UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 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)
(703) 342-1831
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No
Indicate the number of shares outstanding of each of the Registrant's classes
of common stock, as of April 30, 1995, giving retroactive effect to a
three-for-two stock split, effective May 1, 1995.
8,056,962 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)
April 30, October 31,
1995 1994
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,114,816 $ 150,036
Investments 4,210,159 5,333,895
Accounts receivable 34,941,076 34,840,838
Inventories 33,957,490 26,969,662
Prepaid expenses 502,683 1,159,074
Deferred income taxes 1,215,551 1,215,551
Total current assets 75,941,775 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 103,451,335 94,942,955
Assets under construction 4,606,338 9,664,843
Total 129,464,315 123,563,334
Less--accumulated depreciation 56,654,657 53,088,234
Property, plant and equipment, net 72,809,658 70,475,100
OTHER ASSETS
Unamortized excess of cost of investment in
subsidiary over net assets acquired 15,539 108,777
Other 217,323 220,577
Total other assets 232,862 329,354
TOTAL $ 148,984,295 $ 140,473,510
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 3,802,086 $ 4,791,834
Notes payable 13,000,000 6,500,000
Accounts payable 16,648,456 16,560,157
Dividends payable 725,140 1,337,227
Employees' taxes withheld 219,070 254,965
Accrued profit sharing contribution 2,838,586 3,269,640
Accrued wages and expenses 1,444,861 1,764,863
Accrued income taxes 571,474 685,950
Total current liabilities 39,249,673 35,164,636
LONG-TERM DEBT
Notes payable 22,031,250 25,521,000
Less--current portion 3,802,086 4,791,834
Total long-term debt 18,229,164 20,729,166
POSTRETIREMENT LIABILITIES 368,296 242,000
DEFERRED INCOME TAXES 11,760,039 11,920,039
STOCKHOLDERS' EQUITY
Common stock--no par value--authorized 10,000,000
shares, issued 8,953,705 shares in 1995 and 8,919,955
in 1994 1,584,750 1,330,650
Capital in excess of stated value 9,349,429 9,349,429
Retained earnings 69,637,812 62,932,458
Total 80,571,991 73,612,537
Less--treasury stock, 896,743 shares--at cost 1,194,868 1,194,868
Total stockholders' equity 79,377,123 72,417,669
TOTAL $ 148,984,295 $ 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 Six Months Ended
April 30, April 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
SALES $62,202,152 $51,626,556 $119,722,684 $98,679,308
COST OF SALES 48,821,715 45,024,391 94,393,070 86,023,026
GROSS EARNINGS 13,380,437 6,602,165 25,329,614 12,656,282
OTHER OPERATING EXPENSES
Administrative 4,281,363 3,214,440 7,948,385 6,521,977
Interest, net 548,581 446,274 1,048,848 901,011
Profit sharing 1,452,256 535,265 2,838,586 1,102,986
Total 6,282,200 4,195,979 11,835,819 8,525,974
EARNINGS BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLES 7,098,237 2,406,186 13,493,795 4,130,308
INCOME TAX EXPENSE 2,851,588 964,559 5,421,430 1,657,085
EARNINGS BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLES 4,246,649 1,441,627 8,072,365 2,473,223
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLES FOR INCOME TAXES - - - 3,093,940
NET EARNINGS $ 4,246,649 $ 1,441,627 $ 8,072,365 $ 5,567,163
Weighted average number of common shares
outstanding * 8,030,687 7,972,741 8,026,887 7,966,253
Earnings per share of common stock
Earnings before cumulative effect of
accounting change $ 0.52 $ 0.18 $ 1.00 $ 0.31
Cumulative effect of accounting change
for income taxes - - - 0.39
Net earnings per share of common stock $ 0.52 $ 0.18 $ 1.00 $ 0.70
Cash dividends per share of common stock $ 0.09 $ 0.08 $ 0.17 $ 0.16
* 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)
Six Months Ended
April 30,
1995 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 8,072,365 $ 5,567,163
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 126,296 121,000
Depreciation and amortization 4,067,706 3,729,764
Gain on sale of property, plant and equipment (32,540) (19,524)
Deferred income taxes (160,000) (176,000)
Changes in assets and liabilities which provided
(used) cash, exclusive of changes shown seperately (7,244,803) (295,410)
Net cash provided by operating activities 4,829,024 5,833,053
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (6,435,440) (4,560,227)
Proceeds from sale of property, plant and equipment 170,254 39,124
Sales (purchases) of investments 1,115,688 (246,308)
Other - (60,703)
Net cash used in investing activities (5,149,498) (4,828,114)
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable--net 6,500,000 500,000
Cash dividends (1,367,009) (1,275,686)
Increase (decrease) in dividends payable (612,087) 1,488
Proceeeds from exercise of common stock options 254,100 134,900
Redemption of long-term debt (3,489,750) (3,107,750)
Net cash provided by (used) in financing activities 1,285,254 (3,747,048)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 964,780 (2,742,109)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 150,036 3,067,418
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,114,816 $ 325,309
CHANGES IN ASSETS AND LIABILITIES WHICH PROVIDED
(USED) CASH, EXCLUSIVE OF CHANGES SHOWN SEPARATELY:
(Increase) decrease in accounts receivable $ (100,238) $ (2,714,328)
(Increase) decrease in inventories (6,987,828) (1,625,218)
(Increase) decrease in prepaid expenses 656,391 323,957
Increase (decrease) in accounts payable 88,299 4,345,949
Increase (decrease) in employees' taxes withheld (35,895) 39,755
Increase (decrease) in accrued profit sharing contribution (431,054) (577,260)
Increase (decrease) in accrued wages and expenses (320,002) (374,086)
Increase (decrease) in accrued income taxes (114,476) 285,821
Total $ (7,244,803) $ (295,410)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 1,239,804 $ 1,155,468
Income taxes $ 5,695,906 $ 1,547,264
The accompanying notes to consolidated financial statements are an integral part
of this statement.
</TABLE>
ROANOKE ELECTRIC STEEL CORPORATION
Notes to Consolidated Financial Statements
April 30, 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 April 30, 1995 and the results of operations
for the three months and six months ended April 30, 1995 and 1994 and
cash flows for the six months ended April 30, 1995 and 1994.
Note 2. Inventories include the following major classifications:
(Unaudited) (Audited)
April 30, October 31,
1995 1994
Scrap Steel $ 2,211,078 $ 4,737,074
Melt Supplies 3,133,260 1,888,830
Billets 2,824,243 3,209,030
Mill Supplies 2,935,852 2,867,779
Finished Steel 22,853,057 14,266,949
$ 33,957,490 $ 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
six months ended April 30, 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 April 30, 1995, and the
related consolidated statements of earnings and cash flows for the
three-month and six-month periods ended April 30, 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
June 1, 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:
Comparison of Increases (Decreases)
Three Months Ended Six Months Ended
April 30, April 30,
1995 and 1994 1995 and 1994
Amount Percent Amount Percent
Sales 10,575,596 20.5 21,043,376 21.3
Cost of Sales 3,797,324 8.4 8,370,044 9.7
Administrative Expenses 1,066,923 33.2 1,426,408 21.9
Interest Expense 102,307 22.9 147,837 16.4
Profit Sharing Expense 916,991 171.3 1,735,600 157.4
Earnings before Income Taxes and
Cumulative Effect of Change in
Accounting Principles 4,692,051 195.0 9,363,487 226.7
Income Tax Expense 1,887,029 195.6 3,764,345 227.2
Earnings before Cumulative
Effect of Change in Accounting
Principles 2,805,022 194.6 5,599,142 226.4
Cumulative Effect of Change in
Accounting Principles for
Principles for Income Taxes - - (3,093,940) *
Net Earnings 2,805,022 194.6 2,505,202 45.0
* Cannot be Calculated
The significant increase in sales for both the six month and three month
periods compared was due to substantial increases in tons shipped of
fabricated products (bar joists and rebar) and billets together with
improved selling prices for bar products, fabricated products and billets,
in spite of a reduction in bar product tons shipped. The increased
fabricated product shipments were the result of both increased activity and
an easing of competition within the construction industry, while the
improved selling prices of fabricated products were mainly due to higher raw
material costs and the less competitive conditions. Higher demand and
improved market conditions resulted in the increased billet tons shipped.
Scrap price fluctuations normally trigger changes in billet pricing, but
while scrap prices were temporarily lower, billet selling prices remained
higher. Bar product selling prices improved as a result of increased
demand, prompting industry-wide price increases. Excess inventories at
steel service centers caused a temporary reduction in tons shipped of bar
products as market conditions and backlogs remained strong. Cost of sales
increased for both the six month and three month periods compared primarily
due to the increase in tons shipped of billets and fabricated products, in
spite of lower scrap costs, the reduction in tons shipped of merchant bar
products and the cost savings realized with the start-up of our modern auto
shredding operation. Inflation in general was not significant. Gross
profit as a percentage of sales increased by approximately 8.3% and 8.7% for
the six months and three months compared, respectively. These increases
were primarily due to the higher selling prices for all product classes, the
lower scrap costs and increased production levels for raw steel, merchant
bar and fabricated products which reduced unit costs for fixed expenses.
The increase in gross profit margins at the higher shipment levels for
fabricated products and billets was the reason for the increase in both
gross profit and net earnings for the periods compared. Administrative
expenses increased in both periods compared mainly as a result of increased
executive and other compensation, based on various incentive arrangements.
Interest expense increased in both periods compared due to higher interest
rates, increased 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 six month period reflects the adoption of an
accounting principles change in reporting for income taxes, resulting in the
cumulative effect of $3,093,940 of increased income through a deferred tax
benefit.
Working capital increased $2,187,682 during the period to $36,692,102 mainly
as a result of working capital provided from operations exceeding capital
expenditures, dividends and current maturities of long-term debt amounting
to $6,435,440, $1,367,009 and $2,500,002, respectively. The current ratio
of 1.9 and the quick ratio of 1.0 both indicate very sound liquidity and a
healthy financial condition. Borrowings against the Registrant's
$37,500,000 lines of credit were $13,000,000 leaving a balance of
$24,500,000 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 April 30, 1995, there were commitments for the purchase of plant and
equipment amounting to $11,267,212. 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. Start-up is anticipated in 1996.
The percentage of long-term debt to total capital decreased from 22.2% to
18.7% during the first half of the year, due to current maturities reducing
long-term debt by $2,500,002, while stockholders' equity increased as net
earnings of $8,072,365 exceeded dividends of $1,367,009.
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 Form 10-Q for the quarter ended
January 31, 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.
A report on Form 8-K was filed April 18, 1995, during the quarter
for which this report is filed, stating that the Registrant had
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. The stock split, intended to broaden the market for
the Company's shares, will result in the issuance of approximately
2,677,200 shares, resulting in approximately 8,031,600 shares
outstanding after the split.
Items 2, 3, 4 and 5 are omitted because the information required by these
items is not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ROANOKE ELECTRIC STEEL CORPORATION
Registrant
Date 6/6/95 Donald G. Smith
Donald G. Smith, Chairman, President,
Treasurer and Chief Executive Officer
(Principal Financial Officer)
Date 6/6/95 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
<LEGEND>
The Schedule contains summary financial information extracted from the 2nd
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> 6-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> APR-30-1995
<CASH> 1,114,816
<SECURITIES> 4,210,159
<RECEIVABLES> 34,941,076
<ALLOWANCES> 0
<INVENTORY> 33,957,490
<CURRENT-ASSETS> 75,941,775
<PP&E> 129,464,315
<DEPRECIATION> 56,654,657
<TOTAL-ASSETS> 148,984,295
<CURRENT-LIABILITIES> 39,249,673
<BONDS> 18,229,164
<COMMON> 1,584,750
0
0
<OTHER-SE> 77,792,373
<TOTAL-LIABILITY-AND-EQUITY> 148,984,295
<SALES> 119,722,684
<TOTAL-REVENUES> 119,722,684
<CGS> 94,393,070
<TOTAL-COSTS> 94,393,070
<OTHER-EXPENSES> 10,786,971
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,048,848
<INCOME-PRETAX> 13,493,795
<INCOME-TAX> 5,421,430
<INCOME-CONTINUING> 8,072,365
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,072,365
<EPS-PRIMARY> 1.00
<EPS-DILUTED> 1.00
</TABLE>
