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, 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 July 31, 1997.
7,454,097 Shares outstanding
ROANOKE ELECTRIC STEEL CORPORATION
FORM 10-Q
CONTENTS
Page
1. Part I - Financial Information 3 - 10
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 - 7
e. Independent Accountants' Report 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 -10
2. Part II - Other Information 11
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
3. Signatures 12
4. Exhibit Index pursuant to Regulation S-K 13
5. Exhibits
a. Financial Data Schedule 14
<TABLE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
ROANOKE ELECTRIC STEEL CORPORATION
<CAPTION>
Consolidated Balance Sheets
ASSETS
(Unaudited)
July 31, October 31,
1997 1996
CURRENT ASSETS
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 3,634,079 $ 1,038,689
Investments 8,194,577 6,059,853
Accounts receivable 38,208,538 40,479,798
Inventories 34,966,435 34,314,899
Prepaid expenses 2,030,551 651,013
Deferred income taxes 1,039,542 1,039,542
Total current assets 88,073,722 83,583,794
PROPERTY, PLANT AND EQUIPMENT
Land 4,325,872 4,291,522
Buildings 18,631,458 17,889,855
Other property and equipment 126,369,235 123,215,697
Assets under construction 2,811,700 1,054,026
Total 152,138,265 146,451,100
Less--accumulated depreciation 70,279,154 63,216,681
Property, plant and equipment, net 81,859,111 83,234,419
OTHER ASSETS 191,314 197,688
TOTAL ASSETS $ 170,124,147 $ 167,015,901
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 4,250,000 $ 4,250,000
Accounts payable 14,097,203 10,977,510
Dividends payable 969,032 904,944
Employees' taxes withheld 103,378 284,466
Accrued profit sharing contribution 3,221,345 3,911,957
Accrued wages and expenses 2,201,406 2,745,159
Accrued income taxes 892,496 879,569
Total current liabilities 25,734,860 23,953,605
LONG-TERM DEBT
Notes payable 33,854,166 39,541,666
Less--current portion 4,250,000 4,250,000
Total long-term debt 29,604,166 35,291,666
POSTRETIREMENT LIABILITIES 928,817 742,839
DEFERRED INCOME TAXES 13,258,700 12,594,700
STOCKHOLDERS' EQUITY
Common stock--no par value--authorized 20,000,000 shares,
issued 9,010,040 shares in 1997 and 8,994,140 in 1996 2,078,646 1,916,796
Capital in excess of stated value 9,349,429 9,349,429
Retained earnings 99,673,124 92,097,683
Total 111,101,199 103,363,908
Less--treasury stock, 1,555,943 shares in 1997 and
1,452,943 in 1996 -- at cost 10,503,595 8,930,817
Total stockholders' equity 100,597,604 94,433,091
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 170,124,147 $ 167,015,901
The accompanying notes to consolidated financial statements are
integral part of this statement.
</TABLE>
<TABLE>
<CAPTION>
ROANOKE ELECTRIC STEEL CORPORATION
Consolidated Statements of Earnings
(Unaudited) (Unaudited)
Three Months Ended Nine Months Ended
July 31, July 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C> <C> <C>
SALES $ 68,768,769 $ 61,532,232 $ 188,420,399 $ 178,105,842
COST OF SALES 55,187,551 51,531,067 153,657,173 145,085,743
GROSS EARNINGS 13,581,218 10,001,165 34,763,226 33,020,099
OTHER OPERATING EXPENSES
Administrative 4,586,175 4,085,174 12,945,279 11,915,150
Interest, net 396,639 142,439 1,286,335 1,031,857
Profit sharing 1,441,043 858,218 3,320,313 3,020,207
Total 6,423,857 5,085,831 17,551,927 15,967,214
EARNINGS BEFORE INCOME TAXES 7,157,361 4,915,334 17,211,299 17,052,885
INCOME TAX EXPENSE 2,857,809 1,961,042 6,868,003 6,804,426
NET EARNINGS $ 4,299,552 $ 2,954,292 $ 10,343,296 $ 10,248,459
Weighted average number of
common shares outstanding 7,486,456 7,744,451 7,494,896 7,958,944
Net earnings per share of common stock $ 0.57 $ 0.39 $ 1.38 $ 1.29
Cash dividends per share of common stock $ 0.13 $ 0.11 $ 0.37 $ 0.33
The accompanying notes to consolidated financial statements are an integral part of this statement.
</TABLE>
<TABLE>
<CAPTION>
ROANOKE ELECTRIC STEEL CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
July 31,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C> <C>
Net earnings $ 10,343,296 $ 10,248,459
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Postretirement liabilities 185,978 186,186
Depreciation and amortization 7,099,106 6,045,294
(Gain) loss on sale of investments and property, plant and equipment 4,207 (15,206)
Deferred income taxes 664,000 524,000
Changes in assets and liabilities which provided
(used) cash, exclusive of changes shown separately 1,957,353 (2,741,592)
Net cash provided by operating activities 20,253,940 14,247,141
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment (5,704,791) (16,493,470)
Proceeds from sale of property, plant and equipment 100 58,253
Purchase of investments (2,151,663) (2,166,988)
Other - 142,239
Net cash used in investing activities (7,856,354) (18,459,966)
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in notes payable - (11,000,000)
Cash dividends (2,767,856) (2,591,401)
Increase (decrease) in dividends payable 64,088 (40,535)
Proceeds from exercise of common stock options 161,850 167,668
Payment of long-term debt (5,687,500) (12,624,999)
Proceeds from long-term debt - 34,500,000
Repurchase of common stock (1,572,778) (5,645,568)
Net cash provided by (used in) financing activities (9,802,196) 2,765,165
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,595,390 (1,447,660)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,038,689 6,999,644
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,634,079 $ 5,551,984
CHANGES IN ASSETS AND LIABILITIES WHICH PROVIDED
(USED) CASH, EXCLUSIVE OF CHANGES SHOWN SEPARATELY
(Increase) decrease in accounts receivable $ 2,271,260 $ 2,698,559
(Increase) decrease in inventories (651,536) (2,474,047)
(Increase) decrease in prepaid expenses (1,379,538) (716,559)
Increase (decrease) in accounts payable 3,119,693 364,811
Increase (decrease) in employees' taxes withheld (181,088) 39,124
Increase (decrease) in accrued profit sharing contribution (690,612) (1,550,826)
Increase (decrease) in accrued wages and expenses (543,753) 39,359
Increase (decrease) in accrued income taxes 12,927 (1,142,013)
Total $ 1,957,353 $ (2,741,592)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 1,805,026 $ 1,259,748
Income taxes $ 6,191,077 $ 7,422,440
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, 1997
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, 1997 and the results of operations for the three months
and nine months ended July 31, 1997 and 1996 and cash flows for the
nine months ended July 31, 1997 and 1996.
Note 2. Inventories include the following major classifications:
(Unaudited)
July 31, October 31,
1997 1996
Scrap Steel $ 5,687,744 $ 5,313,335
Melt Supplies 2,268,949 2,416,879
Billets 6,818,251 7,103,342
Mill Supplies 3,306,850 3,085,749
Finished Steel 16,884,641 16,395,594
Total Inventories $ 34,966,435 $ 34,314,899
Note 3. In October 1995, the Financial Accounting Standards Board issued
SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No.
123 is effective for transactions entered into in fiscal years that
begin after December 15, 1995. This statement adopts a "fair value
based method" of accounting for employee stock option plans or
similar stock-based compensation plans. Under the fair value based
method, compensation cost is measured at the grant date based on the
fair value of the award and is recognized over the service or
vesting period. The statement does allow entities to continue to
measure compensation using the "intrinsic value based method" of
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" (APB No. 25), provided that they make pro forma
disclosures on net income and earnings per common share as if the
fair value based method of accounting had been applied. The Company
has elected to continue to follow APB No. 25.
Note 4. In February 1997, the Financial Accounting Standards Board issued
SFAS No. 128, "Earnings per Share", which changes the method of
calculating earnings per share. SFAS No. 128 requires the
presentation of "basic" earnings per share and "diluted" earnings
per share on the face of the income statement. Basic earnings per
share is computed by dividing the net income available to common
shareholders by the weighted average shares of outstanding common
stock. The calculation of diluted earnings per share is similar to
basic earnings per share except that the denominator includes
dilutive common stock equivalents such as stock options and
warrants. The statement is effective for financial statements for
periods ending after December 31, 1997, and early adoption is not
permitted. The pro forma basic earnings per share and diluted
earnings per share calculated in accordance with SFAS No. 128 are as
follows:
(Unaudited) (Unaudited)
Three Months Nine Months
Ended Ended
July 31, July 31,
1997 1996 1997 1996
Pro forma basic
earnings per share $ 0.57 $ 0.39 $ 1.38 $ 1.29
Pro forma diluted
earnings per share $ 0.57 $ 0.38 $ 1.37 $ 1.28
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, 1997, the related
consolidated statements of earnings for the three-month and nine-month
periods ended July 31, 1997 and 1996, and the related consolidated
statements of cash flows for the nine month periods ended July 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 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, 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
September 3, 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 Nine Months Ended
July 31, July 31,
1997 and 1996 1997 and 1996
Amount Percent Amount Percent
Sales 7,236,537 11.8 10,314,557 5.8
Cost of Sales 3,656,484 7.1 8,571,430 5.9
Administrative Expenses 501,001 12.3 1,030,129 8.6
Interest Expense 254,200 178.5 254,478 24.7
Profit Sharing Expense 582,825 67.9 300,106 9.9
Earnings before Income Taxes 2,242,027 45.6 158,414 0.9
Income Tax Expense 896,767 45.7 63,577 0.9
Net Earnings 1,345,260 45.5 94,837 0.9
The significant increase in sales for both periods compared resulted,
primarily, from increased tons shipped of both merchant bar products and
billets, together with improved selling prices for bar products, even though
billet prices declined slightly. Fabricated product selling prices
favorably impacted the three month period, but negatively affected the nine
month period. Shipments of fabricated products declined slightly for the
quarter, while remaining flat for the nine months. Merchant bar shipments
increased during both periods compared as competition continued to ease,
while order levels and backlogs remained high. Improved domestic demand
resulted in the higher billet shipments for both periods. Selling prices
for bar products improved during both periods with more favorable
competitive conditions and demand, which prompted industry-wide price
increases. Billet selling prices declined in both periods with the downward
trend in scrap prices, which normally trigger changes in billet pricing.
Fabricated product selling prices increased for the quarter, influenced
mainly by higher raw material costs, but came too late to offset earlier
price reductions resulting in the slight drop in nine month comparable
prices. Competitive conditions in the construction industry caused the drop
in fabricated product shipments for the three months compared. Cost of
sales increased for both the nine month and three month periods compared
primarily due to the increased tons shipped of merchant bar products and
billets. Gross profit as a percentage of sales declined from 18.5% to 18.4%
for the nine months compared as a result of the lower selling prices for
both fabricated products and billets, which more than offset the improved
bar prices. Gross profit as a percentage of sales increased from 16.3% to
19.7% for the three months compared due mainly to the higher selling prices
for both mill and fabricated products and increased raw steel and merchant
bar production levels which reduced unit costs for fixed expenses, which
more than offset lower billet prices. For both periods compared, the
increase in gross profit margins for mill products at the higher shipment
levels was the primary reason for the increase in both gross profit and net
earnings. Administrative expenses increased in both periods compared mainly
as a result of increased executive and other compensation, in accordance
with various incentive arrangements based on earnings and production, and
higher insurance expenses. Administrative expenses, as a percentage of
sales, were relatively constant for the periods compared. Interest expense
increased in both periods compared as higher interest rates and reduced
capitalized interest and interest income more than offset the lower average
borrowings. Profit sharing expense, computed as a percentage of pre-tax
income, increased in both periods compared as a result of the improvements
in earnings. The effective income tax rate was relatively constant for both
periods compared.
Working capital increased $2,708,673 during the period to $62,338,862 mainly
as a result of working capital provided from operations exceeding capital
expenditures, dividends, debt maturities and repurchases of common stock
amounting to $5,704,791, $2,767,856, $5,687,500 and $1,572,778,
respectively. The current ratio of 3.4 to 1 and the quick ratio of 1.9 to 1
both indicate very sound liquidity and a healthy financial condition. In
addition, cash, cash equivalents and investments increased $4,730,114 during
the period to $11,828,656. Our $30,000,000 revolver, unused at July 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,
659,200 shares of the 750,000 authorized have been repurchased at a cost of
$9,308,727. At July 31, 1997, commitments for the purchase of property,
plant and equipment of $876,334, and the repurchase of the remaining 90,800
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 period, the ratio of debt to equity improved to .69 to 1, and the
percentage of long-term debt to total capital decreased from 27.2% to 22.7%,
due to current maturities reducing long-term debt by $5,687,500, while
stockholders' equity increased as net earnings of $10,343,296 exceeded
dividends of $2,767,856 and common stock repurchases of $1,572,778.
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 from 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 and Forms 10-Q for the quarters
ended January 31, 1997 and April 30, 1997, 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 August 29, 1997 Donald G. Smith
Donald G. Smith, Chairman, President,
Treasurer and Chief Executive Officer
(Principal Financial Officer)
Date August 29, 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 14
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-31-1997
<PERIOD-END> JUL-31-1997
<CASH> 3,634,079
<SECURITIES> 8,194,577
<RECEIVABLES> 38,208,538
<ALLOWANCES> 0
<INVENTORY> 34,966,435
<CURRENT-ASSETS> 88,073,722
<PP&E> 152,138,265
<DEPRECIATION> 70,279,154
<TOTAL-ASSETS> 170,124,147
<CURRENT-LIABILITIES> 25,734,860
<BONDS> 29,604,166
0
0
<COMMON> 2,078,646
<OTHER-SE> 98,518,958
<TOTAL-LIABILITY-AND-EQUITY> 170,124,147
<SALES> 188,420,399
<TOTAL-REVENUES> 188,420,399
<CGS> 153,657,173
<TOTAL-COSTS> 153,657,173
<OTHER-EXPENSES> 16,265,592
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,286,335
<INCOME-PRETAX> 17,211,299
<INCOME-TAX> 6,868,003
<INCOME-CONTINUING> 10,343,296
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,343,296
<EPS-PRIMARY> 1.38
<EPS-DILUTED> 1.38
</TABLE>
