UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-2389
ROANOKE ELECTRIC STEEL CORPORATION
(Exact name of Registrant as specified in its charter)
Virginia 54-0585263
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
102 Westside Blvd., N.W., Roanoke, Virginia 24017
(Address of principal executive offices) (Zip Code)
(540) 342-1831
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No
Indicate the number of shares outstanding of each of the Registrant's classes
of common stock, as of July 31, 1995, reflecting a three-for-two stock split,
effective May 1, 1995.
8,066,147 Shares outstanding
ROANOKE ELECTRIC STEEL CORPORATION
FORM 10-Q
CONTENTS
Page
1. Part I - Financial Information 3 - 9
Item 1. Financial Statements:
a. Consolidated Balance Sheets 3
b. Consolidated Statements of Earnings 4
c. Consolidated Statements of Cash Flows 5
d. Notes to Consolidated Financial Statements 6
e. Independent Accountants' Report 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 - 9
2. Part II - Other Information 10
Item 1. Legal Proceedings 10
Item 6. Exhibits and Reports on Form 8-K 10
3. Signatures 11
4. Exhibit Index pursuant to Regulation S-K 12
5. Exhibits
a. Financial Data Schedule 13
<TABLE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
ROANOKE ELECTRIC STEEL CORPORATION
Consolidated Balance Sheets
ASSETS
<CAPTION>
(Unaudited) (Audited)
July 31, October 31,
1995 1994
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 3,899,277 $ 150,036
Investments 4,237,492 5,333,895
Accounts receivable 37,785,430 34,840,838
Inventories 30,528,266 26,969,662
Prepaid expenses 858,886 1,159,074
Deferred income taxes 1,215,551 1,215,551
Total current assets 78,524,902 69,669,056
PROPERTY, PLANT AND EQUIPMENT
Land 4,666,070 3,243,426
Buildings 16,740,572 15,712,110
Other property and equipment 103,631,211 94,942,955
Assets under construction 4,898,604 9,664,843
Total 129,936,457 123,563,334
Less--accumulated depreciation 58,093,406 53,088,234
Property, plant and equipment, net 71,843,051 70,475,100
OTHER ASSETS
Unamortized excess of cost of investment in
subsidiary over net assets acquired - 108,777
Other 216,595 220,577
Total other assets 216,595 329,354
TOTAL ASSETS $ 150,584,548 $ 140,473,510
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 3,880,212 $ 4,791,834
Notes payable 11,000,000 6,500,000
Accounts payable 13,794,636 16,560,157
Dividends payable 725,953 1,337,227
Employees' taxes withheld 313,825 254,965
Accrued profit sharing contribution 4,676,830 3,269,640
Accrued wages and expenses 1,781,319 1,764,863
Accrued income taxes 768,827 685,950
Total current liabilities 36,941,602 35,164,636
LONG-TERM DEBT
Notes payable 21,484,375 25,521,000
Less--current portion 3,880,212 4,791,834
Total long-term debt 17,604,163 20,729,166
POSTRETIREMENT LIABILITIES 431,443 242,000
DEFERRED INCOME TAXES 11,707,039 11,920,039
STOCKHOLDERS' EQUITY
Common stock--no par value--authorized 10,000,000 shares,
issued 8,962,890 shares in 1995 and 8,919,955 in 1994 1,653,878 1,330,650
Capital in excess of stated value 9,349,429 9,349,429
Retained earnings 74,091,862 62,932,458
Total 85,095,169 73,612,537
Less--treasury stock, 896,743 shares--at cost 1,194,868 1,194,868
Total stockholders' equity 83,900,301 72,417,669
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 150,584,548 $ 140,473,510
The accompanying notes to consolidated financial statements are an integral part of this statement.
</TABLE>
<TABLE>
ROANOKE ELECTRIC STEEL CORPORATION
Consolidated Statements of Earnings
<CAPTION>
(Unaudited) (Unaudited)
Three Months Ended Nine Months Ended
July 31, July 31,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
SALES $ 68,570,080 $ 55,914,438 $ 188,292,764 $ 154,593,746
COST OF SALES 53,243,158 48,256,095 147,636,228 134,279,121
GROSS EARNINGS 15,326,922 7,658,343 40,656,536 20,314,625
OTHER OPERATING EXPENSES
Administrative 4,228,458 3,381,756 12,176,843 9,903,733
Interest, net 545,855 500,284 1,594,703 1,401,295
Profit sharing 1,918,292 799,751 4,756,878 1,902,737
Total 6,692,605 4,681,791 18,528,424 13,207,765
EARNINGS BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLES 8,634,317 2,976,552 22,128,112 7,106,860
INCOME TAX EXPENSE 3,452,553 1,199,950 8,873,983 2,857,035
EARNINGS BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLES 5,181,764 1,776,602 13,254,129 4,249,825
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLES FOR INCOME TAXES - - - 3,093,940
NET EARNINGS $ 5,181,764 $ 1,776,602 $ 13,254,129 $ 7,343,765
Weighted average number of common shares outstanding * 8,060,688 7,999,613 8,038,278 7,977,495
Earnings per share of common stock
Earnings before cumulative effect of accounting change $ 0.65 $ 0.22 $ 1.65 $ 0.53
Cumulative effect of accounting change for income taxes - - - 0.39
Net earnings per share of common stock $ 0.65 $ 0.22 $ 1.65 $ 0.92
Cash dividends per share of common stock $ 0.09 $ 0.08 $ 0.26 $ 0.24
* Adjusted for three-for-two stock split effective 5-1-95 and stock options exercised.
The accompanying notes to consolidated financial statements are an integral part of this statement.
</TABLE>
<TABLE>
ROANOKE ELECTRIC STEEL CORPORATION
Consolidated Statements of Cash Flows
<CAPTION>
(Unaudited)
Nine Months Ended
July 31,
1995 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 13,254,129 $ 7,343,765
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 189,443 181,500
Depreciation and amortization 6,039,134 5,612,778
Gain on sale of property, plant and equipment (177,027) (19,577)
Deferred income taxes (213,000) (205,000)
Changes in assets and liabilities which provided
(used) cash, exclusive of changes shown separately (7,403,146) 1,787,875
Net cash provided by operating activities 11,689,533 11,607,401
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (7,689,570) (8,521,965)
Proceeds from sale of property, plant and equipment 582,754 39,374
Sales (purchases) of investments 1,085,919 (275,794)
Other - (61,391)
Net cash used in investing activities (6,020,897) (8,819,776)
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable--net 4,500,000 500,000
Cash dividends (2,094,724) (1,917,555)
Increase (decrease) in dividends payable (611,274) 5,160
Proceeds from exercise of common stock options 323,228 598,375
Redemption of long-term debt (4,036,625) (4,036,625)
Net cash used in financing activities (1,919,395) (4,850,645)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,749,241 (2,063,020)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 150,036 3,067,418
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,899,277 $ 1,004,398
CHANGES IN ASSETS AND LIABILITIES WHICH PROVIDED
(USED) CASH, EXCLUSIVE OF CHANGES SHOWN SEPARATELY:
(Increase) decrease in accounts receivable $ (2,944,592) $ (1,863,883)
(Increase) decrease in inventories (3,558,604) 134,136
(Increase) decrease in prepaid expenses 300,188 (62,930)
Increase (decrease) in accounts payable (2,765,521) 3,370,935
Increase (decrease) in employees' taxes withheld 58,860 105,755
Increase (decrease) in accrued profit sharing contribution 1,407,190 222,491
Increase (decrease) in accrued wages and expenses 16,456 (351,398)
Increase (decrease) in accrued income taxes 82,877 232,769
Total $ (7,403,146) $ 1,787,875
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 1,887,650 $ 1,744,665
Income taxes $ 9,004,106 $ 2,829,266
The accompanying notes to consolidated financial statements are an integral part of this statement.
</TABLE>
ROANOKE ELECTRIC STEEL CORPORATION
Notes to Consolidated Financial Statements
July 31, 1995
Note 1. In the opinion of the Registrant, the accompanying unaudited
consolidated financial statements contain all adjustments (consisting
of only normal recurring accruals) necessary to present fairly the
financial position as of July 31, 1995 and the results of operations
for the three months and nine months ended July 31, 1995 and 1994
and cash flows for the nine months ended July 31, 1995 and 1994.
Note 2. Inventories include the following major classifications:
(Unaudited) (Audited)
July 31, October 31,
1995 1994
Scrap Steel $ 2,958,219 $ 4,737,074
Melt Supplies 2,254,583 1,888,830
Billets 904,717 3,209,030
Mill Supplies 3,087,505 2,867,779
Finished Steel 21,323,242 14,266,949
$ 30,528,266 $ 26,969,662
Note 3. The Company adopted Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes", effective
November 1, 1993. The cumulative effect of adopting SFAS No. 109
on the Company's statements was to increase income by $3,093,940
($.39 per share) for the three months ended January 31, 1994 and
the nine months ended July 31, 1994.
Note 4. Certain amounts included in the consolidated financial statements
for 1994 have been reclassified from their original presentation
to conform with the current year presentation.
Note 5. The Registrant declared a three-for-two common stock split
payable May 1, 1995, to shareholders of record May 1, 1995,
with a distribution date of May 25, 1995. All references to the
number of common shares and per common share amounts have been
restated to retroactively reflect the stock split.
DELOITTE & TOUCHE LLP
Suite 1401 Telephone: (910) 721-2300
500 West Fifth Street Facsimile: (910) 721-2301
Winston-Salem, North Carolina 27152
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors
Roanoke Electric Steel Corporation:
We have reviewed the accompanying consolidated balance sheet of Roanoke
Electric Steel Corporation and subsidiaries as of July 31, 1995, and the
related consolidated statements of earnings and cash flows for the
three-month and nine-month periods ended July 31, 1995 and 1994. These
financial statements are the responsibility of the Corporation's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and of making inquires of persons responsible for
financial and accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing standards,
the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such
an opinion.
Based on our review, we are not aware of any material modifications that
should be made to such consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Roanoke Electric Steel
Corporation and subsidiaries as of October 31, 1994, 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 18, 1994, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying consolidated balance sheet as of October 31, 1994 is fairly
stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
Deloitte & Touche LLP
August 30, 1995
Deloitte Touche
Tohmatsu
International
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:
<TABLE>
Comparison of Increases (Decreases)
<CAPTION>
Three Months Ended Nine Months Ended
July 31, July 31,
1995 and 1994 1995 and 1994
Amount Percent Amount Percent
<S> <C> <C> <C> <C>
Sales 12,655,642 22.6 33,699,018 21.8
Cost of Sales 4,987,063 10.3 13,357,107 9.9
Administrative Expenses 846,702 25.0 2,273,110 23.0
Interest Expense 45,571 9.1 193,408 13.8
Profit Sharing Expense 1,118,541 139.9 2,854,141 150.0
Earnings before Income Taxes
and Cumulative Effect of
Change in Accounting Principles 5,657,765 190.1 15,021,252 211.4
Income Tax Expense 2,252,603 187.7 6,016,948 210.6
Earnings before Cumulative Effect
of Change in Accounting Principles 3,405,162 191.7 9,004,304 211.9
Cumulative Effect of Change in
Accounting Principles for
Income Taxes - - (3,093,940) *
Net Earnings 3,405,162 191.7 5,910,364 80.5
* Cannot be Calculated
</TABLE>
Sales increased significantly for both the nine month and three month periods
compared as a result of substantial increases in tons shipped of fabricated
products (bar joists and rebar) and billets, together with improved selling
prices for merchant bar products, fabricated products and billets. Sales for
the three months were also favorably affected by a slight increase in bar
product tons shipped, while the nine month bar shipments declined slightly.
Shipments of fabricated products increased substantially, due both to
increased activity and reduced competition within the commercial construction
industry, while fabricated product selling prices increased mainly as a result
of higher raw material costs and the less competitive conditions. Improved
market conditions and increased demand resulted in the higher level of billet
shipments, while the improvement in billet selling prices was primarily due
to higher scrap prices which normally trigger changes in billet pricing.
Merchant bar selling prices improved as a result of higher scrap costs and
increased demand, both prompting industry-wide price increases. During the
nine months, excess inventories at steel service centers caused a temporary
reduction in tons shipped of bar products, eventhough market conditions and
backlogs remained strong, while shipments for the quarter showed a slight
increase. Cost of sales increased for the nine months compared as a result
of the increase in tons shipped of billets and fabricated products, together
with an increase in both the cost of scrap steel, our main raw material, and
in other raw material costs, in spite of the reduction in bar product tons
shipped and the cost savings realized with the start-up of our modern auto
shredding operation. Cost of sales increased for the three months compared
due primarily to the increased tons shipped of all product classes, and an
increase in both scrap steel and other raw material costs, in spite of the
shredding operation efficiencies mentioned above. Inflation in general was
not significant. Gross profit as a percentage of sales increased by
approximately 8.5 % and 8.7 % for the nine months and three months compared,
respectively. These increases were mainly the 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 was the reason for the increase
in both gross profit and net earnings for the periods compared.
Administrative expenses increased in both periods compared primarily due to
increased executive and other compensation, based on various incentive
arrangements. Interest expense increased in both periods compared due to
increased interest rates, higher average borrowings and reduced capitalized
interest and interest income. Profit sharing expense, computed as a
percentage of pretax income, increased in both periods compared as a result
of the improvements in earnings. The effective income tax rate is
relatively constant for both periods compared. The 1994 nine month period
reflects the adoption of an accounting principles change in reporting for
income taxes, resulting in the cumulative effect of $3,093,940 of increased
income through a deferred tax benefit.
Working capital increased $7,078,880 during the period to $41,583,300 mainly
as a result of working capital provided from operations exceeding capital
expenditures, dividends and current maturities of long-term debt amounting
to $7,689,570, $2,094,724 and $3,125,003, respectively. The current ratio
of 2.1 and the quick ratio of 1.2 both indicate very sound liquidity and a
healthy financial condition. Borrowings against the Registrant's $39,500,000
lines of credit were $11,000,000 leaving a balance of $28,500,000 for future
use. As a condition of our loan agreements, the real estate and equipment at
the Roanoke plant 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 funding is available to the Company
through its various lenders, who have expressed their confidence and
willingness to provide additional financing.
At July 31, 1995, there were commitments for the purchase of plant and
equipment amounting to $11,277,752. Funding for most of these expenditures
will come from internally generated funds and the use of the credit lines
mentioned above. A portion of the above commitments includes the upgrade of
an electric arc furnace and the addition of a ladle furnace to the Company's
melt shop operations. The ladle furnace and upgrade will increase raw steel
production, improve quality, decrease production costs and improve operating
efficiencies. Completion and start-up is anticipated in January 1996, and
earnings should be favorably impacted.
The percentage of long-term debt to total capital decreased from 22.2 % to
17.3 % during the nine months, due to current maturities reducing long-term
debt by $3,125,003, while stockholders' equity increased as net earnings of
$13,254,129 exceeded dividends of $2,094,724.
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 was no material development in or termination of the legal
proceedings reported earlier by Registrant on Form 10-K for fiscal
year ended October 31, 1994 and Forms 10-Q for the quarters ended
January 31, 1995 and April 30, 1995, as previously filed with the
commission.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits.
(27) Financial Data Schedule
b. Reports on Form 8-K.
No reports on Form 8-K have been filed during the quarter for which
this report is filed.
Items 2, 3, 4 and 5 are omitted because the information required by these
items is not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ROANOKE ELECTRIC STEEL CORPORATION
Registrant
Date 09/05/95 Donald G. Smith
Donald G. Smith, Chairman, President,
Treasurer and Chief Executive Officer
(Principal Financial Officer)
Date 09/05/95 John E. Morris
John E. Morris, Vice President-Finance
and Assistant Treasurer
(Chief Accounting Officer)
EXHIBIT INDEX
Exhibit No. Exhibit Page
(27) Financial Data Schedule 13
EXHIBIT NO. 27
FINANCIAL DATA SCHEDULE
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> JUL-31-1995
<CASH> 3,899,277
<SECURITIES> 4,237,492
<RECEIVABLES> 37,785,430
<ALLOWANCES> 0
<INVENTORY> 30,528,266
<CURRENT-ASSETS> 78,524,902
<PP&E> 129,936,457
<DEPRECIATION> 58,093,406
<TOTAL-ASSETS> 150,584,548
<CURRENT-LIABILITIES> 36,941,602
<BONDS> 17,604,163
<COMMON> 1,653,878
0
0
<OTHER-SE> 82,246,423
<TOTAL-LIABILITY-AND-EQUITY> 150,584,548
<SALES> 188,292,764
<TOTAL-REVENUES> 188,292,764
<CGS> 147,636,228
<TOTAL-COSTS> 147,636,228
<OTHER-EXPENSES> 16,933,721
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,594,703
<INCOME-PRETAX> 22,128,112
<INCOME-TAX> 8,873,983
<INCOME-CONTINUING> 13,254,129
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,254,129
<EPS-PRIMARY> 1.65
<EPS-DILUTED> 1.65
</TABLE>
