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, 1996
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, 1996.
7,699,147 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)
July 31, October 31,
1996 1995
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 5,551,984 $ 6,999,644
Investments 6,298,626 4,179,418
Accounts receivable 37,460,964 40,159,523
Inventories 33,340,285 30,866,238
Prepaid expenses 1,439,288 722,729
Deferred income taxes 1,125,441 1,125,441
Total current assets 85,216,588 84,052,993
PROPERTY, PLANT AND EQUIPMENT
Land 4,328,189 4,312,689
Buildings 17,848,122 17,195,735
Other property and equipment 123,611,427 104,825,380
Assets under construction 2,144,889 5,741,611
Total 147,932,627 132,075,415
Less--accumulated depreciation 63,970,205 58,569,617
Property, plant and equipment, net 83,962,422 73,505,798
OTHER ASSETS 199,825 215,867
TOTAL ASSETS $ 169,378,835 $ 157,774,658
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 4,250,000 $ 3,750,000
Notes payable - 11,000,000
Accounts payable 14,848,592 14,483,781
Dividends payable 847,566 888,101
Employees' taxes withheld 265,801 226,677
Accrued profit sharing contribution 2,852,205 4,403,031
Accrued wages and expenses 2,436,272 2,396,913
Accrued income taxes 278,717 1,420,730
Total current liabilities 25,779,153 38,569,233
LONG-TERM DEBT
Notes payable 42,604,167 20,729,166
Less--current portion 4,250,000 3,750,000
Total long-term debt 38,354,167 16,979,166
POSTRETIREMENT LIABILITIES 680,777 494,591
DEFERRED INCOME TAXES 12,193,070 11,669,070
STOCKHOLDERS' EQUITY
Common stock--no par value--authorized
20,000,000 shares, issued 8,991,890 shares
in 1996 and 8,970,390 in 1995 1,897,171 1,729,503
Capital in excess of stated value 9,349,429 9,349,429
Retained earnings 87,965,504 80,178,534
Total 99,212,104 91,257,466
Less--treasury stock, 1,292,743 shares in 1996 and
896,743 in 1995 -- at cost 6,840,436 1,194,868
Total stockholders' equity 92,371,668 90,062,598
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 169,378,835 $ 157,774,658
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,
1996 1995 1996 1995
<S> <C> <C>
SALES $ 61,532,232 $ 68,570,080 $ 178,105,842 $ 188,292,764
COST OF SALES 51,531,067 53,243,158 145,085,743 147,636,228
GROSS EARNINGS 10,001,165 15,326,922 33,020,099 40,656,536
OTHER OPERATING EXPENSES
Administrative 4,085,174 4,228,458 11,915,150 12,176,843
Interest, net 142,439 545,855 1,031,857 1,594,703
Profit sharing 858,218 1,918,292 3,020,207 4,756,878
Total 5,085,831 6,692,605 15,967,214 18,528,424
EARNINGS BEFORE INCOME TAXES 4,915,334 8,634,317 17,052,885 22,128,112
INCOME TAX EXPENSE 1,961,042 3,452,553 6,804,426 8,873,983
NET EARNINGS $ 2,954,292 $ 5,181,764 $ 10,248,459 $ 13,254,129
Weighted average number of
common shares outstanding * 7,744,451 8,060,688 7,958,944 8,038,278
Net earnings per share of common stock $ 0.39 $ 0.65 $ 1.29 $ 1.65
Cash dividends per share of common stock $ 0.11 $ 0.09 $ 0.33 $ 0.26
* Adjusted for three-for-two stock split effective 5-1-95.
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,
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 10,248,459 $ 13,254,129
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Postretirement liabilities 186,186 189,443
Depreciation and amortization 6,045,294 6,039,134
Gain on sale of investments and property, plant and equipment (15,206) (177,027)
Deferred income taxes 524,000 (213,000)
Changes in assets and liabilities which provided
(used) cash, exclusive of changes shown separately (2,741,592) (7,403,146)
Net cash provided by operating activities 14,247,141 11,689,533
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment (16,493,470) (7,689,570)
Proceeds from sale of property, plant and equipment 58,253 582,754
Sale (purchase) of investments (2,166,988) 1,085,919
Other 142,239 -
Net cash used in investing activities (18,459,966) (6,020,897)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in notes payable (11,000,000) 4,500,000
Cash dividends (2,591,401) (2,094,724)
Decrease in dividends payable (40,535) (611,274)
Proceeds from exercise of common stock options 167,668 323,228
Payment of long-term debt (12,624,999) (4,036,625)
Proceeds from long-term debt 34,500,000 -
Repurchase of common stock (5,645,568) -
Net cash provided by (used in) financing activities 2,765,165 (1,919,395)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,447,660) 3,749,241
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 6,999,644 150,036
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,551,984 $ 3,899,277
CHANGES IN ASSETS AND LIABILITIES WHICH PROVIDED
(USED) CASH, EXCLUSIVE OF CHANGES SHOWN SEPARATELY
(Increase) decrease in accounts receivable $ 2,698,559 $ (2,944,592)
(Increase) decrease in inventories (2,474,047) (3,558,604)
(Increase) decrease in prepaid expenses (716,559) 300,188
Increase (decrease) in accounts payable 364,811 (2,765,521)
Increase (decrease) in employees' taxes withheld 39,124 58,860
Increase (decrease) in accrued profit sharing contribution (1,550,826) 1,407,190
Increase (decrease) in accrued wages and expenses 39,359 16,456
Increase (decrease) in accrued income taxes (1,142,013) 82,877
Total $ (2,741,592) $ (7,403,146)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 1,259,748 $ 1,887,650
Income taxes $ 7,422,440 $ 9,004,106
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, 1996
Note 1. In the opinion of the Registrant, the accompanying unaudited
consolidated financial statements contain all adjustments necessary
to present fairly the financial position as of July 31, 1996 and the
results of operations for the three months and nine months ended
July 31, 1996 and 1995 and cash flows for the nine months ended
July 31, 1996 and 1995.
Note 2. Inventories include the following major classifications:
(Unaudited)
July 31, October 31,
1996 1995
Scrap Steel $ 5,552,703 $ 3,728,612
Melt Supplies 1,975,815 2,443,827
Billets 3,488,231 1,748,778
Mill Supplies 2,929,088 3,210,946
Finished Steel 19,394,448 19,734,075
Total Inventories $ 33,340,285 $ 30,866,238
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, 1996, and the
related consolidated statements of earnings and cash flows for the
three-month and nine-month periods ended July 31, 1996 and 1995. 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, 1995, 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 17, 1995, 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, 1995 is fairly
stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
Deloitte & Touche LLP
August 29, 1996
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 Nine Months Ended
July 31, July 31,
1996 and 1995 1996 and 1995
Amount Percent Amount Percent
Sales (7,037,848) (10.3) (10,186,922) (5.4)
Cost of Sales (1,712,091) (3.2) (2,550,485) (1.7)
Administrative Expenses (143,284) (3.4) (261,693) (2.1)
Interest Expense (403,416) (73.9) (562,846) (35.3)
Profit Sharing Expense (1,060,074) (55.3) (1,736,671) (36.5)
Earnings before Income Taxes (3,718,983) (43.1) (5,075,227) (22.9)
Income Tax Expense (1,491,511) (43.2) (2,069,557) (23.3)
Net Earnings (2,227,472) (43.0) (3,005,670) (22.7)
The significant decrease in sales for both periods compared was due to sharp
declines in both merchant bar selling prices and billet tons shipped, while
shipments of fabricated products (bar joists and rebar) and billet prices
declined slightly. Sales were favorably impacted by increased merchant bar
shipments and improved fabricated product selling prices, although
fabricated prices were relatively flat for the three month period. Selling
prices for bar products declined as a result of increased competition,
prompting industry-wide price reductions. The planned shutdown of the melt
shop during the quarter to install a new ladle furnace and upgrade the
electric arc furnace was unexpectedly prolonged due to problems with
construction and installation, resulting in a 42.5% decline in billet
production for the quarter and causing the significant reduction in billet
shipments. Shipments of fabricated products decreased, due mainly to
weather related construction delays. Billet selling prices declined with
the downward trend in scrap prices, which normally trigger changes in billet
pricing. Merchant bar shipments increased as demand and backlogs remained
high, in spite of increased competition. Fabricated product selling prices
improved for the nine months compared as a result of generally strong
business conditions within the commercial construction industry. Cost of
sales declined for both the nine month and three month periods compared
mainly due to decreased tons shipped of billets and fabricated products,
together with a reduction in the cost of scrap steel, our main raw material,
in spite of the increased bar product shipments. Gross profit as a
percentage of sales declined by approximately 3.1% and 6.1% for the nine
months and three months compared, respectively. These decreases were
primarily the result of the lower selling prices for merchant bar products
and billets, and the negative effect of reduced production on fixed costs,
which more than offset the effects of the lower scrap costs and the
improvement in fabricated product selling prices. The decline in gross
profit margins at the reduced shipment levels caused the reductions in gross
profits and net earnings for the periods compared. Administrative expenses
decreased in both periods compared mainly as a result of decreased executive
and other compensation in accordance with various incentive arrangements.
Administrative expenses, as a percentage of sales, were relatively constant
for both periods. Interest expense decreased in both periods compared as
lower interest rates and increased capitalized interest and interest income
more than offset higher average borrowings. Profit sharing expense,
computed as a percentage of pre-tax income, declined in both periods
compared due to decreased earnings. The effective income tax rate was
relatively constant for both periods compared.
Working capital increased $13,953,675 during the period to $59,437,435
mainly as a result of working capital provided from operations and long-term
borrowings exceeding capital expenditures, dividends, debt maturities and
repurchases of common stock amounting to $16,493,470, $2,591,401,
$13,124,999 and $5,645,568, respectively. The current ratio of 3.3 to 1 and
the quick ratio of 1.9 to 1 both indicate very sound liquidity and a healthy
financial condition. On February 15, 1996, the Registrant closed on
$60,000,000 of unsecured credit facilities with a syndicate of lenders. The
facilities were comprised of a $30,000,000 ten year term loan and a
$30,000,000 five year revolver. The term loan was used to purchase
additional equipment and refinance debt. The revolver replaced lines of
credit that were not legally binding. At July 31, 1996, $4,500,000 had been
borrowed against the revolver. These new loan facilities improved liquidity
and reduced interest rates significantly.
The Board of Directors, at its April 16, 1996 meeting, approved the
repurchase of up to 500,000 shares of the Company's common stock over the
next twelve months. By the end of the quarter, a total of 396,000 shares
had been repurchased at a cost of $5,645,568. The repurchase of the
remaining 104,000 shares will affect future liquidity and will be financed
from internally generated funds and the use of the credit facility. At July
31, 1996, there were commitments for the purchase of plant and equipment
amounting to $1,693,469. Funding for these expenditures will also come from
internally generated funds and the use of the revolver mentioned above. A
significant portion of the above capital expenditures includes the upgrade
of the electric arc furnace and the addition of the ladle furnace to the
Company's melt shop operations. The Registrant expects to benefit from this
new state of the art equipment with increased raw steel production, improved
quality and decreased costs through improved production efficiencies. As of
July 31, 1996, the upgrade on the electric arc furnace was complete and in
operation, whereas equipment failures prevented completion and installation
on the ladle furnace until late August. Both installations should favorably
impact earnings.
During the period, the ratio of debt to equity rose to .83 to 1 due to new
borrowings and stock repurchases. The percentage of long-term debt to total
capital increased from 15.9% to 29.3% during the nine months. Long-term
debt increased $21,375,001 due to $34,500,000 borrowing against the loan
facilities mentioned above net of current maturities of $13,124,999.
Stockholders' equity increased as net earnings of $10,248,459 exceeded
dividends of $2,591,401 and common stock repurchases of $5,645,568.
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, 1995 and Forms 10-Q for the quarters
ended January 31, 1996 and April 30, 1996, 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 September 12, 1996 Donald G. Smith
Donald G. Smith, Chairman, President,
Treasurer and Chief Executive Officer
(Principal Financial Officer)
Date September 12, 1996 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
3rd Quarter Consolidated Balance Sheet and Statement of Earnings and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> JUL-31-1996
<CASH> 5,551,984
<SECURITIES> 6,298,626
<RECEIVABLES> 37,460,964
<ALLOWANCES> 0
<INVENTORY> 33,340,285
<CURRENT-ASSETS> 85,216,588
<PP&E> 147,932,627
<DEPRECIATION> 63,970,205
<TOTAL-ASSETS> 169,378,835
<CURRENT-LIABILITIES> 25,779,153
<BONDS> 38,354,167
0
0
<COMMON> 1,897,171
<OTHER-SE> 90,474,497
<TOTAL-LIABILITY-AND-EQUITY> 169,378,835
<SALES> 178,105,842
<TOTAL-REVENUES> 178,105,842
<CGS> 145,085,743
<TOTAL-COSTS> 145,085,743
<OTHER-EXPENSES> 14,935,357
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,031,857
<INCOME-PRETAX> 17,052,885
<INCOME-TAX> 6,804,426
<INCOME-CONTINUING> 10,248,459
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,248,459
<EPS-PRIMARY> 1.29
<EPS-DILUTED> 1.29
</TABLE>
