ROANOKE ELECTRIC STEEL CORPORATION / ANNUAL REPORT 1995
CELEBRATING OUR
[ROANOKE LOGO]
40TH ANNIVERSARY
40 YEARS OF QUALITY PRODUCTS
FOR OUR CUSTOMERS
40 YEARS OF QUALITY EMPLOYMENT
FOR OUR PEOPLE
40 YEARS OF VALUABLE SERVICE
TO OUR COMMUNITY
$142 MILLION IN PROFITS
FOR OUR COMPANY
$55 MILLION IN DIVIDENDS
FOR OUR STOCKHOLDERS
ROANOKE ELECTRIC STEEL CORPORATION
Roanoke Electric Steel Corporation and its wholly-owned subsidiaries
are engaged in the manufacturing, fabricating and marketing of merchant steel
products, billets, open-web steel joists and reinforcing bars. Each subsidiary
is either a supplier to the parent company or a purchaser of its finished
product.
The main plant of Roanoke Electric Steel Corporation is a
state-of-the-art steel mini-mill located in Roanoke, Virginia. This facility
melts scrap steel in electric furnaces and continuously casts the molten steel
into billets. These billets are rolled into merchant steel products consisting
of angles, plain rounds, flats, channels and reinforcing bars of various lengths
and sizes. Excess steel billet production is sold to mills without melting
facilities. Roanoke Electric Steel Corporation markets its products to steel
service centers and fabricators in 21 states east of the Mississippi River.
Shredded Products Corporation, a subsidiary with operations in Rocky
Mount and Montvale, Virginia, extracts scrap steel and other metals from junked
automobiles and other waste materials. These facilities supply the main plant
with a substantial amount of its raw materials. Non-ferrous metals generated in
the process are sold to unrelated customers.
John W. Hancock, Jr., Inc. and Socar, Inc. are steel fabrication
subsidiaries located in Salem, Virginia, Florence, South Carolina and
Continental, Ohio. All three operations purchase rounds and angles from the main
plant to fabricate long- and short-span open-web steel joists. These joists are
used as horizontal supports for floors and roofs in commercial and industrial
buildings.
RESCO Steel Products Corporation, a Salem, Virginia based subsidiary,
fabricates concrete reinforcing steel by cutting and bending it to contractor
specifications.
1
SELECTED FINANCIAL DATA
Year Ended October 31, 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATIONS
Sales $259,968,524 $215,809,228 $167,294,378 $146,036,301 $126,977,104
Gross earnings 56,097,685 33,732,184 22,565,662 17,562,115 12,835,197
Interest expense-net 2,053,643 1,891,263 1,730,822 2,031,154 2,490,129
Income taxes 13,035,243 5,684,150 2,785,168 1,491,474 74,384
Earnings before cumulative
effect of change in
accounting principle 20,228,902 8,766,435 4,750,106 2,655,006 227,230
Net earnings 20,228,902 11,860,375 4,750,106 2,655,006 227,230
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Working capital $45,483,760 $34,504,420 $36,406,901 $26,188,178 $28,942,912
Total assets 157,774,658 140,473,510 130,620,435 125,558,910 124,648,573
Long-term debt 16,979,166 20,729,166 25,521,000 20,486,500 25,452,000
Stockholders' equity 90,062,598 72,417,669 63,203,577 60,990,935 60,859,300
- ------------------------------------------------------------------------------------------------------------------------------------
SELECTED RATIOS
Gross profit margin 21.6% 15.6% 13.5% 12.0% 10.1%
Operating income margin 7.8% 5.5% 2.8% 1.8% 0.2%
Effective tax rate 39.2% 39.3% 37.0% 36.0% 24.7%
Current ratio 2.2 2.0 2.4 1.9 2.2
Quick ratio 1.3 1.2 1.4 1.1 1.2
Funded debt as a percentage
of total capital 26.1% 30.7% 36.6% 38.0% 39.0%
Pretax return on average total
assets 22.3% 10.7% 5.9% 3.3% 0.2%
Return on average stockholders'
equity 24.9% 12.9%* 7.6% 4.4% 0.4%
- ------------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
Earnings before cumulative
effect of change
in accounting principle $2.51 $1.09 $0.60 $0.33 $0.03
Net earnings 2.51 1.48 0.60 0.33 0.03
Cash dividends 0.37 0.41 0.32 0.32 0.32
Stockholders' equity 11.19 9.06 7.94 7.67 7.65
- ------------------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 8,045,644 7,988,985 7,956,339 7,952,539 7,950,912
Per share information has been adjusted for three-for-two stock split effective
May 1, 1995
[insert graphs here]
1995 1994 1993 1992 1991
Sales (in millions) 260 216 167 146 127
Net Earnings (in millions)* 20.2 8.8 4.8 2.7 .2
Earnings Per Share (in dollars)* 2.51 1.09 .60 .33 .03
Return on Average Equity (in percent)* 24.9 12.9 7.6 4.4 .4
Total Assets (in million) 158 140 131 126 125
*1994 accounting changes of $3.1 million excluded.
4
TO OUR SHAREHOLDERS
Our 40th year in business, fiscal 1995, exceeded all previous
performance records and was the fourth consecutive year of significant earnings
and sales growth. Earnings reached a record $20,228,902 - up 130.8% from 1994
earnings from operations of $8,766,435 and 58.8% higher than previous record
earnings of $12,738,520 achieved in 1989. Earnings per share were $2.51 compared
to 1994 earnings per share from operations of $1.09. Sales for 1995 were
$259,968,524, a 20.5% increase over 1994 record sales of $215,809,228.
Strong demand continued throughout most of 1995, as steady economic
growth positively affected the steel and construction industries. The healthy
demand and economic conditions favorably impacted selling prices and shipment
levels for steel bar products, fabricated products and billets. In addition, as
expected, our relocated and modern automobile shredding facility experienced
considerable savings in waste disposal costs and 50% better metals recoveries,
contributing to the improved earnings.
Other notable highlights of 1995 were:
-- a 2.8% increase in raw steel production to a record level.
-- an 8.6% increase in rolling mill production over last year's
record total.
-- a 6.4% increase in steel bar shipments to the highest level on
record.
-- a $10,979,340 increase in working capital to a record
$45,483,760.
-- a $17,644,929 increase in stockholders' equity to a record
$90,062,598 at year end.
-- an increase in total assets to a record $157,774,658.
-- a return on average equity of 24.9%.
-- a pretax return on average total assets of 22.3%.
-- an increase in gross profit percentage to 21.6% - up from 15.6%
in 1994.
The year also produced substantial improvements to our overall
financial condition. In addition to the increases in working capital and
stockholders' equity mentioned above, curtailments of short-term and long-term
debt were $291,834 during the year, in spite of capital expenditures of
$11,654,366. The reduction in long-term debt, coupled with the increase in
stockholders' equity, caused the percentage of long-term debt to total capital
to decline from 22.2% in 1994 to a very respectable 15.9% at year end. The ratio
of debt to equity improved to .75 to 1, the current ratio was 2.2 to 1 and the
quick ratio was 1.3 to 1. Our sound financial condition has provided us with
liquidity, capital resources and an investment grade rating essential for
continued growth and prosperity.
In recognition of the record performance, our Board of Directors
increased the regular dividend 37.5% during the year. Their actions brought the
annual dividend rate to 44 cents per share, as compared to the regular dividend
of 32 cents per share paid in 1994, after adjusting for
5
the three-for-two stock split in May of 1995. The 148th consecutive
quarterly cash dividend was declared by the Board on October 17, 1995 in the
amount of 11 cents per share, payable November 22, 1995.
During the year, orders were placed for the upgrade of an electric arc
furnace and the addition of a ladle furnace to melt shop operations. The upgrade
and ladle furnace will increase raw steel production, improve quality, decrease
production costs and improve operating efficiencies. The anticipated completion
and start-up in the spring of 1996 should enhance future earnings. This
$14,000,000 project is another step in our efforts to maintain a modern,
state-of-the-art manufacturing facility and remain a competitive, low cost
producer. From 1985 to 1995, capital expenditures were in excess of $97,000,000
and acquisitions exceeded $21,000,000. The record results this year could not
have been attained without these outlays. Likewise, future results will be
maximized by the ladle furnace, the arc furnace upgrade, and the pursuit of
similar opportunities in the future.
As we begin 1996, backlogs of fabricated products and billets remain
excellent, while the backlog for steel bar products is at a comfortable level.
Although selling prices for bar products are slightly lower, the reductions have
been partially offset by falling scrap prices. Economic forecasts call for
continued, although somewhat slower, growth, and 1996 should benefit from normal
election year prosperity. Inflation and interest rates are low and appear to be
under control. Consequently, we are optimistic fiscal 1996 will be a strong
year, and present indications point to improved results in the first quarter of
1996, compared to last year.
We have managed to be profitable every year since 1956, an exceptional
accomplishment in a cyclical industry. We shall endeavor to make the next 40
years as successful and prosperous as the past 40 years.
It is most gratifying to report the record results for fiscal 1995.
The achievements of the past year would not have been possible without the
dedication of our employees and the support of our valued customers. We
deeply thank them and our shareholders for their confidence and investment in
Roanoke Electric Steel Corporation.
/s/ DONALD G. SMITH
Donald G. Smith
Chairman of the Board and Chief Executive Officer
6
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF EARNINGS
Year Ended October 31,
1995 1994 1993
------------- ------------- -------------
SALES $259,968,524 $215,809,228 $167,294,378
COST OF SALES 203,870,839 182,077,044 144,728,716
------------- ------------- -------------
GROSS EARNINGS 56,097,685 33,732,184 22,565,662
------------- ------------- -------------
OTHER OPERATING EXPENSES
Administrative 16,194,810 14,047,008 11,619,320
Interest, net 2,053,643 1,891,263 1,730,822
Profit sharing 4,585,087 3,343,328 1,680,246
------------- ------------- -------------
22,833,540 19,281,599 15,030,388
------------- ------------- -------------
EARNINGS BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 33,264,145 14,450,585 7,535,274
INCOME TAX EXPENSE 13,035,243 5,684,150 2,785,168
------------- ------------- -------------
EARNINGS BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE 20,228,902 8,766,435 4,750,106
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE FOR INCOME TAXES -- 3,093,940 --
------------- ------------- -------------
NET EARNINGS $ 20,228,902 $ 11,860,375 $ 4,750,106
============= ============= =============
EARNINGS PER SHARE OF COMMON STOCK
EARNINGS BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE $ 2.51 $ 1 .09 $ 0.60
CUMULATIVE EFFECT OF ACCOUNTING
CHANGE FOR INCOME TAXES -- 0.39 --
------------- ------------- -------------
NET EARNINGS PER SHARE OF
COMMON STOCK $ 2.51 $ 1.48 $ 0.60
============= ============= =============
CASH DIVIDENDS PER SHARE OF
COMMON STOCK $ 0.37 $ 0.41 $ 0.32
============= ============= =============
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Capital in Treasury Stock
Common Stock Excess of (At Cost)
------------------------- Stated Retained ----------------------
Shares Amount Value Earnings Shares Amount
---------- ----------- ----------- ------------ -------- -----------
BALANCE,
NOVEMBER 1, 1992 5,901,538 $ 713,451 $9,349,429 $52,122,923 597,829 $1,194,868
Stock options exercised 1,200 8,700 -- -- -- --
Net earnings -- -- -- 4,750,106 -- --
Cash dividends -- -- -- (2,546,164) -- --
---------- ----------- ----------- ------------ -------- -----------
BALANCE,
OCTOBER 31, 1993 5,902,738 722,151 9,349,429 54,326,865 597,829 1,194,868
Stock options exercised 44,000 608,499 -- -- -- --
Net earnings -- -- -- 11,860,375 -- --
Cash dividends -- -- -- (3,254,782) -- --
---------- ----------- ----------- ------------ -------- -----------
BALANCE,
OCTOBER 31, 1994 5,946,738 1,330,650 9,349,429 62,932,458 597,829 1,194,868
Three-for-two stock split 2,984,619 -- -- -- 298,914 --
Cash paid in lieu of fractional
shares on stock split (152) -- -- (1,776) -- --
Stock options exercised 39,185 398,853 -- -- -- --
Net earnings -- -- -- 20,228,902 -- --
Cash dividends -- -- -- (2,981,050) -- --
---------- ----------- ----------- ------------ -------- -----------
BALANCE, OCTOBER 31, 1995 8,970,390 $1,729,503 $9,349,429 $80,178,534 896,743 $1,194,868
========== =========== =========== ============ ======== ===========
See notes to consolidated financial statements.
7
CONSOLIDATED BALANCE SHEETS
October 31,
1995 1994
------------- -------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents .................................... $ 6,999,644 $ 150,036
Investments .................................................. 4,179,418 5,333,895
Accounts receivable .......................................... 40,159,523 34,840,838
Inventories .................................................. 30,866,238 26,969,662
Prepaid expenses ............................................. 722,729 1,159,074
Deferred income taxes ........................................ 1,125,441 1,215,551
------------ ------------
Total current assets ................................... 84,052,993 69,669,056
------------ ------------
PROPERTY, PLANT AND EQUIPMENT
Land ......................................................... 4,312,689 3,243,426
Buildings .................................................... 17,195,735 15,712,110
Other property and equipment ................................. 104,825,380 94,942,955
Assets under construction .................................... 5,741,611 9,664,843
------------ ------------
Sub-total .............................................. 132,075,415 123,563,334
Less-accumulated depreciation ................................ 58,569,617 53,088,234
------------ ------------
73,505,798 70,475,100
------------ ------------
OTHER ASSETS
Unamortized excess of cost of investment in subsidiary
over net assets acquired .................................... -- 108,777
Other ........................................................ 215,867 220,577
------------ ------------
215,867 329,354
------------ ------------
$157,774,658 $140,473,510
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt ............................ $ 3,750,000 $ 4,791,834
Notes payable ................................................ 11,000,000 6,500,000
Accounts payable ............................................. 14,483,781 16,560,157
Dividends payable ............................................ 888,101 1,337,227
Employees' taxes withheld .................................... 226,677 254,965
Accrued profit sharing contribution .......................... 4,403,031 3,269,640
Accrued wages and expenses ................................... 2,396,913 1,764,863
Accrued income taxes ......................................... 1,420,730 685,950
------------ ------------
Total current liabilities .............................. 38,569,233 35,164,636
------------ ------------
LONG-TERM DEBT
Notes payable ................................................ 20,729,166 25,521,000
Less-current portion ......................................... 3,750,000 4,791,834
------------ ------------
16,979,166 20,729,166
------------ ------------
POSTRETIREMENT LIABILITIES ..................................... 494,591 242,000
------------ ------------
DEFERRED INCOME TAXES .......................................... 11,669,070 11,920,039
------------ ------------
COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 7)
STOCKHOLDERS' EQUITY
Common stock-no par value-authorized 10,000,000 shares, issued
8,970,390 shares in 1995 and 8,919,955 in 1994 ............. 1,729,503 1,330,650
Capital in excess of stated value ............................ 9,349,429 9,349,429
Retained earnings ............................................ 80,178,534 62,932,458
------------ ------------
91,257,466 73,612,537
Less-treasury stock, 896,743 shares-at cost .................. 1,194,868 1,194,868
------------ ------------
Total stockholders' equity ................................ 90,062,598 72,417,669
------------ ------------
$157,774,658 $140,473,510
============ ============
See notes to consolidated financial statements.
8
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended October 31,
1995 1994 1993
------------ ------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings ................................................ $ 20,228,902 $ 11,860,375 $ 4,750,106
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 ............................... 252,591 242,000 --
Depreciation and amortization ............................ 7,989,663 7,559,118 7,492,567
Gain on sale of investments and property,
plant and equipment ..................................... (193,926) (12,017) (124,088)
Deferred income taxes .................................... (160,859) (88,605) 37,082
Changes in assets and liabilities which provided (used)
cash, exclusive of changes shown separately ............. (8,383,359) (2,054,358) (2,513,772)
------------ ------------ ------------
Net cash provided by operating activities ................... 19,733,012 14,412,573 9,641,895
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment ........... (11,654,366) (11,744,913) (5,767,423)
Proceeds from sale of property, plant and equipment ...... 952,635 189,849 53,900
Purchase of investments .................................. (1,879,186) (3,489,816) (2,159,645)
Proceeds from sale of investments ........................ 3,022,446 3,342,493 3,150,546
Other .................................................... -- 783,577 (115,169)
------------ ------------ ------------
Net cash used in investing activities ....................... (9,558,471) (10,918,810) (4,837,791)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in notes payable ..................... 4,500,000 500,000 (6,000,000)
Cash dividends ........................................... (2,981,050) (3,254,782) (2,546,164)
Cash paid for fractional shares on stock split ........... (1,776) -- --
Increase (decrease) in dividends payable ................. (449,126) 700,638 144
Proceeds from exercise of common stock options ........... 398,853 608,499 8,700
Payment of long-term debt ................................ (4,791,834) (4,965,500) (4,965,500)
Proceeds from long-term debt ............................. -- -- 10,000,000
------------ ------------ ------------
Net cash used in financing activities ....................... (3,324,933) (6,411,145) (3,502,820)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS .............................................. 6,849,608 (2,917,382) 1,301,284
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ................ 150,036 3,067,418 1,766,134
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR ...................... $ 6,999,644 $ 150,036 $ 3,067,418
============ ============ ============
CHANGES IN ASSETS AND LIABILITIES WHICH
PROVIDED (USED) CASH, EXCLUSIVE OF CHANGES
SHOWN SEPARATELY
(Increase) decrease in accounts receivable ............... $ (5,318,685) $ (6,765,960) $ (4,001,379)
(Increase) decrease in inventories ....................... (3,896,576) (2,900,482) (338,492)
(Increase) decrease in prepaid expenses .................. 436,345 165,049 (632,862)
Increase (decrease) in accounts payable .................. (2,076,376) 4,965,055 1,911,486
Increase (decrease) in employees' taxes withheld ......... (28,288) 47,896 59,132
Increase (decrease) in accrued profit sharing contribution 1,133,391 1,589,394 782,408
Increase (decrease) in accrued wages and expenses ........ 632,050 228,278 38,806
Increase (decrease) in accrued income taxes .............. 734,780 616,412 (332,871)
------------ ------------ ------------
Total ....................................................... $ (8,383,359) $ (2,054,358) $ (2,513,772)
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the period for:
Interest (net of amount capitalized) ..................... $ 2,484,598 $ 2,343,960 $ 2,219,291
------------ ------------ ------------
Income taxes ............................................. $ 12,461,322 $ 5,156,266 $ 3,080,957
------------ ------------ ------------
See notes to consolidated financial statements.
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(NOTE 1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Roanoke
Electric Steel Corporation and its wholly-owned subsidiaries, Shredded
Products Corporation, John W. Hancock, Jr., Inc., Socar, Inc., RESCO Steel
Products Corporation and Roanoke Technical Treatment & Services, Inc. (the
"Company"). All significant intercompany accounts and transactions have been
eliminated.
Inventories
Inventories of the Company, with the exception of John W. Hancock, Jr.,
Inc., are generally valued at cost on a first-in, first-out (FIFO) method
or market, if lower. A major portion of the inventories of John W.
Hancock, Jr., Inc. is valued on a last-in, first-out (LIFO) method. LIFO
cost is not in excess of replacement or current cost.
Property, Plant and Equipment
These assets are stated at cost. Depreciation expense is computed by
straight-line and declining-balance methods. Maintenance and repairs are
charged against operations as incurred. Major items of renewals and
betterments are capitalized and depreciated over their estimated useful
lives. Upon retirement or other disposition of plant and equipment, the cost
and related accumulated depreciation are removed from the property and
allowance accounts, and the resulting gain or loss is reflected in earnings.
Income Taxes
Prior to November 1, 1993, the Company provided deferred income taxes when
timing differences occurred in reporting income and expenses for financial
reporting and income tax reporting. Effective November 1, 1993, the Company
adopted the provisions of Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" (SFAS 109). Under SFAS 109, deferred
income taxes are provided by the asset and liability method, which requires
the recognition of deferred tax assets and liabilities for the future tax
consequences of temporary differences between tax bases and financial
reporting bases of other assets and liabilities.
Goodwill
The excess of cost over fair value of net assets of acquired subsidiary
has been amortized using the straight-line method over the estimated benefit
period of ten years. At October 31, 1995, goodwill of $1,864,703 has been
fully amortized.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
Investments
Investments consist primarily of debt securities which mature between 1996
and 2024. On November 1, 1994, the Company adopted Statement of Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" (SFAS 115). In accordance with the provisions of SFAS 115,
management has classified its entire debt securities portfolio as "available
for sale". Under SFAS 115, "available for sale" securities are reported at
fair value with unrealized gains and losses reported as a separate component
of equity. These investments are carried on the October 31, 1995 balance
sheet at fair value, which approximates amortized cost. Accordingly, there
was no adjustment to equity at October 31, 1995.
Prior to the adoption of SFAS 115, these investments were carried at
amortized cost, which approximated market value.
Revenue Recognition
Revenues from sales are recognized when products are shipped to customers,
except for fabrication products which are recognized by the
percentage-of-completion method in accordance with industry practice. Sales
to an unaffiliated customer amounted to 15% and 13% of consolidated sales for
1995 and 1994, respectively.
Concentration of Credit Risk
The Company sells to a large customer base of steel fabricators, steel
service centers and construction contractors, most all of which deal
primarily on 30-day credit terms. The Company believes its concentration of
credit risk to be minimal in any one geographic area or market segment.
The Company performs periodic credit evaluations of its customers' financial
condition and generally does not require collateral. Credit losses have not
been significant in the past, and are generally within management's
expectations.
Fair Value of Financial Instruments
At October 31, 1995, the fair value of the Company's cash and cash
equivalents, accounts receivable, investments and long-term debt approximated
amounts recorded in the accompanying consolidated financial statements (see
notes 1 and 6).
(NOTE 2) INVENTORIES
If the FIFO method of valuing inventories had been used by John W.
Hancock, Jr., Inc., consolidated inventories would have been $1,549,596
greater in 1995 and $1,611,460 greater in 1994.
Inventories include the following major classifications:
October 31,
-------------------------------------------------
1995 1994 1993
------------ ------------ ------------
Scrap steel . . . . . . . . . . . . . . . . . . . . . . $3,728,612 $ 4,737,074 $ 2,651,005
Melt supplies . . . . . . . . . . . . . . . . . . . . . 2,443,827 1,888,830 2,034,790
Billets . . . . . . . . . . . . . . . . . . . . . . . . 1,748,778 3,209,030 2,400,164
Mill supplies . . . . . . . . . . . . . . . . . . . . . 3,210,946 2,867,779 2,745,971
Finished steel . . . . . . . . . . . . . . . . . . . . 19,734,075 14,266,949 14,237,250
------------ ------------ ------------
Total inventories . . . . . . . . . . . . . . . . $30,866,238 $26,969,662 $24,069,180
============ ============ ============
10
(NOTE 3) PROPERTIES AND DEPRECIATION
Depreciation expense for the years ended October 31, 1995, 1994 and 1993
amounted to $7,863,154, $7,332,833 and $7,295,885, respectively. Generally,
the rates of depreciation range from 3.3% to 20% for buildings and
improvements and 5% to 33% for machinery and equipment. Property additions in
1995, 1994 and 1993 included $10,146, $19,341 and $42,418 of interest
capitalized, respectively.
(NOTE 4) SHORT-TERM DEBT
The following information relates to aggregate short-term borrowings:
October 31,
-----------------------------
1995 1994
------------ -----------
Notes payable to banks with interest ranging from 6.08% to 6.20% for 1995. $ 11,000,000 $ 6,500,000
============ ===========
Maximum borrowings outstanding at any month end $ 14,000,000 $ 6,500,000
============ ===========
Weighted average loans outstanding to banks $ 11,364,384 $ 6,112,329
============ ===========
Weighted average interest rates for the year 6.33% 4.31%
============ ===========
Weighted average interest rates at October 31 6.17% 5.45%
============ ===========
At October 31, 1995, the Company had lines of credit with various domestic
banks aggregating $39,500,000 with $28,500,000 unused. These arrangements are
reviewed periodically by the lending banks for renewal, and although not
legally binding, commitments have been traditionally honored. These lines of
credit do not require compensating balances.
(NOTE 5) INCOME TAXES
The Company files a consolidated federal income tax return. The federal
income tax returns through October 31, 1990 have been examined by the
Internal Revenue Service with all issues settled.
The following is a reconciliation of income tax expense per consolidated
statements of earnings to that computed by using the federal statutory tax
rate of 35% for 1995, 34.33% for 1994 and 34% for 1993.
Year Ended October 31,
----------------------------------------------------
1995 1994 1993
----------- ---------- ------------
Federal tax at the statutory rate . . . . . . . . . . . . . . . $11,642,451 $4,960,886 $ 2,561,993
Increase (decrease) in taxes resulting from:
State income taxes, net of federal tax benefit . . . . 1,297,302 560,240 298,397
Other items, net . . . . . . . . . . . . . . . . . . . . . . . . . . . 95,490 163,024 (75,222)
------------ ----------- -----------
Income taxes per consolidated statements of earnings $13,035,243 $ 5,684,150 $ 2,785,168
=========== =========== ===========
The components of income tax expense are as follows:
Year Ended October 31,
Year Ended October 31,
----------------------------------------------------
1995 1994 1993
----------- ---------- ------------
Current income taxes:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . $11,463,015 $ 4,859,095 $ 2,377,778
State . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,733,087 913,660 370,308
------------ ----------- -----------
Total current income taxes . . . . . . . . 13,196,102 5,772,755 2,748,086
------------ ----------- -----------
Deferred income taxes:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . (122,692) (28,059) 65,971
State . . . . . . . . . . . . . . . . . . . . . . . . . . . (38,167) (60,546) (28,889)
------------ ----------- -----------
Total deferred income taxes. . . . . . . (160,859) (88,605) 37,082
------------ ----------- -----------
Total income taxes . . . . . . . . . . . . . . . . $13,035,243 $5,684,150 $ 2,785,168
============ ========== ============
The Company adopted SFAS 109, effective November 1, 1993. The cumulative
effect of adopting SFAS 109 on the Company's consolidated statements of
earnings was to increase income by $3,093,940 ($.39 per share) for 1994.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for tax purposes, and operating loss
and tax credit carryforwards. As of October 31, 1995 and 1994, the Company
had total deferred tax liabilities of $11,669,070 and $11,920,039,
respectively, and deferred tax assets of $1,125,441 and $1,215,551,
respectively. Deferred tax liabilities result exclusively from excess tax
depreciation, and deferred tax assets result, primarily, from reserves not
currently deductible of $988,429 for 1995 and $1,001,280 for 1994. There were
no valuation allowances.
11
Under the previous income tax accounting rules, deferred income taxes were
provided for significant timing differences in the recognition of revenue and
expense for tax and financial statement purposes. The source of these timing
differences and the tax effect of each are as follows:
Year Ended
October 31, 1993
----------------
Attributable to depreciation . . . . . . . . .$ 155,345
Other, net . . . . . . . . . . . . . . . . . . (118,263)
-----------
Total deferred income taxes . . . . . . . . . $ 37,082
============
(NOTE 6) LONG-TERM DEBT
Long-term debt at October 31 consisted of the following:
October 31,
------------------------------
1995 1994
------------ -------------
Term loan collateralized by land, buildings and equipment at Roanoke
plant, payable in quarterly installments of $312,500, plus
interest at the LIBOR rate of 5.91% plus 5/8%. Due September 1, 1999. . . . $ 4,687,500 $ 5,937,500
Term loan collateralized by equipment at Roanoke plant,
payable in monthly installments of $104,167 beginning
September 1, 1995. Interest payable monthly at 6.87%. Due September
1, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,791,666 10,000,000
Term loan collateralized by equipment at Roanoke plant,
payable in annual installments of $1,250,000.
Interest payable at the LIBOR rate of 5.94% plus 1/2%. Due November 1, 1999 . . 6,250,000 7,500,000
Other -- 2,083,500
------------ ------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,729,166 25,521,000
Less-current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,750,000 4,791,834
------------ ------------
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $16,979,166 $20,729,166
============ ============
To offset the variable rate characteristic of the long-term borrowings,
the Company entered into interest rate swap agreements with major banks
resulting in fixed rates of 8.78% on the notional amount of $4,687,500
through June 1996 and 8.92% on the notional amount of $6,250,000 through
April 1996.
Under the loan agreements, the Company must maintain total liabilities,
exclusive of deferred income taxes, of not greater than 1.55 times tangible
net worth and maintain consolidated current assets of not less than 1.25
times consolidated current liabilities. The consolidated current assets or
the property of Socar, Inc. cannot be mortgaged, pledged, used as a security
interest or lien, or encumbered. Currently, consolidated tangible net worth
cannot be less than $64,626,784 and consolidated working capital cannot be
less than $15,000,000. Cash flow from net income, depreciation and deferred
income taxes for the prior four quarters must be equal to or greater than
$2,500,000. In addition, the ratio of earnings to debt service must equal at
least 1.0.
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments", requires disclosure of the year-end
fair value of significant financial instruments, including long-term debt.
The Company's carrying value of long-term, funded fixed-rate debt
approximates fair value, with near-term swap agreements in place.
Annual aggregate long-term debt maturities are $3,750,000 in 1996, 1997
and 1998, $3,437,500 in 1999 and $2,500,000 in 2000.
(NOTE 7) COMMITMENTS AND CONTINGENT LIABILITIES
At October 31, 1995, the Company was committed for $9,432,331 for
purchases of equipment and production facilities.
The Company and the County of Roanoke, Va. have entered into consent
agreements with the United States Environmental Protection Agency (EPA) for
the clean-up of specific portions of a landfill site and adjacent streams
near Salem, Va. One agreement is a "remedial action" for the removal and
off-site treatment and disposal of an emission control dust pile located on
the site. This action was completed during 1995 with all costs reflected in
the accompanying consolidated financial statements. Another agreement
pertains to a "removal action" for the removal and treatment of emission
dust, sediment and contaminated soil associated with the streams. The EPA has
approved on-site stabilization and disposal with the work estimated to be 30%
completed. The Company has entered into a cost sharing agreement with the
County of Roanoke for both response actions at the landfill. It is not known
whether other potentially responsible parties will pay some of the costs. The
Company estimates its share of the remaining costs to be $1,100,000 which is
included in liabilities. The material components of these costs are the
stream sediment removal, chemicals for treatment of the sediment, landfill
operation for on-site storage and EPA oversite charges. Significant
assumptions underlying the estimates are cubic yards or tons of dust,
sediment and contaminated soil to be removed from the stream. Completion is
expected within a year. The Company received a settlement from its primary
insurance carrier in 1995 and is presently in discussions with its excess
carriers concerning possible recoveries. Any additional recoveries, if any,
are uncertain.
12
(NOTE 8) COMMON STOCK AND EARNINGS PER SHARE
Outstanding common stock consists of 560,000 shares, issued prior to
October 31, 1967, at no stated value; 750,656 shares issued subsequent to
October 31, 1967, at a stated value of $.50 per share; 1,310,656 shares
issued in 1981 at no stated value; 1,310,656 shares, less the equivalent of
42 fractional shares, issued in 1986 at no stated value; 1,965,963 shares,
less the equivalent of 151 fractional shares, issued in 1988 at no stated
value; 800 shares issued in 1989 at no stated value; 3,000 shares issued in
1992 at no stated value; 1,200 shares issued in 1993 at no stated value;
44,000 shares issued in 1994 at no stated value and 3,023,804 shares, less
the equivalent of 152 fractional shares, issued in 1995 at no stated value.
During the year ended October 31, 1986, the Company increased authorized
common stock from 4,000,000 shares to 10,000,000 shares.
Earnings per share have been computed based on the weighted average number
of shares outstanding of 8,045,644 for 1995, 7,988,985 for 1994 and 7,956,339
for 1993. The average number of shares outstanding were weighted after giving
effect both to stock options exercised during 1995, 1994 and 1993 and to a
three-for-two stock split effective May 1, 1995. Stock options are not
included in the computation of earnings per share since inclusion has less
than a 3% effect.
(NOTE 9) PROFIT SHARING PLANS
The Company, including Shredded Products Corporation, RESCO Steel Products
Corporation and Socar, Inc., has qualified profit sharing plans which cover
substantially all employees. John W. Hancock, Jr., Inc. has an unqualified
plan. Socar, Inc.'s annual contribution is discretionary while the other
plans' annual contribution cannot exceed 20% of their combined earnings
before income taxes. Total contributions of all Companies shall not exceed
the maximum amount deductible for such year under the Internal Revenue Code
and amounted to $4,585,087 for 1995, $3,343,328 for 1994 and $1,680,246 for
1993.
(NOTE 10) INTEREST EXPENSE
Interest expense is stated net of interest income of $400,692 in 1995,
$438,466 in 1994 and $525,784 in 1993.
(NOTE 11) STOCK OPTIONS
Under a nonqualified stock option plan approved by the stockholders in
1989, the Company may issue 75,000 shares of unissued common stock to
employees of the Company each plan year. Options for 41,500 shares were
granted for 1995, for 36,000 shares for 1992 and for 32,500 shares for both
1990 and 1989. A three-for-two stock split in 1995 increased these grants an
additional 32,300 shares. These options are exercisable for a term of five
years from the date of grant, and a summary follows:
Option Price
Per Share Shares
--------------- ----------------
Balance, November 1, 1992. . . . . $6.16 - $13.60 94,500
Granted. . . . . . . . . . . . . . - -
Exercised. . . . . . . . . . . . . 6.16 (1,200)
Expired or terminated. . . . . . . - -
-------
Balance, October 31, 1993. . . . . 6.16 - 13.60 93,300
Granted. . . . . . . . . . . . . . - -
Exercised. . . . . . . . . . . . . 6.16 - 13.60 (44,000)
Expired or terminated. . . . . . . 11.05 - 13.60 (1,200)
-------
Balance, October 31, 1994. . . . . 6.16 - 11.05 48,100
Granted. . . . . . . . . . . . . . 13.60 41,500
Stock Split. . . . . . . . . . . . 4.11 - 9.07 32,300
Exercised. . . . . . . . . . . . . 4.11 - 9.07 (39,185)
Expired or terminated. . . . . . . 4.11 - 7.37 (7,565)
-------
Balance, October 31, 1995. . . . . 4.11 - 9.07 75,150
=======
Shares available for grant at year end -
=======
(NOTE 12) HEALTH BENEFITS AND POSTRETIREMENT COSTS
Effective November 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" (SFAS 106). The Company currently provides
certain health care benefits for terminated employees who have completed 10
years of continuous service after age 45, and SFAS 106 requires the Company
to accrue the estimated cost of such benefit payments during the years the
employee provides services. The Company previously expensed the cost of these
benefits as claims were incurred. SFAS 106
13
allows recognition of the cumulative effect of the liability in the year
of adoption or the amortization of the obligation over a period of up to
twenty years. The Company has elected to recognize this obligation of
approximately $1,381,000 over a period of twenty years. Cash flows are not
affected by implementation of SFAS 106, but implementation decreased net
earnings from continuing operations for 1995 and 1994 by approximately
$154,200 ($.02 per share) and $152,000 ($.02 per share), respectively.
The Company's postretirement benefit plan is not funded. The accrued
postretirement benefit cost recognized in the balance sheet at October 31 is
as follows:
1995 1994
--------- ----------
Accumulated postretirement benefit obligation:
Retirees . . . . . . . . . . . . . . . . . . . . . $ 347,019 $ 312,000
Fully eligible plan participants . . . . . . . . 723,491 637,000
Other active plan participants . . . . . . . . . . 661,479 605,000
---------- ----------
Accumulated postretirement benefit obligation . . 1,731,989 1,554,000
Unrecognized net actuarial gains (losses) . . . . 5,602 --
Unrecognized transition obligation . . . . . . . . (1,243,000) (1,312,000)
---------- ----------
Accrued postretirement benefit cost. . . . . . . . $494,591 $ 242,000
========== ==========
Net postretirement benefit cost consisted of the
following components:
Service cost . . . . . . . . . . . . . . . . . . . $ 143,279 $ 127,000
Interest cost on accumulated postretirement
benefit obligation. . . . . . . . . . . . . . . . 120,658 118,000
Amortization of transition obligation. . . . . . . 69,000 69,000
---------- ----------
Net postretirement benefit cost . . . . . . . . . . $ 332,937 $ 314,000
========== ==========
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 12% for 1994, decreasing linearly each
successive year until it reached 6.5% in 2004, after which it remains
constant. A one-percentage-point increase in the assumed health care cost
trend rate for each year would increase the accumulated postretirement
benefit obligation by approximately $115,000 and the net postretirement
benefit cost by approximately $28,000. The assumed discount rate used in
determining the accumulated postretirement benefit obligation was 8% for the
years ended October 31, 1995 and 1994.
(NOTE 13) UNAUDITED QUARTERLY FINANCIAL DATA
Summarized unaudited quarterly financial data for 1995 follows:
Three Months Ended
-------------------------------------------------------------------
January 31 April 30 July 31 October 31
------------ ------------ ------------ ------------
Sales . . . . . . . . . . . . . . . . . . . $ 57,520,532 $ 62,202,152 $ 68,570,080 $ 71,675,760
============ ============ ============ ============
Gross earnings . . .. . . . . . . . . . . . $ 11,949,177 $ 13,380,437 $ 15,326,922 $ 15,441,149
============ ============ ============ ============
Net earnings . . . . . . . . . . . . . . . $ 3,825,716 $ 4,246,649 $ 5,181,764 $ 6,974,773
============ ============ ============ ============
Earnings per share . . . . . . . . . . . . $ .48 $ .52 $ .65 $ .86
============ ============ ============ ============
Summarized unaudited quarterly financial data for 1994 follows:
Three Months Ended
-------------------------------------------------------------------
January 31 April 30 July 31 October 31
------------ ------------ ------------ ------------
Sales . . . . . . . . . . . . . . . . . . . $ 47,052,752 $51,626,556 $ 55,914,438 $ 61,215,482
============ =========== ============ ============
Gross earnings . . . . . . . . . . . . . . . $ 6,054,117 $ 6,602,165 $ 7,658,343 $ 13,417,559
============ =========== ============ ============
Net earnings . . . . . . . . . . . . . . . . $ 4,125,536 $ 1,441,627 $ 1,776,602 $ 4,516,610
============ =========== ============ ============
Earnings per share . . . . . . . . . . . . . . $ .52 $ .18 $ .22 $ .56
============ =========== ============ ============
14
INDEPENDENT AUDITORS' REPORT
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF
ROANOKE ELECTRIC STEEL CORPORATION:
We have audited the accompanying consolidated balance sheets of Roanoke
Electric Steel Corporation and its wholly-owned subsidiaries as of October 31,
1995 and 1994, and the related consolidated statements of earnings,
stockholders' equity, and cash flows for each of the three years in the period
ended October 31, 1995. These financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Roanoke Electric Steel Corporation
and its wholly-owned subsidiaries at October 31, 1995 and 1994, and the results
of their operations and their cash flows for each of the three years in the
period ended October 31, 1995 in conformity with generally accepted accounting
principles.
As discussed in Notes 5 and 12 to the consolidated financial statements,
effective November 1, 1993, the Corporation changed its method of accounting for
income taxes and its method of accounting for postretirement benefits other than
pensions.
/S/ DELOITTE & TOUCHE LLP
Winston-Salem, North Carolina
November 17, 1995
STOCK ACTIVITY
The Common Stock of Roanoke Electric Steel Corporation is traded nationally over
the counter on Nasdaq National Market using the symbol RESC. At year end, there
were approximately 780 shareholders of record. The following has been adjusted
for the three-for-two stock split effective May 1, 1995.
1995 1994
Stock Prices Stock Prices
High Low High Low
First Quarter . . . . . . . . . 11 3\8 10 10 5\8 8 1\8
Second Quarter . . . . . . . . 11 7\8 10 1\2 12 1\8 10
Third Quarter . . . . . . . . . 14 1\2 11 11 7\8 9 5\8
Fourth Quarter . . . . . . . . 16 7\8 13 3\4 11 9 3\8
Cash Dividends
1995 1994
First Quarter. . . . . . $.08 $.08
Second Quarter. . . . . .09 .08
Third Quarter. . . . . . .09 .08
Fourth Quarter. . . . . .11 .08
Extra. . . . . . . . . .09
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Sales
Sales increased for the period 1993 through 1995. In 1993, sales
increased 14.5% due mainly to much improved billet shipments, increased bar and
fabricated products (bar joist and rebar) tons shipped and higher selling prices
for all products. Improved market conditions and demand resulted in the
increased bar products shipments, while the higher billet shipments were due to
both increased export business and improved domestic demand. The improvement in
bar and billet selling prices resulted, primarily, from higher scrap steel
costs, our main raw material, prompting industry-wide price increases. Even
though the construction industry remained depressed and highly competitive,
shipments of fabricated products increased slightly due to successful job
bidding. Selling prices for fabricated products rose due to higher raw material
costs. The 29% increase in sales in 1994 was the result of significant increases
in shipments of bar and fabricated products and increased selling prices for all
product classes, while shipments of billets declined slightly. Continued
improvement in business conditions and economic growth fueled demand and
resulted in the increased shipments of bar products. An easing of competitive
conditions within the construction industry led to the increased fabricated
products shipments. Billet tonnage shipped declined slightly due to a lack of
export shipments, although domestic shipments improved significantly. While the
export markets were much more competitive, domestic demand improved
substantially. Selling prices for bar and fabricated products increased, mainly,
as a result of higher raw material costs, but some of the increased selling
prices were demand driven. The higher billet prices were also driven by higher
raw material costs, but the increased domestic billet shipments, which bring a
higher price, also contributed. In 1995, sales were 20.5% higher due to
substantial increases in shipments of fabricated products and billets, together
with much improved selling prices for all product classes, while bar products
shipments were flat. Reduced competition and increased activity within the
construction industry led to the higher shipment levels of fabricated products.
Improved market conditions and increased domestic demand resulted in the
improved billet tons shipped, as export markets were highly competitive.
Inventory reductions by bar products customers accounted for the flat shipments,
even though market conditions and backlogs remained strong for much of the year.
Selling prices for fabricated products increased due to higher raw material
costs and demand. The improved selling prices for bar products were mostly
attributable to increased scrap prices and rising demand in the early part of
the year, as prices fell slightly near year-end. Billet selling prices were
higher due again to the increased scrap costs and improved product mix.
Cost of Sales and Gross Margins
In 1993, the increase in cost of sales was attributable to the increased
tons shipped of all product classes, together with increased costs of scrap
steel. Cost of sales increased in 1994 as a result of the increased tons shipped
of bar and fabricated products in addition to a continued rise in scrap steel
costs. The increase in cost of sales in 1995 was due primarily to the higher
shipments of fabricated products and billets, together with an increase in both
scrap and other raw material costs.
Gross earnings as a percentage of sales improved 1.5% to 13.5% for 1993
due to the increased selling prices for all products which more than offset the
increased scrap costs. The gross profit percentage continued to increase in 1994
and finished up 2.1% to 15.6%. Higher selling prices for all product classes and
the efficiencies of much improved production accounted for the higher margins in
spite of the significant increase in scrap costs. In 1995, gross earnings as a
percentage of sales climbed an additional 6.0% to 21.6%. 16
The improvement was mainly the result of the higher selling prices for
all product classes and increased production levels which reduced unit costs for
fixed expenses, in spite of the higher scrap costs.
For all years in the 1993-1995 period, the increased shipment levels
at the higher gross profit margins provided the improvements in gross and net
earnings.
Administrative Expenses
In 1993, administrative expenses increased due mainly to executive and
management compensation which increased with production, shipments and earnings
in accordance with various incentive arrangements. However, administrative
expenses were 6.9% of sales - down from 7.2% in 1992. The percentage declined
further in 1994 to 6.5%, even though administrative expenses increased as a
result of higher executive and management compensation, taxes, insurance, bad
debts and professional fees. The majority of the increase in administrative
expenses in 1995 was attributable to executive and management compensation as
production, shipments and earnings improved significantly. The percentage of
administrative expenses to sales improved to 6.2%.
Interest Expense
In 1993, interest expense declined due to lower interest rates and
average borrowings, in spite of a decline in interest income to $525,784 and
less capitalized interest of $42,418. Interest expense increased in 1994 as a
result of higher interest rates, lower interest income of $438,466 and decreased
capitalized interest of $19,341, even though average borrowings were lower. In
1995, interest expense increased due to higher interest rates, increased average
borrowings and declines in interest income and capitalized interest to $400,692
and $10,146, respectively.
Profit Sharing Expense and Income Taxes
Contributions to various profit sharing plans are determined as a
proportion of earnings before income taxes and should normally increase and
decrease with earnings. In 1993, income tax expense as a percentage of pretax
income was relatively constant with 1992. Income tax expense in 1994 and 1995
was affected by higher tax rates and the adjustment of deferred taxes required
by SFAS 109.
Financial Condition, Liquidity and Capital Resources
At October 31, 1995, working capital was $45,483,760, the current ratio
was 2.2 to 1 and the quick ratio was 1.3 to 1 - all improved and very sound.
Cash, investments and accounts receivable of $51,338,585 were more than adequate
to pay current liabilities of $38,569,233 which is a good indication of
liquidity and a healthy financial condition. Commitments for the purchase of
property, plant and equipment at year end were $9,432,331 and 1996 curtailments
of long-term debt will be $3,750,000. These obligations will affect future
liquidity and working capital; however, profits and depreciation should provide
adequate working capital to fund these items. Cash and cash equivalents
increased $6,849,608 during the year to $6,999,644, providing additional
liquidity.
Total long-term and short-term borrowings declined $291,834 during the
year, in spite of capital expenditures of $11,654,366. The ratio of debt to
equity improved to .75 to 1, and the percentage of long-term debt to total
capital decreased from 22.2% to 15.9%. This low percentage provided significant
additional debt capacity, and the strong financial condition and results of
operations assured an investment grade rating. Various lenders have found the
Company attractive, and several proposals were being reviewed at year end for
term debt and revolving credit facilities. In addition, there were capital
resources available in the amount of $28,500,000, representing the unused
portion of $39,500,000 in lines of credit made available by various banks. The
Company believes its capital resources more than adequately meet its needs.
Management is of the opinion that adoption of the Clean Air Act
Amendments or any other environmental concerns will not have a materially
adverse effect on the Company's operations, capital resources or liquidity (see
note 7). Additional future capital expenditures are presently estimated to be
less than $1,000,000.
17
OFFICERS
Donald G. Smith, 60
Chairman, President, Treasurer
and Chief Executive Officer
38 years of service
Frank S. Key, Jr., 71
President, Socar, Inc.
29 years of service
William L. Neal, 68
President, John W. Hancock, Jr., Inc.
40 years of service
H. James Akers, Jr., 56
Vice President, Melt Operations
39 years of service
Donald R. Higgins, 50
Vice President - Sales
30 years of service
Watson B. King, 56
Vice President, Mill Operations
34 years of service
John E. Morris, 54
Vice President - Finance
and Assistant Treasurer
24 years of service
Thomas J. Crawford, 40
Assistant Vice President and Secretary
18 years of service
Daniel L. Board, 58
Assistant Vice President, Purchasing
35 years of service
William O. Warwick, 63
Assistant Vice President, Human
Resources and Environmental Affairs
28 years of service
BOARD OF DIRECTORS
Frank A. Boxley
President,
Southwest Construction, Inc.
T. A. Carter
Architect
George B. Cartledge, Jr.
President,
Grand Piano & Furniture Co., Inc.
Charles I. Lunsford, II
Chairman,
Charles Lunsford Sons & Associates
William L. Neal
President,
John W. Hancock, Jr., Inc.
Thomas L. Robertson
President and Chief Executive Officer,
Carilion Health System
Donald G. Smith
Chairman, President, Treasurer
and Chief Executive Officer,
Roanoke Electric Steel Corporation
Paul E. Torgersen
President,
Virginia Polytechnic Institute
and State University
Gordon C. Willis
Chairman of the Board,
Rockydale Quarries Corporation
John D. Wilson
Retired President,
Washington & Lee University
COMMITTEES OF THE BOARD
Executive:
D. G. Smith, Chairman; T. L. Robertson,
P. E. Torgersen, G. C. Willis
Audit:
G. C. Willis, Chairman; T. A.
Carter,
T. L. Robertson, P. E. Torgersen
Compensation and Stock Option:
G. B. Cartledge, Jr., Chairman;
F. A. Boxley, C. I. Lunsford, II, J. D. Wilson
Profit Sharing:
C. I. Lunsford, II, Chairman; D. G. Smith
CORPORATE INFORMATION
Corporate Office
102 Westside Boulevard,
P.O. Box 13948, Roanoke, Virginia 24038
540-342-1831
Annual Meeting
The 1996 annual meeting of shareholders
will be held at 10:00 a.m. on
Tuesday, February 20, 1996 at the Appalachian
Power Company Building, 40 Franklin
Road, S. W., Roanoke, Virginia.
General Counsel
Woods, Rogers & Hazlegrove P.L.C.
Roanoke, Virginia
Independent Auditors
Deloitte & Touche LLP
Winston-Salem, North Carolina
Transfer Agent and Registrar
Wachovia Bank of North Carolina, N.A.
Corporate Trust Department,
P.O. Box 3001, Winston-Salem, NC 27102
800-633-4236
Stock Listing
Nasdaq National Market; Symbol: RESC
Dividend Reinvestment Plan
Roanoke Electric Steel offers its
shareholders a dividend reinvestment
plan through its transfer agent.
For more information, please contact
the transfer agent or
Thomas J. Crawford, Secretary.
Financial Information
Analysts, investors and others seeking
financial information are requested to
contact: John E. Morris, Vice President-
Finance or Thomas J. Crawford, Assistant
Vice President and Secretary.
Copies of the Corporation's Annual Report or Form 10-K may be obtained
without charge by writing to Mr. Crawford at the above address.
18
ROANOKE ELECTRIC STEEL CORPORATION
P.O. BOX 13948, ROANOKE, VIRGINIA 24038 540-342-1831