taxes and its method of accounting for postretirement benefits other than
pensions.
Deloitte & Touche LLP
Winston-Salem, North Carolina
November 18, 1994
Consolidated Financial Statements
<TABLE>
CONSOLIDATED STATEMENTS OF EARNINGS Year Ended October 31,
1994 1993 1992
<S> <C> <C> <C>
SALES....................................... $215,809,228 $167,294,378 $146,036,301
COST OF SALES............................... 182,077,044 144,728,716 128,474,186
GROSS EARNINGS.............................. 33,732,184 22,565,662 17,562,115
OTHER OPERATING EXPENSES
Administrative............................ 14,047,008 11,619,320 10,486,643
Interest, net............................. 1,891,263 1,730,822 2,031,154
Profit sharing............................ 3,343,328 1,680,246 897,838
19,281,599 15,030,388 13,415,635
EARNINGS BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLES 14,450,585 7,535,274 4,146,480
INCOME TAX EXPENSE.......................... 5,684,150 2,785,168 1,491,474
EARNINGS BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLES........... 8,766,435 4,750,106 2,655,006
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLES FOR INCOME TAXES............... 3,093,940 - -
NET EARNINGS................................ $ 11,860,375 $ 4,750,106 $ 2,655,006
EARNINGS PER SHARE OF COMMON STOCK
EARNINGS BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE.................... $ 1.65 $ .90 $ .50
CUMULATIVE EFFECT OF ACCOUNTING
CHANGE FOR INCOME TAXES................. .58 - -
NET EARNINGS PER SHARE OF
COMMON STOCK.............................. $ 2.23 $ .90 $ .50
CASH DIVIDENDS PER SHARE OF
COMMON STOCK.............................. $ .61 $ .48 $ .48
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Capital in
Excess of Treasury Stock
Common Stock Stated Retained (At Cost)
Shares Amount Value Earnings Shares Amount
<S> <C> <C> <C> <C> <C> <C>
BALANCE,
NOVEMBER 1, 1991............ 5,898,538 $ 691,701 $9,349,429 $52,013,038 597,829 $1,194,868
Stock options exercised... 3,000 21,750 - - - -
Net earnings.............. - - - 2,655,006 - -
Cash dividends............ - - - (2,545,121) - -
BALANCE,
OCTOBER 31, 1992............ 5,901,538 713,451 9,349,429 52,122,923 597,829 1,194,868
Stock options exercised... 1,200 8,700 - - - -
Net earnings.............. - - - 4,750,106 - -
Cash dividends............ - - - (2,546,164) - -
BALANCE,
OCTOBER 31, 1993............ 5,902,738 722,151 9,349,429 54,326,865 597,829 1,194,868
Stock options exercised... 44,000 608,499 - - - -
Net earnings.............. - - - 11,860,375 - -
Cash dividends............ - - - (3,254,782) - -
BALANCE,
OCTOBER 31, 1994............ 5,946,738 $1,330,650 $9,349,429 $62,932,458 597,829 $1,194,868
</TABLE>
See notes to consolidated financial statements.
<TABLE>
CONSOLIDATED BALANCE SHEETS October 31,
1994 1993
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $ 150,036 $ 3,067,418
Investments............................................... 5,333,895 5,243,735
Accounts receivable....................................... 34,840,838 28,074,878
Inventories............................................... 26,969,662 24,069,180
Prepaid expenses.......................................... 1,159,074 1,324,123
Deferred income taxes..................................... 1,215,551 1,318,196
Total current assets................................. 69,669,056 63,097,530
PROPERTY, PLANT AND EQUIPMENT
Land...................................................... 3,243,426 3,243,426
Buildings................................................. 15,712,110 15,121,826
Other property and equipment.............................. 94,942,955 93,677,568
Assets under construction................................. 9,664,843 2,897,377
Sub-total............................................ 123,563,334 114,940,197
Less-accumulated depreciation............................. 53,088,234 48,728,280
70,475,100 66,211,917
OTHER ASSETS
Unamortized excess of cost of investment in subsidiary
over net assets acquired................................. 108,777 295,247
Other..................................................... 220,577 1,015,741
329,354 1,310,988
$140,473,510 $130,620,435
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt......................... $ 4,791,834 $ 4,965,500
Notes payable............................................. 6,500,000 6,000,000
Accounts payable.......................................... 16,560,157 11,595,102
Dividends payable......................................... 1,337,227 636,589
Employees' taxes withheld................................. 254,965 207,069
Accrued profit sharing contribution....................... 3,269,640 1,680,246
Accrued wages and expenses................................ 1,764,863 1,536,585
Accrued income taxes...................................... 685,950 69,538
Total current liabilities............................ 35,164,636 26,690,629
LONG-TERM DEBT
Notes payable............................................. 25,521,000 30,486,500
Less-current portion...................................... 4,791,834 4,965,500
20,729,166 25,521,000
POSTRETIREMENT LIABILITIES.................................. 242,000 -
DEFERRED INCOME TAXES....................................... 11,920,039 15,205,229
COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 7)
STOCKHOLDERS' EQUITY
Common stock-no par value-authorized 10,000,000
shares, issued
5,946,738 shares in 1994 and 5,902,738 in 1993.......... 1,330,650 722,151
Capital in excess of stated value......................... 9,349,429 9,349,429
Retained earnings......................................... 62,932,458 54,326,865
73,612,537 64,398,445
Less-treasury stock, 597,829 shares-at cost............... 1,194,868 1,194,868
Total stockholders' equity........................... 72,417,669 63,203,577
$140,473,510 $130,620,435
</TABLE>
See notes to consolidated financial statements.
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended October 31,
1994 1993 1992
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings................................................ $ 11,860,375 $ 4,750,106 $ 2,655,006
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............................... 242,000 - -
Depreciation and amortization............................ 7,559,118 7,492,567 7,331,183
Gain on sale of investments and property,
plant and equipment...................................... (12,017) (124,088) (7,556)
Deferred income taxes.................................... (88,605) 37,082 (332,561)
Changes in assets and liabilities which provided
(used) cash, exclusive of changes shown separately...... (2,054,358) (2,513,772) (3,774,704)
Net cash provided by operating activities................... 14,412,573 9,641,895 5,871,368
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment........... (11,744,913) (5,767,423) (4,748,599)
Proceeds from sale of property, plant and
equipment.............................................. 189,849 53,900 31,810
Purchase of investments.................................. (3,489,816) (2,159,645) (1,300,402)
Proceeds from sale of investments........................ 3,342,493 3,150,546 3,861,800
Other.................................................... 783,577 (115,169) (195,146)
Net cash used in investing activities....................... (10,918,810) (4,837,791) (2,350,537)
CASH FLOWS FROM FINANCING ACTIVITIES
Notes payable - net...................................... 500,000 (6,000,000) 2,500,000
Cash dividends........................................... (3,254,782) (2,546,164) (2,545,121)
Increase (decrease) in dividends payable................. 700,638 144 360
Proceeds from exercise of common stock options........... 608,499 8,700 21,750
Redemption of long-term debt............................. (4,965,500) (4,965,500) (3,955,970)
Proceeds from long-term debt............................. - 10,000,000 -
Net cash used in financing activities....................... (6,411,145) (3,502,820) (3,978,981)
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.............................................. (2,917,382) 1,301,284 (458,150)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR................ 3,067,418 1,766,134 2,224,284
CASH AND CASH EQUIVALENTS, END OF YEAR...................... $ 150,036 $ 3,067,418 $ 1,766,134
CHANGES IN ASSETS AND LIABILITIES WHICH
PROVIDED (USED) CASH, EXCLUSIVE OF CHANGES
SHOWN SEPARATELY
(Increase) decrease in accounts receivable............... $ (6,765,960) $ (4,001,379) $ (5,336,296)
(Increase) decrease in refundable income taxes........... - - 950,072
(Increase) decrease in inventories....................... (2,900,482) (338,492) (2,074,020)
(Increase) decrease in prepaid expenses.................. 165,049 (632,862) 118,667
Increase (decrease) in accounts payable.................. 4,965,055 1,911,486 1,118,639
Increase (decrease) in employees' taxes withheld......... 47,896 59,132 3,398
Increase (decrease) in accrued profit sharing
contribution........................................... 1,589,394 782,408 897,838
Increase (decrease) in accrued wages and expenses........ 228,278 38,806 144,589
Increase (decrease) in accrued income taxes.............. 616,412 (332,871) 402,409
Total....................................................... $ (2,054,358) $ (2,513,772) $ (3,774,704)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the period for:
Interest (net of amount capitalized)..................... $ 2,343,960 $ 2,219,291 $ 2,668,219
Income taxes............................................. $ 5,156,266 $ 3,080,957 $ 471,554
</TABLE>
See notes to consolidated financial statements.
Notes To Consolidated Financial Statements
(Note 1) Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Roanoke
Electric Steel Corporation and its wholly-owned subsidiaries, Shredded
Products Corporation, John W. Hancock, Jr., Inc., Socar, Inc., RESCO Steel
Products Corporation and Roanoke Technical Treatment & Services, Inc. ("the
Company"). All significant intercompany accounts and transactions have been
eliminated.
Inventories
Inventories of the Company, with the exception of John W. Hancock, Jr., Inc.,
are generally valued at cost on a first-in, first-out (FIFO) method or market,
if lower. A major portion of the inventories of John W. Hancock, Jr., Inc. is
valued on a last-in, first-out (LIFO) method. LIFO cost is not in excess of
replacement or current cost.
Property, Plant and Equipment
These assets are stated at cost. Depreciation expense is computed by
straight-line and declining-balance methods. Maintenance and repairs are charged
against operations as incurred. Major items of renewals and betterments are
capitalized and depreciated over their estimated useful lives. Upon retirement
or other disposition of plant and equipment, the cost and related accumulated
depreciation are removed from the property and allowance accounts, and the
resulting gain or loss is reflected in earnings.
Income Taxes
Prior to November 1, 1993, the Company provided deferred income
taxes when timing differences occurred in reporting income and expenses for
financial reporting and income tax reporting. Effective November 1, 1993, the
Company adopted the provisions of Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" (SFAS 109). Under SFAS 109, deferred
income taxes are provided by the asset and liability method, which requires the
recognition of deferred tax assets and liabilities for the future tax
consequences of temporary differences between tax bases and financial reporting
bases of other assets and liabilities.
Goodwill
The excess of cost over fair value of net assets of acquired subsidiary is
amortized using the straight-line method over the estimated benefit period of
ten years. At October 31, 1994, accumulated amortization was $1,755,926.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
Investments
Investments are those highly liquid debt instruments with maturities in excess
of three months and are valued at cost, which approximates market.
Reclassifications
Certain amounts included in the consolidated financial statements for 1993 have
been reclassified from their original presentation to conform with the current
year presentation.
Revenue Recognition
Revenues from sales are recognized when products are shipped to customers,
except for fabrication products which are recognized by the
percentage-of-completion method in accordance with industry practice. Sales to
an unaffiliated customer amounted to 13% and 10% of consolidated sales for 1994
and 1992, respectively.
(Note 2) Inventories
If the first-in, first-out (FIFO) method of valuing inventories had been used by
John W. Hancock, Jr., Inc., consolidated inventories would have been $1,611,460
greater in 1994 and $1,270,534 greater in 1993.
Inventories include the following major classifications:
October 31,
1994 1993 1992
Scrap steel......... $ 4,737,074 $ 2,651,005 $ 2,424,757
Melt supplies....... 1,888,830 2,034,790 2,035,380
Billets............. 3,209,030 2,400,164 4,791,501
Mill supplies....... 2,867,779 2,745,971 2,579,926
Finished steel...... 14,266,949 14,237,250 11,899,124
Total inventories... $26,969,662 $24,069,180 $23,730,688
(Note 3) Properties and Depreciation
Depreciation expense for the years ended October 31, 1994, 1993 and 1992
amounted to $7,332,833, $7,295,885 and $7,133,711, respectively. Generally, the
rates of depreciation range from 3.3% to 20% for buildings and improvements and
5% to 33% for machinery and equipment. Property additions in 1994, 1993 and 1992
included $19,341, $42,418 and $87,275 of interest capitalized, respectively.
(Note 4) Short-Term Debt
The following relates to aggregate short-term borrowings:
<TABLE>
October 31,
1994 1993
<S> <C> <C>
Notes payable to banks with interest ranging from 5.3625%
to 5.58% for 1994......................................... $ 6,500,000 $ 6,000,000
Maximum borrowings outstanding at any month end............. $ 6,500,000 $14,000,000
Weighted average loans outstanding to banks................. $ 6,112,329 $11,816,438
Weighted average interest rates for the year................ 4.31% 3.52%
Weighted average interest rates at October 31............... 5.45% 3.38%
</TABLE>
At October 31, 1994, the Company had lines of credit with various domestic banks
aggregating $37,500,000 with $31,000,000 unused. These arrangements are reviewed
periodically by the lending banks for renewal, and although not legally binding,
commitments have been traditionally honored. These lines of credit do not
require compensating balances.
(Note 5) Income Taxes
The Companies file a consolidated federal income tax return. The federal income
tax returns through October 31, 1990 have been examined by the Internal Revenue
Service with all issues settled.
The following is a reconciliation of income tax expense per consolidated
statements of earnings to that computed by using the federal statutory tax rate
of 34.33% for 1994, and 34% for 1993 and 1992.
<TABLE>
Year Ended October 31,
1994 1993 1992
<S> <C> <C> <C>
Federal tax at the statutory rate...................... $ 4,960,886 $ 2,561,993 $ 1,409,803
Increase (decrease) in taxes resulting from:
State income taxes, net of federal tax benefit....... 560,240 298,397 164,201
Other items, net..................................... 163,024 (75,222) (82,530)
Income taxes per consolidated statements of earnings... $ 5,684,150 $ 2,785,168 $ 1,491,474
</TABLE>
The components of income tax expense are as follows:
Year Ended October 31,
1994 1993 1992
Current income taxes:
Federal...................... $ 4,859,095 $ 2,377,778 $ 1,616,181
State........................ 913,660 370,308 207,854
Total current income taxes.... 5,772,755 2,748,086 1,824,035
Deferred income taxes:
Federal...................... (28,059) 65,971 (306,615)
State........................ (60,546) (28,889) (25,946)
Total deferred income taxes... (88,605) 37,082 (332,561)
Total income taxes............. $ 5,684,150 $ 2,785,168 $ 1,491,474
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes"(SFAS 109), effective November 1, 1993. The
cumulative effect of adopting SFAS 109 on the Company's consolidated statements
of earnings was to increase income by $3,093,940 ($.58 per share) for 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 October 31, 1994, the Company had total deferred tax
liabilities of $11,920,039 and deferred tax assets of $1,215,551. Deferred tax
liabilities result exclusively from excess tax depreciation, and deferred tax
assets result, primarily, from reserves not currently deductible of $1,001,280.
There were no valuation allowances.
Under the previous income tax accounting rules, deferred income taxes were
provided for significant timing differences in the recognition of revenue and
expense for tax and financial statement purposes. The source of these timing
differences and the tax effect of each are as follows:
Year Ended October 31,
1993 1992
Attributable to depreciation... $ 155,345 $(136,268)
Other, net..................... (118,263) (196,293)
Total deferred income taxes... $ 37,082 $(332,561)
(Note 6) Long-Term Debt
Long-term debt at October 31 consisted of the following:
<TABLE>
October 31,
1994 1993
<S> <C> <C>
Term loan collateralized by land, buildings and equipment
at Roanoke plant, payable in quarterly installments of
$312,500, plus interest at 8.775%. Due September 1,
1999..................................................... $ 5,937,500 $ 7,187,500
Term loan collateralized by equipment at Roanoke plant,
payable in monthly installments of $104,167 beginning
September 1, 1995. Interest payable monthly at 6.87%.
Due September 1, 2003................................... 10,000,000 10,000,000
Term loan collateralized by equipment at Roanoke plant,
payable in annual installments of $1,250,000.
Interest payable monthly at 8.92%. Due
November 1, 1999........................................... 7,500,000 8,750,000
Term loan collateralized by capital stock of Socar, Inc.,
payable in quarterly installments of $382,000.
Interest payable monthly at the lowest of the Bank' s
commercial prime rate plus 1/4%, the LIBOR
rate plus 1.20% or the Bank's 90-day secondary
certificate of deposit rate plus 11/4%, or the rate can
be fixed at any time for five years at the five-year
Treasury note rate plus 2%. Due June 1, 1995 ............. 1,146,000 2,674,000
Term loan collateralized by land, buildings and equipment
at Roanoke plant, payable in quarterly installments of
$234,375. Interest payable quarterly at the lowest of
the Bank's commercial prime rate less 1/4%, the LIBOR rate
plus 1% or the Bank's varied-term secondary certificate
of deposit rate plus 1%. Due September 1, 1995............ 937,500 1,875,000
Total long-term debt........................................ 25,521,000 30,486,500
Less - current portion..................................... 4,791,834 4,965,500
Net long-term debt.......................................... $20,729,166 $25,521,000
Under certain of the loan agreements, the Company must maintain total
liabilities, exclusive of deferred income taxes, of not greater than 1.55 times
tangible net worth and maintain consolidated current assets of not less than
1.25 times consolidated current liabilities. The consolidated current assets
or the property of Socar, Inc., cannot be mortgaged, pledged, used as a security
interest or lien, or encumbered. Currently, consolidated tangible net worth
cannot be less than $59,000,000 and consolidated working capital cannot be less
than $15,000,000. Cash flow from net income, depreciation and deferred income
taxes for the prior four quarters must be equal to or greater than $2,500,000.
In addition, the ratio of earnings to debt service must equal at least 1.0.
Annual aggregate long-term debt maturities are $4,791,834 in 1995, $3,750,000 in
1996, 1997 and 1998, and $3,437,500 in 1999.
(Note 7) Commitments and Contingent Liabilities
At October 31, 1994, the Company was committed for $2,361,121 for purchases of
equipment and production facilities.
The Company and the County of Roanoke, Va. have entered into consent agreements
with the United States Environmental Protection Agency (the"EPA") for the
clean-up of specific portions of a landfill site and adjacent streams near
Salem, Va. One agreement pertains to a "removal action" for the removal and
treatment of emission control dust, sediment and contaminated soil associated
with the streams. The EPA has approved on-site stabilization and disposal.
Another agreement is a "remedial action" for the removal and off-site
treatment and disposal of an emission control dust pile located on the site. The
Company has entered into a cost-sharing agreement with the County of Roanoke for
both response actions at the landfill. It is not known whether other potentially
responsible parties will pay some of the costs. Environmental engineers estimate
the Company's share of the costs to be $2,000,000 which is included in
liabilities. The material components of the accrual are the stream sediment
removal, chemicals for treatment of the sediment, landfill construction for
on-site storage, and transportation and treatment of the dust off-site.
Significant assumptions underlying the estimates are cubic yards or tons of dust
to be removed and treated, man hours required to remove the stream sediment
and the exact location of the hazardous waste disposal site. Removal of the
stream sediment could take as much as two years, while off-site disposal could
take three to nine months, depending on the location. The amount of the costs
expected to be recovered by insurance is uncertain, if any, but the Company is
presently in discussions with its insurance carriers concerning possible
recoveries.
(Note 8) Common Stock and Earnings Per Share
Outstanding common stock consists of 560,000 shares, issued prior to October 31,
1967, at no stated value; 750,656 shares issued subsequent to October 31, 1967,
at a stated value of $.50 per share; 1,310,656 shares issued in 1981 at no
stated value; 1,310,656 shares, less the equivalent of 42 fractional shares,
issued in 1986 at no stated value; 1,965,963 shares, less the equivalent of 151
fractional shares, issued in 1988 at no stated value; 800 shares issued in 1989
at no stated value; 3,000 shares issued in 1992 at no stated value; 1,200 shares
issued in 1993 at no stated value and 44,000 shares issued in 1994 at no stated
value. During the year ended October 31, 1986, the Company increased authorized
common stock from 4,000,000 shares to 10,000,000 shares.
Earnings per share have been computed based on the weighted average number
of shares outstanding, after giving effect to stock options exercised, of
5,326,091 for 1994, 5,304,327 for 1993, and 5,301,794 for 1992. Stock options
are considered nondilutive in the computation of earnings per share as they
are less than 3% of shares outstanding.
(Note 9) Profit Sharing Plans
The Company, including Shredded Products Corporation, RESCO Steel Products
Corporation and Socar, Inc., has qualified profit sharing plans which
cover substantially all employees. John W. Hancock, Jr., Inc., has an
unqualified plan. Socar, Inc.'s annual contribution is discretionary while
the other plans' annual contribution cannot exceed 20% of their combined
earnings before income taxes. Total contributions of all Companies shall not
exceed the maximum amount deductible for such year under the Internal
Revenue Code and amounted to $3,343,328 for 1994, $1,680,246 for 1993 and
$897,838 for 1992.
(Note 10) Interest Expense
Interest expense is stated net of interest income of $438,466 in 1994, $525,784
in 1993 and $615,907 in 1992.
(Note 11) Stock Options
Under a nonqualified stock option plan approved by the stockholders in 1989, the
Company may issue 50,000 shares of unissued common stock to employees of the
Company each plan year. Options for 36,000 shares were granted for 1992 and for
32,500 shares for both 1990 and 1989. These options are exerciseable for a term
of five years from the date of grant. The options were granted at 85% of market
value on the date of grant, and a summary follows:
Option Price
Per Share Shares
Balance, November 1, 1991................ $11.05 - $13.60 62,000
Granted, December 17, 1991............... 6.16 36,000
Exercised................................ 6.16 (3,000)
Expired or terminated.................... 11.05 (500)
Balance, October 31, 1992................ 6.16 - 13.60 94,500
Granted.................................. - -
Exercised................................ 6.16 (1,200)
Expired or terminated.................... - -
Balance, October 31, 1993................ 6.16 - 13.60 93,300
Granted.................................. - -
Exercised................................ 6.16 - 13.60 (44,000)
Expired or terminated.................... 11.03 - 13.60 (1,200)
Balance, October 31, 1994................ 6.16 - 11.05 48,100
Shares available for grant at year end... -
(Note 12) Health Benefits and Postretirement Costs
Effective November 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" (SFAS 106). The Company currently provides
certain health care benefits for terminated employees who have completed 10
years of continuous service after age 45, and SFAS 106 requires the Company to
accrue the estimated cost of such benefit payments during the years the
employee provides services. The Company previously expensed the cost of these
benefits as claims were incurred. SFAS 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 1994
by approximately $152,000 ($.03 per share).
The Company's postretirement
benefit plan is not funded. The accrued postretirement benefit cost recognized
in the balance sheet at October 31 is as follows:
Accumulated postretirement benefit obligation:
Retirees........................................ $ 312,000
Fully eligible plan participants................ 637,000
Other active plan participants.................. 605,000
Accumulated postretirement benefit
obligation.................................... 1,554,000
Unrecognized transition obligation.............. 1,312,000
Accrued postretirement benefit cost............. $ 242,000
Net postretirement benefit cost for 1994 consisted of the following components:
Service cost ............................................... $127,000
Interest cost on accumulated postretirement benefit
obligation................................................ 118,000
Amortization of transition obligation....................... 69,000
Net postretirement benefit cost............................. $ 314,000
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation 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 by
approximately $103,000 and the net postretirement benefit cost by approximately
$26,000. The assumed discount rate used in determining the accumulated
postretirement benefit obligation was 8% for the year ended October 31, 1994.
(Note 13) Unaudited Quarterly Financial Data
Summarized unaudited quarterly financial data for 1994 follows:
</TABLE>
<TABLE>
Three Months Ended
January 31 April 30 July 31 October 31
<S> <C> <C> <C> <C>
Sales................ $47,052,752 $51,626,556 $55,914,438 $ 61,215,482
Gross earnings....... $ 6,054,117 $ 6,602,165 $ 7,658,343 $ 13,417,559
Net earnings......... $ 4,125,536 $ 1,441,627 $ 1,776,602 $ 4,516,610
Earnings per share... $ .78 $ .27 $ .33 $ .85
</TABLE>
Summarized unaudited quarterly financial data for 1993 follows:
<TABLE>
Three Months Ended
January 31 April 30 July 31 October 31
<S> <C> <C> <C> <C>
Sales................ $35,999,788 $40,975,239 $40,901,762 $49,417,589
Gross earnings....... $ 3,960,133 $ 5,458,132 $ 6,046,352 $ 7,101,045
Net earnings......... $ 517,856 $ 949,242 $ 1,183,908 $ 2,099,100
Earnings per share... $ .10 $ .18 $ .22 $ .40
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Sales increased for the period 1992 through 1994. In 1992, sales
improved due mainly to a significant increase in billet shipments and
increased bar and fabricated products (bar joist and rebar) tons shipped,
while selling prices for fabricated products plunged and bar product
prices were flat. The higher billet shipments were a result of increased
domestic demand and entry into the much more competitive export mar-
kets. Although market conditions were little improved, shipments
increased over 1991 because recession was at its worst during that year,
and shipments were adversely affected as we adjusted to the market con-
ditions. Shipments of fabricated products increased in spite of depressed
conditions due to successful job bidding; however, selling prices suf-
fered significantly in order to book a higher percentage of quotations.
The significant increase in sales in 1993 was due to much improved billet
shipments, increased bar and fabricated products tonnage shipped and
higher selling prices for all products. Improved market conditions and
demand resulted in the increased bar product shipments, while the high-
er billet shipments were due to both increased export business and
improved domestic demand. The improvement in merchant bar and bil-
let selling prices resulted, mainly, from higher scrap steel costs prompt-
ing industry-wide price increases. Even though the construction indus-
try remained depressed and highly competitive, shipments of fabricated
products increased slightly due to successful bidding. Selling prices for
fabricated products rose due to higher raw material costs. In 1994, sales
increased dramatically due to significant increases in shipments of bar
and fabricated products and increased selling prices for all product class-
es, while shipments of billets declined slightly. Continued improvement
in business conditions and economic growth fueled demand and resulted
in the increased shipments of bar products. An easing of competitive
conditions within the construction industry led to the increased fabricat-
ed product shipments. Billet tonnage shipped declined slightly due to a
lack of export shipments, although domestic shipments improved signifi-
cantly. While the export markets were much more competitive, domes-
tic demand improved significantly. Selling prices for bar and fabricated
products increased, mainly, as a result of higher raw material costs, but
some of the increased selling prices were demand driven. The higher bil-
let prices were also driven by higher raw material costs, but the
increased domestic billet shipments, which bring a higher price, also
contributed.
In 1992, the increase in cost of sales was attributable to the increased
tons shipped of all product classes, in spite of reductions in scrap steel
and other material costs. Cost of sales increased in 1993 as a result of
the increase in tons shipped of all product classes, together with
increased costs of scrap steel. The increase in cost of sales in 1994 was
due to increased tons shipped of bar and fabricated products in addition
to a continued rise in scrap steel costs.
In 1992, the gross profit percentage increased 1.9% to 12.0%, primarily
due to higher production levels for raw steel, bar products and fabricated
products which reduced unit costs for fixed expenses. Lower scrap costs
also contributed to the increase in margins, even though selling prices
for fabricated products were down. Gross earnings as a percentage of
sales improved 1.5% to 13.5% for 1993. The increase was due to the
increased selling prices for all products which more than offset the
increased scrap costs. The gross profit percentage continued to increase
in 1994 and finished up 2.1% at 15.6%. Higher selling prices for all prod-
uct classes and the efficiencies of much improved production accounted
for the higher margins in spite of a significant increase in scrap costs.
For all years in the 1992 - 1994 period, the increased shipment levels at
the higher gross profit margins provided the improvements in gross and
net earnings.
Administrative expenses increased in 1992 due to executive and man-
agement compensation which increased as a result of increased production,
shipment and earnings levels as all other expenses showed a net decline.
The majority of the increase in administrative expenses in 1993 was
attributable to executive and management compensation which
increased with production, shipments and earnings. Also contributing to
increased administrative expenses were higher bad debts and insurance
costs. In 1994, administrative expenses increased due mainly to
increased executive and management compensation, taxes, insurance,
bad debts and professional fees. Interest expense declined in 1992 as a
result of lower average borrowings and interest rates, even though inter-
est income and capitalized interest declined to $615,907 and $87,275,
respectively. Likewise, 1993 interest was decreased due to lower interest
rates and average borrowings, in spite of a decline in interest income to
$525,784 and less capitalized interest of $42,418. In 1994, interest
expense increased due to higher interest rates, decreased interest
income of $438,466 and decreased capitalized interest of $19,341, even
though average borrowings were lower. Contributions to various profit
sharing plans are determined as a proportion of earnings before income
taxes and should normally increase and decrease with earnings. In 1992
and 1993, income tax expense as a percentage of pretax income was rela-
tively constant. Income tax expense in 1994 was affected by higher tax
rates and the adjustment of deferred taxes required by SFAS 109.
At October 31, 1994, working capital was $34,504,420, the current ratio
was 2.0 and the quick ratio was 1.1 - all very sound. Cash, investments
and accounts receivable of $40,324,769 were more than adequate to pay
current liabilities of $35,164,636 which is a good indication of liquidity
and a healthy financial condition. Commitments for the purchase of prop-
erty, plant and equipment at year end were $2,361,121 and 1995 curtail-
ments of long-term debt will be $4,791,834. These obligations will affect
future liquidity and working capital; however, profits and depreciation
should provide adequate working capital to more than offset the effects
of these items.
Total long-term and short-term borrowings declined $4,465,500 during
the year, and the ratio of debt to equity was .94 to 1. The percentage of
long-term debt to total capital decreased from 28.8% to 22.2%. The above
ratios, percentages and financial information, along with healthy net
worth and strong earnings have made the Company attractive to various
lenders who have expressed their confidence and willingness to provide
additional financing.
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, the
secured creditors are over collateralized and additional long-term fund-
ing is available as mentioned above. In addition, there are capital
resources available in the amount of $31,000,000, representing the
unused portion of $37,500,000 in lines of credit made available to the
Company by various banks.
Management is of the opinion that adoption of the Clean Air Act
Amendments or any other environmental concerns will not have a mate-
rially adverse effect on the Company's operations, capital resources or
liquidity (See Note 7). Additional anticipated future capital expenditures
and costs are presently estimated to be less than $1,000,000.
SFAS 115 "Accounting for Certain Investments in Debt and Equity
Securities" has been enacted and will be adopted next fiscal year. The
statement requires the adjustment of investments for changes in market
prices and is not expected to have a material effect on the Company's
financial condition and results of operations.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial information extracted from the 4th
Quarter Consolidated Balance Sheets and Statement of Earnings and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1994
<PERIOD-END> OCT-31-1994
<CASH> 150,036
<SECURITIES> 5,333,895
<RECEIVABLES> 34,840,838
<ALLOWANCES> 0
<INVENTORY> 26,969,662
<CURRENT-ASSETS> 69,669,056
<PP&E> 123,563,334
<DEPRECIATION> 53,088,234
<TOTAL-ASSETS> 140,473,510
<CURRENT-LIABILITIES> 35,164,636
<BONDS> 20,729,166
<COMMON> 1,330,650
0
0
<OTHER-SE> 71,087,019
<TOTAL-LIABILITY-AND-EQUITY> 140,473,510
<SALES> 215,809,228
<TOTAL-REVENUES> 215,809,228
<CGS> 182,077,044
<TOTAL-COSTS> 182,077,044
<OTHER-EXPENSES> 17,390,336
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,891,263
<INCOME-PRETAX> 14,450,585
<INCOME-TAX> 5,684,150
<INCOME-CONTINUING> 8,766,435
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 3,093,940
<NET-INCOME> 11,860,375
<EPS-PRIMARY> 2.23
<EPS-DILUTED> 2.23
</TABLE>
