UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1997
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
January 31, 1997.
7,492,097 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
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
ROANOKE ELECTRIC STEEL CORPORATION
Consolidated Balance Sheets
ASSETS
(Unaudited)
January 31, October 31,
1997 1996
CURRENT ASSETS
Cash and cash equivalents $ 5,014,156 $ 1,038,689
Investments 6,214,104 6,059,853
Accounts receivable 33,397,350 40,479,798
Inventories 33,699,734 34,314,899
Prepaid expenses 1,319,865 651,013
Deferred income taxes 1,039,542 1,039,542
Total current assets 80,684,751 83,583,794
PROPERTY, PLANT AND EQUIPMENT
Land 4,291,522 4,291,522
Buildings 17,901,975 17,889,855
Other property and equipment 124,077,733 123,215,697
Assets under construction 1,344,328 1,054,026
Total 147,615,558 146,451,100
Less--accumulated depreciation 65,550,916 63,216,681
Property, plant and equipment, net 82,064,642 83,234,419
OTHER ASSETS 195,556 197,688
TOTAL $ 162,944,949 $ 167,015,901
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 4,250,000 $ 4,250,000
Accounts payable 13,058,975 10,977,510
Dividends payable 899,052 904,944
Employees' taxes withheld 75,999 284,466
Accrued profit sharing contribution 794,673 3,911,957
Accrued wages and expenses 1,616,340 2,745,159
Accrued income taxes 1,554,315 879,569
Total current liabilities 22,249,354 23,953,605
LONG-TERM DEBT
Notes payable 35,979,167 39,541,666
Less--current portion 4,250,000 4,250,000
Total long-term debt 31,729,167 35,291,666
POSTRETIREMENT LIABILITIES 804,832 742,839
DEFERRED INCOME TAXES 12,777,700 12,594,700
STOCKHOLDERS' EQUITY
Common stock--no par value--authorized
20,000,000 shares,issued 8,998,040
shares in 1997 and 8,994,140 in 1996 1,935,646 1,916,796
Capital in excess of stated value 9,349,429 9,349,429
Retained earnings 93,783,666 92,097,683
Total 105,068,741 103,363,908
Less--treasury stock, 1,505,943 shares in
1997 and 1,452,943 in 1996--at cost 9,684,845 8,930,817
Total stockholders' equity 95,383,896 94,433,091
TOTAL $ 162,944,949 $ 167,015,901
The accompanying notes to consolidated financial statements are an integral
part of this statement.
ROANOKE ELECTRIC STEEL CORPORATION
Consolidated Statements of Earnings
(Unaudited)
Three Months Ended
January 31,
1997 1996
SALES $ 58,351,734 $ 58,429,217
COST OF SALES 49,020,924 46,473,918
GROSS EARNINGS 9,330,810 11,955,299
OTHER OPERATING EXPENSES
Administrative 3,822,215 3,777,885
Interest, net 466,535 402,262
Profit sharing 744,673 1,238,065
Total 5,033,423 5,418,212
EARNINGS BEFORE INCOME TAXES 4,297,387 6,537,087
INCOME TAX EXPENSE 1,712,713 2,608,674
NET EARNINGS $ 2,584,674 $ 3,928,413
Weighted average number of common
shares outstanding 7,503,026 8,076,484
Net earnings per share of common stock $ 0.34 $ 0.49
Cash dividends per share of common stock $ 0.12 $ 0.11
The accompanying notes to consolidated financial statements are an integral
part of this statement.
<TABLE>
ROANOKE ELECTRIC STEEL CORPORATION
Consolidated Statements of Cash Flows
<CAPTION>
(Unaudited)
Three Months Ended
January 31,
1997 1996
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 2,584,674 $ 3,928,413
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Postretirement liabilities 61,993 62,062
Depreciation and amortization 2,340,756 1,952,535
Loss on sale of investments and property, plant and equipment 1,054 35,414
Deferred income taxes 183,000 (28,000)
Changes in assets and liabilities which provided
(used) cash, exclusive of changes shown separately 5,330,402 1,006,958
Net cash provided by operating activities 10,501,879 6,957,382
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment (1,164,926) (4,551,316)
Proceeds from sale of property, plant and equipment - 6,000
(Purchase) sale of investments (159,225) 160,884
Other - 129,914
Net cash used in investing activities (1,324,151) (4,254,518)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in notes payable - 1,500,000
Cash dividends (898,692) (888,541)
Increase (decrease) in dividends payable (5,892) 440
Proceeds from exercise of common stock options 18,850 42,668
Payment of long-term debt (3,562,499) (1,874,999)
Repurchase of common stock (754,028) -
Net cash used in financing activities (5,202,261) (1,220,432)
NET INCREASE IN CASH AND CASH EQUIVALENTS 3,975,467 1,482,432
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,038,689 6,999,644
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,014,156 $ 8,482,076
CHANGES IN ASSETS AND LIABILITIES WHICH PROVIDED
(USED) CASH, EXCLUSIVE OF CHANGES SHOWN SEPARATELY
(Increase) decrease in accounts receivable $ 7,082,448 $ 9,052,186
(Increase) decrease in inventories 615,165 (2,591,313)
(Increase) decrease in prepaid expenses (668,852) (314,105)
Increase (decrease) in accounts payable 2,081,465 (2,113,971)
Increase (decrease) in employees' taxes withheld (208,467) (20,100)
Increase (decrease) in accrued profit sharing contribution (3,117,284) (3,164,966)
Increase (decrease) in accrued wages and expenses (1,128,819) (996,815)
Increase (decrease) in accrued income taxes 674,746 1,156,042
Total $ 5,330,402 $ 1,006,958
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 637,916 $ 553,057
Income taxes $ 854,968 $ 1,480,633
The accompanying notes to consolidated financial statements are an integral
part of this statement.
</TABLE>
ROANOKE ELECTRIC STEEL CORPORATION
Notes to Consolidated Financial Statements
January 31, 1997
Note 1. In the opinion of the Registrant, the accompanying unaudited
consolidated financial statements contain all adjustments (consisting
of only normal recurring accruals) necessary to present fairly the
financial position as of January 31, 1997 and the results of
operations and cash flows for the three months ended January 31, 1997
and 1996.
Note 2. Inventories include the following major classifications:
(Unaudited)
January 31, October 31,
1997 1996
Scrap Steel $ 4,171,878 $ 5,313,335
Melt Supplies 2,675,350 2,416,879
Billets 7,333,106 7,103,342
Mill Supplies 2,959,685 3,085,749
Finished Steel 16,559,715 16,395,594
Total Inventories $ 33,699,734 $ 34,314,899
INDEPENDENT ACCOUNTANTS' REPORT
DELOITTE & TOUCHE LLP
Suite 1401 Telephone: (910) 721-2300
500 West Fifth Street Facsimile: (910) 721-2301
Winston-Salem, North Carolina 27152
Board of Directors
Roanoke Electric Steel Corporation:
We have reviewed the accompanying consolidated balance sheet of Roanoke
Electric Steel Corporation and subsidiaries as of January 31, 1997, and the
related consolidated statements of earnings and cash flows for the
three-month periods ended January 31, 1997 and 1996. 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 inquiries 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, 1996, 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 21, 1996, 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, 1996 is fairly
stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
Deloitte & Touche LLP
March 5, 1997
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
January 31,
1997 and 1996
Amount Percent
Sales (77,483) (0.1)
Cost of Sales 2,547,006 5.5
Administrative Expenses 44,330 1.2
Interest Expense 64,273 16.0
Profit Sharing Expense (493,392) (39.9)
Earnings before Income Taxes (2,239,700) (34.3)
Income Tax Expense (895,961) (34.3)
Net Earnings (1,343,739) (34.2)
Sales for the first quarter were level with last year as sales were
negatively affected by declines in both selling prices for all product
classes and billet tons shipped, but were favorably impacted by increased
merchant bar and fabricated product shipments. The lower selling prices for
bar and fabricated products were due to increased competition, within the
steel and construction industries, prompting industry-wide price reductions.
A slowing in domestic demand by our billet customers caused the decrease in
billet shipments, while billet selling prices declined with the downward
trend in scrap prices, which normally trigger changes in billet pricing. In
spite of the increased competition, merchant bar shipments increased as
order levels and backlogs remained high, while shipments of fabricated
products improved due to an abnormally severe winter last year which delayed
shipments. Cost of sales increased mainly as a result of the increased tons
shipped of merchant bar and fabricated products, in spite of the reductions
in both the cost of scrap steel, our main raw material, and in billet
shipments. Gross profit as a percentage of sales declined from 20. 5% to
16.0%, primarily as a result of the lower selling prices for all product
classes, in spite of the lower scrap costs. Both gross profit and net
earnings declined due to lower margins, eventhough shipment volume was
higher. Administrative expenses increased mainly as a result of higher
insurance expenses, travel and selling expenses and computer costs, in spite
of decreased executive and other compensation, in accordance with various
incentive arrangements based on earnings and production. Administrative
expenses, as a percentage of sales, were relatively constant for the periods
compared. Interest expense increased as higher average borrowings more than
offset lower interest rates and increased capitalized interest and interest
income. Profit sharing expense, computed as a percentage of pre-tax income,
declined due to decreased earnings. The effective income tax rate was
relatively constant for both periods compared.
Working capital decreased $1,194,792 during the period to $58,435,397 mainly
as a result of capital expenditures, dividends, debt maturities and
repurchases of common stock amounting to $1,164,926, $898,692, $3,562,499
and $754,028, respectively, which exceeded working capital provided from
operations. The current ratio of 3.6 to 1 and the quick ratio of 2.0 to 1
both indicate very sound liquidity and a healthy financial condition. In
addition, cash and investments increased $4,129,718 during the quarter to
$11,228,260. Our $30,000,000 revolver, unused at January 31, 1997, provides
the liquidity and capital resources necessary to maintain our competitive
position and ensure future growth.
The company last year approved a common stock buy-back plan. Currently,
609,200 shares of 750,000 authorized have been repurchased at a cost of
$8,489,977. At January 31, 1997, commitments for the purchase of property,
plant and equipment of $2,108,021, and the repurchase of the remaining
140,800 shares will affect future liquidity. Funding for these needs will
come from internally generated funds and the use of the revolver mentioned
above.
During the quarter, the ratio of debt to equity improved to .71 to 1, and
the percentage of long-term debt to total capital decreased from 27.2% to
25.0%, due to current maturities reducing long-term debt by $3,562,499,
while stockholders' equity increased as net earnings of $2,584,674 exceeded
dividends of $898,692 and common stock repurchases of $754,028.
From time to time, the Company may publish forward-looking statements
relating to such matters as anticipated financial performance, business
prospects, technological developments, new products, research and
development activities and similar matters. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor for forward-looking
statements. In order to comply with the terms of the safe harbor, the
Company notes that a variety of factors could cause the Company's actual
results and experience to differ materially form the anticipated results or
other expectations expressed in the Company's forward-looking statements.
The risks and uncertainties that may affect the operations, performance,
development and results of the Company's business include economic and
industry conditions, availability and prices of supplies, prices of steel
products, competition, governmental regulations, interest rates, inflation,
labor relations, environmental concerns, and others.
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, 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 March 5, 1997 Donald G. Smith
Donald G. Smith, Chairman, President,
Treasurer and Chief Executive Officer
(Principal Financial Officer)
Date March 5, 1997 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 1st Quarter Consolidated Balance Sheets
and Statement of Earnings and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> JAN-31-1997
<CASH> 5,014,156
<SECURITIES> 6,214,104
<RECEIVABLES> 33,397,350
<ALLOWANCES> 0
<INVENTORY> 33,699,734
<CURRENT-ASSETS> 80,684,751
<PP&E> 147,615,558
<DEPRECIATION> 65,550,916
<TOTAL-ASSETS> 162,944,949
<CURRENT-LIABILITIES> 22,249,354
<BONDS> 31,729,167
0
0
<COMMON> 1,935,646
<OTHER-SE> 93,448,250
<TOTAL-LIABILITY-AND-EQUITY> 162,944,949
<SALES> 58,351,734
<TOTAL-REVENUES> 58,351,734
<CGS> 49,020,924
<TOTAL-COSTS> 49,020,924
<OTHER-EXPENSES> 4,566,888
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 466,535
<INCOME-PRETAX> 4,297,387
<INCOME-TAX> 1,712,713
<INCOME-CONTINUING> 2,584,674
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,584,674
<EPS-PRIMARY> .34
<EPS-DILUTED> .34
</TABLE>
