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, 1998
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, 1998.
7,475,547 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
e. Independent Accountants' Report 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8- 9
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 10
2. Part II - Other Information 11
Item 1. Legal Proceedings 11
Item 5. Other Information 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>
<CAPTION>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
ROANOKE ELECTRIC STEEL CORPORATION
Consolidated Balance Sheets
ASSETS
(Unaudited)
January 31, October 31,
1998 1997
CURRENT ASSETS
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 12,879,508 $ 8,844,537
Investments 8,073,149 7,815,682
Accounts receivable 38,018,444 38,786,302
Inventories 35,749,885 36,814,417
Prepaid expenses 1,931,208 1,900,338
Deferred income taxes 1,211,881 1,211,881
Total current assets 97,864,075 95,373,157
PROPERTY, PLANT AND EQUIPMENT
Land 4,310,632 4,313,060
Buildings 18,936,089 18,874,555
Other property and equipment 120,105,643 119,266,483
Assets under construction 1,468,238 921,581
Total 144,820,602 143,375,679
Less--accumulated depreciation 64,294,861 62,077,810
Property, plant and equipment, net 80,525,741 81,297,869
OTHER ASSETS 183,591 189,193
TOTAL ASSETS $ 178,573,407 $ 176,860,219
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 4,250,000 $ 4,250,000
Accounts payable 15,484,962 13,050,874
Dividends payable 971,821 971,639
Employees' taxes withheld 270,222 151,085
Accrued profit sharing contribution 1,221,961 4,910,443
Accrued wages and expenses 1,713,843 2,938,065
Accrued income taxes 2,787,394 1,072,258
Total current liabilities 26,700,203 27,344,364
LONG-TERM DEBT
Notes payable 31,729,167 32,791,667
Less--current portion 4,250,000 4,250,000
Total long-term debt 27,479,167 28,541,667
POSTRETIREMENT LIABILITIES 1,066,554 990,809
DEFERRED INCOME TAXES 13,597,110 13,547,110
STOCKHOLDERS' EQUITY
Common stock--no par value--authorized 20,000,000 shares,
issued 9,031,490 shares in 1998 and 9,030,090 in 1997 2,364,111 2,349,179
Capital in excess of stated value 9,349,429 9,349,429
Retained earnings 108,520,428 105,241,256
Total 120,233,968 116,939,864
Less--treasury stock, 1,555,943 shares at cost 10,503,595 10,503,595
Total stockholders' equity 109,730,373 106,436,269
TOTAL LIABILITY AND STOCKHOLDERS' EQUITY $ 178,573,407 $ 176,860,219
The accompanying notes to consolidated financial statements are an integral part of this statement.
</TABLE>
<TABLE>
<CAPTION>
ROANOKE ELECTRIC STEEL CORPORATION
Consolidated Statements of Earnings
(Unaudited)
Three Months Ended
January 31,
1998 1997
<S> <C> <C>
SALES $ 71,603,735 $ 58,351,734
COST OF SALES 58,695,984 49,020,924
GROSS EARNINGS 12,907,751 9,330,810
OTHER OPERATING EXPENSES
Administrative 4,324,764 3,822,215
Interest, net 284,135 466,535
Profit sharing 1,221,961 744,673
Total 5,830,860 5,033,423
EARNINGS BEFORE INCOME TAXES 7,076,891 4,297,387
INCOME TAX EXPENSE 2,825,899 1,712,713
NET EARNINGS $ 4,250,992 $ 2,584,674
Weighted average number of common shares outstanding :
Basic 7,474,208 7,503,026
Diluted 7,544,714 7,539,468
Net earnings per share of common stock:
Basic $ 0.57 $ 0.34
Diluted $ 0.56 $ 0.34
Cash dividends per share of common stock $ 0.13 $ 0.12
PRO FORMA INFORMATION GIVING RETROACTIVE
EFFECT TO A THREE-FOR-TWO STOCK SPLIT,
EFFECTIVE MARCH 25, 1998
Weighted average number of common shares outstanding :
Basic 11,211,312 11,254,539
Diluted 11,317,071 11,309,202
Net earnings per share of common stock:
Basic $ 0.38 $ 0.23
Diluted $ 0.38 $ 0.23
Cash dividends per share of common stock $ 0.09 $ 0.08
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)
Three Months Ended
January 31,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C> <C>
Net earnings $ 4,250,992 $ 2,584,674
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Postretirement liabilities 75,745 61,993
Depreciation and amortization 2,293,429 2,340,756
(Gain) loss on sale of investments and property, plant and equipment (13,399) 1,054
Deferred income taxes 50,000 183,000
Changes in assets and liabilities which provided
(used) cash, exclusive of changes shown separately 1,157,177 5,330,402
Net cash provided by operating activities 7,813,944 10,501,879
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment (1,507,987) (1,164,926)
Purchase of investments (251,779) (159,225)
Net cash used in investing activities (1,759,766) (1,324,151)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends (971,821) (898,692)
Increase (decrease) in dividends payable 182 (5,892)
Proceeds from exercise of common stock options 14,932 18,850
Payment of long-term debt (1,062,500) (3,562,499)
Repurchase of common stock - (754,028)
Net cash used in financing activities (2,019,207) (5,202,261)
NET INCREASE IN CASH AND CASH EQUIVALENTS 4,034,971 3,975,467
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 8,844,537 1,038,689
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 12,879,508 $ 5,014,156
CHANGES IN ASSETS AND LIABILITIES WHICH PROVIDED
(USED) CASH, EXCLUSIVE OF CHANGES SHOWN SEPARATELY
(Increase) decrease in accounts receivable $ 767,858 $ 7,082,448
(Increase) decrease in inventories 1,064,532 615,165
(Increase) decrease in prepaid expenses (30,870) (668,852)
Increase (decrease) in accounts payable 2,434,088 2,081,465
Increase (decrease) in employees' taxes withheld 119,137 (208,467)
Increase (decrease) in accrued profit sharing contribution (3,688,482) (3,117,284)
Increase (decrease) in accrued wages and expenses (1,224,222) (1,128,819)
Increase (decrease) in accrued income taxes 1,715,136 674,746
Total $ 1,157,177 $ 5,330,402
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 561,005 $ 637,916
Income taxes $ 1,060,764 $ 854,968
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, 1998
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 January 31, 1998 and
the results of operations and cash flows for the three months ended
January 31, 1998 and 1997.
Note 2. Inventories include the following major classifications:
(Unaudited)
January 31, October 31,
1998 1997
Scrap Steel $ 6,346,051 $ 7,579,552
Melt Supplies 2,439,138 2,212,939
Billets 4,608,142 5,960,432
Mill Supplies 3,399,635 3,484,688
Finished Steel 18,956,919 17,576,806
Total Inventories $ 35,749,885 $ 36,814,417
Note 3. 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 15, 1997. Basic earnings per share
and diluted earnings per share calculated in accordance with SFAS
No. 128 are presented in the consolidated statements of earnings.
Note 4. Certain amounts included in the consolidated financial statements
for 1997 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
March 25, 1998, to shareholders of record March 6, 1998. Pro forma
references to the number of common shares (basic and diluted) and
per common share amounts (basic and diluted) have been restated, in
the consolidated statements of earnings, to retroactively reflect
the stock split.
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, 1998, and the
related consolidated statements of earnings and cash flows for the
three-month periods ended January 31, 1998 and 1997. 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, 1997, 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, 1997, 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, 1997 is fairly
stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
Deloitte & Touche LLP
March 3, 1998
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,
1998 and 1997
Amount Percent
Sales 13,252,001 22.7
Cost of Sales 9,675,060 19.7
Administrative Expenses 502,549 13.1
Interest Expense (182,400) (39.1)
Profit Sharing Expense 477,288 64.1
Earnings before Income Taxes 2,779,504 64.7
Income Tax Expense 1,113,186 65.0
Net Earnings 1,666,318 64.5
Sales for the periods compared increased significantly as a result of
increases in tons shipped of fabricated products and billets, together with
improved selling prices for merchant bar products and billets. Sales were
negatively affected by slightly lower selling prices for fabricated
products, while shipment levels for bar products were flat. Strong domestic
demand and lower excess billet availability in the market resulted in billet
shipments nearly doubling the 1997 levels. The increase in tons shipped of
fabricated products was the result of a difference in the delivery schedules
of the respective backlogs. Selling prices for bar products improved during
the period, as market conditions remained strong, prompting a number of
industry-wide price increases since last year's first quarter. The higher
billet selling prices were mainly attributable to increased scrap prices,
which normally trigger changes in billet pricing. Fabricated product selling
prices declined due to increased competition within the commercial
construction industry, even though business conditions continued strong and
backlogs remained high. Cost of sales increased mainly as a result of the
increased tons shipped of fabricated products and billets, together with an
increase in the cost of scrap steel, our main raw material. Gross profit as
a percentage of sales increased from 16% to 18%, primarily as a result of
the higher selling prices for both mill products and billets and increased
raw steel, merchant bar and fabricated production levels which reduced unit
costs for fixed expenses, which more than offset lower fabricated product
selling prices. The significant improvement in gross profit and net
earnings was mainly attributable to the increase in gross profit margins for
mill products, coupled with the increased volume of fabricated product and
billet shipments. Administrative expenses increased 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. However, current year administrative expenses were 6.0% of sales,
down from 6.6% in 1997. Interest expense decreased primarily due to reduced
average borrowings and increased capitalized interest and interest income,
as interest rates remained unchanged. Profit sharing expense, computed as a
percentage of pre-tax income, increased due to the improvement in earnings.
The effective income tax rate was relatively constant for both periods
compared.
Working capital increased $3,135,079 during the period to $71,163,872 mainly
as a result of working capital provided from operations exceeding capital
expenditures, dividends and debt maturities amounting to $1,507,987,
$971,821 and $1,062,500, respectively. The current ratio of 3.7 to 1 and
the quick ratio of 2.2 to 1 both indicate very sound liquidity and a healthy
financial condition. In addition, cash, cash equivalents and investments
increased $4,292,438 during the period to $20,952,657. Our $30,000,000
revolver, unused at January 31, 1998, provides the liquidity and capital
resources necessary to maintain our competitive position and ensure future
growth.
The Company's approved common stock buy-back plan currently stands at
659,200 shares repurchased, of the 750,000 authorized, at a cost of
$9,308,727. At January 31, 1998, commitments for the purchase of property,
plant and equipment of $2,968,752, and the repurchase of the remaining
90,800 shares will affect future liquity. 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 .63 to 1, and
the percentage of long-term debt to total capital decreased from 21.2% to
20.0%, due to current maturities reducing long-term debt by $1,062,500,
while stockholders' equity increased as net earnings of $4,250,992 exceeded
dividends of $971,821.
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 I - ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Quantitative and qualitative information about market risk was addressed in
Form 10-K for fiscal year ended October 31, 1997, as previously filed with
the commission. There has been no material changes to that information
required to be disclosed in this 1st quarter 10-Q filing.
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, 1997, as previously filed with the commission.
ITEM 5. OTHER INFORMATION.
On February 17, 1998, the Registrant's Board declared a three-for-two
common stock split payable March 25, 1998 to shareholders of record
March 6, 1998. The stock split, intended to broaden the market for
the Company's shares, will result in the issuance of approximately
3,738,000 shares, bringing the total outstanding shares to roughly
11,213,000 after the split.
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 and 4 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 03/12/98 Donald G. Smith
Donald G. Smith, Chairman, President,
Treasurer and Chief Executive Officer
(Principal Financial Officer)
Date 03/12/98 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
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-31-1998
<PERIOD-END> JAN-31-1998
<CASH> 12,879,508
<SECURITIES> 8,073,149
<RECEIVABLES> 38,018,444
<ALLOWANCES> 0
<INVENTORY> 35,749,885
<CURRENT-ASSETS> 97,864,075
<PP&E> 144,820,602
<DEPRECIATION> 64,294,861
<TOTAL-ASSETS> 178,573,407
<CURRENT-LIABILITIES> 26,700,203
<BONDS> 27,479,167
0
0
<COMMON> 2,364,111
<OTHER-SE> 107,366,262
<TOTAL-LIABILITY-AND-EQUITY> 178,573,407
<SALES> 71,603,735
<TOTAL-REVENUES> 71,603,735
<CGS> 58,695,984
<TOTAL-COSTS> 58,695,984
<OTHER-EXPENSES> 5,546,725
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 284,135
<INCOME-PRETAX> 7,076,891
<INCOME-TAX> 2,825,899
<INCOME-CONTINUING> 4,250,992
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,250,992
<EPS-PRIMARY> 0.57
<EPS-DILUTED> 0.56
</TABLE>
