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 April 30, 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 April 30, 1997.
7,501,097 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 - 12
Item 1. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 12
3. Signatures 13
4. Exhibit Index pursuant to Regulation S-K 14
5. Exhibits
a. By-Laws 15
b. Financial Data Schedule 16
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
ROANOKE ELECTRIC STEEL CORPORATION
Consolidated Balance Sheets
ASSETS
(Unaudited)
April 30, October 31,
1997 1996
CURRENT ASSETS
Cash and cash equivalents $ 5,787,533 $ 1,038,689
Investments 6,439,678 6,059,853
Accounts receivable 35,643,594 40,479,798
Inventories 33,154,516 34,314,899
Prepaid expenses 1,675,368 651,013
Deferred income taxes 1,039,542 1,039,542
Total current assets 83,740,231 83,583,794
PROPERTY, PLANT AND EQUIPMENT
Land 4,291,522 4,291,522
Buildings 17,957,386 17,889,855
Other property and equipment 125,171,122 123,215,697
Assets under construction 2,582,457 1,054,026
Total 150,002,487 146,451,100
Less--accumulated depreciation 67,907,895 63,216,681
Property, plant and equipment, net 82,094,592 83,234,419
OTHER ASSETS 193,435 197,688
TOTAL $ 166,028,258 $ 167,015,901
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 4,250,000 $ 4,250,000
Accounts payable 13,009,747 10,977,510
Dividends payable 900,132 904,944
Employees' taxes withheld 221,810 284,466
Accrued profit sharing contribution 1,879,270 3,911,957
Accrued wages and expenses 2,228,468 2,745,159
Accrued income taxes 944,806 879,569
Total current liabilities 23,434,233 23,953,605
LONG-TERM DEBT
Notes payable 34,916,667 39,541,666
Less--current portion 4,250,000 4,250,000
Total long-term debt 30,666,667 35,291,666
POSTRETIREMENT LIABILITIES 866,824 742,839
DEFERRED INCOME TAXES 13,016,700 12,594,700
STOCKHOLDERS' EQUITY
Common stock--no par value--authorized
20,000,000 shares, issued 9,007,040
shares in 1997 and 8,994,140 in 1996 2,036,646 1,916,796
Capital in excess of stated value 9,349,429 9,349,429
Retained earnings 96,342,604 92,097,683
Total 107,728,679 103,363,908
Less--treasury stock, 1,505,943 shares
in 1997 and 1,452,943 in 1996 -- at cost 9,684,845 8,930,817
Total stockholders' equity 98,043,834 94,433,091
TOTAL $ 166,028,258 $ 167,015,901
The accompanying notes to consolidated financial statements are an
integral part of this statement.
ROANOKE ELECTRIC STEEL CORPORATION
Consolidated Statements of Earnings
(Unaudited) (Unaudited)
Three Months Ended Six Months Ended
April 30, April 30,
1997 1996 1997 1996
SALES $ 61,299,896 $ 58,144,393 $ 119,651,630 $ 116,573,610
COST OF SALES 49,448,698 47,080,758 98,469,622 93,554,676
GROSS EARNINGS 11,851,198 11,063,635 21,182,008 23,018,934
OTHER OPERATING EXPENSES
Administrative 4,536,889 4,052,091 8,359,104 7,829,976
Interest, net 423,161 487,156 889,696 889,418
Profit sharing 1,134,597 923,924 1,879,270 2,161,989
Total 6,094,647 5,463,171 11,128,070 10,881,383
EARNINGS BEFORE INCOME TAXES 5,756,551 5,600,464 10,053,938 12,137,551
INCOME TAX EXPENSE 2,297,481 2,234,710 4,010,194 4,843,384
NET EARNINGS $ 3,459,070 $ 3,365,754 $ 6,043,744 $ 7,294,167
Weighted average number of common
shares outstanding 7,495,215 8,058,050 7,499,185 8,067,368
Net earnings per share of common stock $ 0.47 $ 0.41 $ 0.81 $ 0.90
Cash dividends per share of common stock $ 0.12 $ 0.11 $ 0.24 $ 0.22
The accompanying notes to consolidated financial statements are an integral part of this statement.
ROANOKE ELECTRIC STEEL CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
April 30,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 6,043,744 $ 7,294,167
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Postretirement liabilities 123,985 124,124
Depreciation and amortization 4,708,780 3,938,276
Loss on sale of investments and property, plant and equipment 4,307 24,037
Deferred income taxes 422,000 (42,000)
Changes in assets and liabilities which provided
(used) cash, exclusive of changes shown seperately 4,457,672 (4,405,199)
Net cash provided by operating activities 15,760,488 6,933,405
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment (3,557,142) (9,304,183)
Proceeds from sale of property, plant and equipment - 16,653
Purchase of investments (391,689) (2,043,359)
Other - 98,158
Net cash used in investing activities (3,948,831) (11,232,731)
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in notes payable - (11,000,000)
Cash dividends (1,798,824) (1,743,835)
Decrease in dividends payable (4,812) (32,807)
Proceeeds from exercise of common stock options 119,850 60,793
Payment of long-term debt (4,624,999) (11,562,499)
Proceeds from long-term debt - 34,500,000
Repurchase of common stock (754,028) (4,412,562)
Net cash provided by (used in) financing activities (7,062,813) 5,809,090
NET INCREASE IN CASH AND CASH EQUIVALENTS 4,748,844 1,509,764
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,038,689 6,999,644
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,787,533 $ 8,509,408
CHANGES IN ASSETS AND LIABILITIES WHICH PROVIDED
(USED) CASH, EXCLUSIVE OF CHANGES SHOWN SEPARATELY
(Increase) decrease in accounts receivable $ 4,836,204 $ 7,486,226
(Increase) decrease in inventories 1,160,383 (5,414,095)
(Increase) decrease in prepaid expenses (1,024,355) (4,145)
Increase (decrease) in accounts payable 2,032,237 (3,516,713)
Increase (decrease) in employees' taxes withheld (62,656) 97,563
Increase (decrease) in accrued profit sharing contribution (2,032,687) (2,241,042)
Increase (decrease) in accrued wages and expenses (516,691) (257,138)
Increase (decrease) in accrued income taxes 65,237 (555,855)
Total $ 4,457,672 $ (4,405,199)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 1,244,026 $ 882,130
Income taxes $ 3,522,958 $ 5,441,240
The accompanying notes to consolidated financial statements are an
integral part of this statement.
ROANOKE ELECTRIC STEEL CORPORATION
Notes to Consolidated Financial Statements
April 30, 1997
Note 1. In the opinion of the Registrant, the accompanying unaudited
consolidated financial statements contain all adjustments
(consisting of only normal recurring accruals) necessary to present
fairly the financial position as of April 30, 1997 and the results
of operations for the three months and six months ended April 30,
1997 and 1996 and cash flows for the six months ended April 30, 1997
and 1996.
Note 2. Inventories include the following major classifications:
(Unaudited)
April 30, October 31,
1997 1996
Scrap Steel $ 3,758,962 $ 5,313,335
Melt Supplies 1,846,503 2,416,879
Billets 5,752,832 7,103,342
Mill Supplies 3,056,774 3,085,749
Finished Steel 18,739,445 16,395,594
Total Inventories $ 33,154,516 $ 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 Six Months
Ended Ended
April 30, April 30,
1997 1996 1997 1996
Pro forma basic
earnings per share $ 0.47 $ 0.41 $ 0.81 $ 0.90
Pro forma diluted
earnings per share $ 0.46 $ 0.41 $ 0.80 $ 0.90
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 April 30, 1997, and the
related consolidated statements of earnings and cash flows for the
three-month and six-month periods ended April 30, 1997 and 1996. These
financial statements are the responsibility of the Corporation's
management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data and of making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion regarding
the financial statements taken as a whole. Accordingly, we do not express
such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to such consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Roanoke Electric Steel
Corporation and subsidiaries as of October 31, 1996, and the related
consolidated statements of earnings, stockholders' equity, and cash flows
for the year then ended (not presented herein); and in our report dated
November 21, 1996, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set
forth in the accompanying consolidated balance sheet as of October 31, 1996
is fairly stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
Deloitte & Touche LLP
June 2, 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 Six Months Ended
April 30, April 30,
1997 and 1996 1997 and 1996
Amount Percent Amount Percent
Sales 3,155,503 5.4 3,078,020 2.6
Cost of Sales 2,367,940 5.0 4,914,946 5.3
Administrative Expenses 484,798 12.0 529,128 6.8
Interest Expense (63,995) (13.1) 278 0.0
Profit Sharing Expense 210,673 22.8 (282,719) (13.1)
Earnings before Income Taxes 156,087 2.8 (2,083,613) (17.2)
Income Tax Expense 62,771 2.8 (833,190) (17.2)
Net Earnings 93,316 2.8 (1,250,423) (17.1)
Sales increased for the six months compared as a result of increases in
tons shipped of both merchant bar and fabricated products, even though
selling prices declined for all product classes while billet shipments were
flat. The increase in sales for the three months compared was due mainly
to increased tons shipped for all product classes and improved selling
prices for bar products, in spite of reduced selling prices for fabricated
products and billets. Merchant bar shipments increased during both periods
compared as competition began to ease during the quarter and order levels
and backlogs increased. In spite of the competitive conditions in the
construction industry, fabricated product shipments improved as a result of
a severe winter last year which delayed shipments during both periods.
Selling prices for bar products improved for the quarter with more
favorable competitive conditions and demand, which prompted industry-wide
price increases, but coming too late to offset earlier price reductions
resulting in the slight drop in six month comparable prices. The higher
billet shipments for the quarter were due to improved domestic demand.
Billet selling prices declined in both periods with the downward trend in
scrap prices, which normally trigger changes in billet pricing. The lower
selling prices for fabricated products were due to the increased
competition. Cost of sales increased for both the six month and three
month periods compared primarily due to the increased tons shipped of
merchant bar and fabricated products, in spite of a drop in the cost of
scrap steel, our main raw material. The increased three month billet
shipments also contributed to the higher costs for the quarter. Gross
profit as a percentage of sales declined from 19.7% to 17.7% for the six
months compared due mainly to the lower selling prices for all product
classes, in spite of the lower scrap prices. Gross profit as a percentage
of sales increased from 19.0% to 19.3% for the three months compared
primarily as a result of the higher selling prices for mill products, the
increased production levels for merchant bar and fabricated products which
reduced unit costs for fixed expenses, and the lower scrap costs, which
more than offset the lower selling prices for fabricated products and
billets. Both gross profit and net earnings declined for the six months
compared, due mainly to the reduced margins in spite of the improved
shipment levels. For the three months 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 higher insurance expenses. Executive and other compensation
increased for the quarter, but decreased for the six months compared, in
accordance with various incentive arrangements based on earnings and
production. Administrative expenses, as a percentage of sales, were
relatively constant for the periods compared. Interest expense was flat
for the six months compared as lower interest rates and increased
capitalized interest and interest income offset higher average borrowings.
Interest expense decreased for the three months compared due to the
reduction in interest rates and average borrowings, which more than offset
the decrease in capitalized interest and interest income. Profit sharing
expense, computed as a percentage of pre-tax income, declined for the six
months as a result of lower earnings and increased for the three months due
to improved earnings. The effective income tax rate was relatively
constant for both periods compared.
Working capital increased $675,809 during the period to $60,305,998 mainly
as a result of working capital provided from operations exceeding capital
expenditures, dividends, debt maturities and repurchases of common stock
amounting to $3,557,142, $1,798,824, $4,624,999 and $754,028, respectively.
The current ratio of 3.6 to 1 and the quick ratio of 2.0 to 1 both indicate
very sound liquidity and a healthy financial condition. In addition, cash,
cash equivalents and investments increased $5,128,669 during the period to
$12,227,211. Our $30,000,000 revolver, unused at April 30, 1997, provides
the liquidity and capital resources necessary to maintain our competitive
position and ensure future growth.
The Company last year approved a common stock buy-back plan. Currently,
609,200 shares of 750,000 authorized have been repurchased at a cost of
$8,489,977. At April 30, 1997, commitments for the purchase of property,
plant and equipment of $1,636,158, and the repurchase of the remaining
140,800 shares will affect future liquidity. Funding for these needs will
come from internally generated funds and the use of the revolver mentioned
above.
During the first half of the year, 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 23.8%, due to current maturities reducing long-term debt by
$4,624,999, while stockholders' equity increased as net earnings of
$6,043,744 exceeded dividends of $1,798,824 and common stock repurchases of
$754,028.
From time to time, the Company may publish forward-looking statements
relating to such matters as anticipated financial performance, business
prospects, technological developments, new products, research and
development activities and similar matters. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor for forward-looking
statements. In order to comply with the terms of the safe harbor, the
Company notes that a variety of factors could cause the Company's actual
results and experience to differ materially 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 Form 10-Q for the quarter
ended January 31, 1997, as previously filed with the commission.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On February 18, 1997, the Annual Meeting of Shareholders was held
and the following persons were elected as Class A directors of the
Registrant, with terms expiring in 2000:
Authority Not
Director For Withheld Voted
George B. Cartledge, Jr. 6,672,482 8,084 822,631
Thomas L. Robertson 6,671,569 8,997 822,631
Donald G. Smith 6,672,986 7,580 822,631
The following persons continued to serve as Class B and Class C
directors of the Registrant after the annual meeting:
Class B directors, with terms expiring in 1998
Frank A. Boxley
T.A. Carter
William L. Neal
Class C directors, with terms expiring in 1999
Charles I. Lunsford, II
Paul E. Torgersen
John D. Wilson
ITEM 5. OTHER INFORMATION.
On April 15, 1997, the Board of Directors of the Registrant
adopted an Amendment to the Corporations' By-Laws that increased
the current number of directors to ten. The Board appointment to
fill this newly created vacancy will serve as a Class B director
until the 1998 Annual Meeting of Shareholders.
PART II - OTHER INFORMATION
(con'd.)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits.
(3)(b) By-Laws
(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 and 3 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 June 2,1997 Donald G. Smith
Donald G. Smith, Chairman, President,
Treasurer and Chief Executive Officer
(Principal Financial Officer)
Date June 2, 1997 John E. Morris
John E. Morris, Vice President-Finance
and Assistant Treasurer
(Chief Accounting Officer)
EXHIBIT INDEX
Exhibit No. Exhibit Page
(3)(b) By-Laws 15
(27) Financial Data Schedule 16
EXHIBIT NO. 3 (b)
BY-LAWS
EXHIBIT NO. 27
FINANCIAL DATA SCHEDULE