0000084278-95-000018.txt : 19950915 0000084278-95-000018.hdr.sgml : 19950915 ACCESSION NUMBER: 0000084278-95-000018 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950731 FILED AS OF DATE: 19950914 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROANOKE ELECTRIC STEEL CORP CENTRAL INDEX KEY: 0000084278 STANDARD INDUSTRIAL CLASSIFICATION: STEEL WORKS, BLAST FURNACES ROLLING MILLS (COKE OVENS) [3312] IRS NUMBER: 540585263 STATE OF INCORPORATION: VA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-02389 FILM NUMBER: 95573807 BUSINESS ADDRESS: STREET 1: 102 WESTSIDE BLVD N W CITY: ROANOKE STATE: VA ZIP: 24017 BUSINESS PHONE: 7033421831 MAIL ADDRESS: STREET 1: PO BOX 13948 CITY: ROANOKE STATE: VA ZIP: 24038 10-Q 1 3RD QUARTER 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 31, 1995 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-2389 ROANOKE ELECTRIC STEEL CORPORATION (Exact name of Registrant as specified in its charter) Virginia 54-0585263 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 102 Westside Blvd., N.W., Roanoke, Virginia 24017 (Address of principal executive offices) (Zip Code) (540) 342-1831 (Registrant's telephone number, including area code) N/A (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes x No Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of July 31, 1995, reflecting a three-for-two stock split, effective May 1, 1995. 8,066,147 Shares outstanding ROANOKE ELECTRIC STEEL CORPORATION FORM 10-Q CONTENTS Page 1. Part I - Financial Information 3 - 9 Item 1. Financial Statements: a. Consolidated Balance Sheets 3 b. Consolidated Statements of Earnings 4 c. Consolidated Statements of Cash Flows 5 d. Notes to Consolidated Financial Statements 6 e. Independent Accountants' Report 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 - 9 2. Part II - Other Information 10 Item 1. Legal Proceedings 10 Item 6. Exhibits and Reports on Form 8-K 10 3. Signatures 11 4. Exhibit Index pursuant to Regulation S-K 12 5. Exhibits a. Financial Data Schedule 13 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS ROANOKE ELECTRIC STEEL CORPORATION Consolidated Balance Sheets ASSETS
(Unaudited) (Audited) July 31, October 31, 1995 1994 CURRENT ASSETS Cash and cash equivalents $ 3,899,277 $ 150,036 Investments 4,237,492 5,333,895 Accounts receivable 37,785,430 34,840,838 Inventories 30,528,266 26,969,662 Prepaid expenses 858,886 1,159,074 Deferred income taxes 1,215,551 1,215,551 Total current assets 78,524,902 69,669,056 PROPERTY, PLANT AND EQUIPMENT Land 4,666,070 3,243,426 Buildings 16,740,572 15,712,110 Other property and equipment 103,631,211 94,942,955 Assets under construction 4,898,604 9,664,843 Total 129,936,457 123,563,334 Less--accumulated depreciation 58,093,406 53,088,234 Property, plant and equipment, net 71,843,051 70,475,100 OTHER ASSETS Unamortized excess of cost of investment in subsidiary over net assets acquired - 108,777 Other 216,595 220,577 Total other assets 216,595 329,354 TOTAL ASSETS $ 150,584,548 $ 140,473,510 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current portion of long-term debt $ 3,880,212 $ 4,791,834 Notes payable 11,000,000 6,500,000 Accounts payable 13,794,636 16,560,157 Dividends payable 725,953 1,337,227 Employees' taxes withheld 313,825 254,965 Accrued profit sharing contribution 4,676,830 3,269,640 Accrued wages and expenses 1,781,319 1,764,863 Accrued income taxes 768,827 685,950 Total current liabilities 36,941,602 35,164,636 LONG-TERM DEBT Notes payable 21,484,375 25,521,000 Less--current portion 3,880,212 4,791,834 Total long-term debt 17,604,163 20,729,166 POSTRETIREMENT LIABILITIES 431,443 242,000 DEFERRED INCOME TAXES 11,707,039 11,920,039 STOCKHOLDERS' EQUITY Common stock--no par value--authorized 10,000,000 shares, issued 8,962,890 shares in 1995 and 8,919,955 in 1994 1,653,878 1,330,650 Capital in excess of stated value 9,349,429 9,349,429 Retained earnings 74,091,862 62,932,458 Total 85,095,169 73,612,537 Less--treasury stock, 896,743 shares--at cost 1,194,868 1,194,868 Total stockholders' equity 83,900,301 72,417,669 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 150,584,548 $ 140,473,510 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 Nine Months Ended July 31, July 31, 1995 1994 1995 1994 SALES $ 68,570,080 $ 55,914,438 $ 188,292,764 $ 154,593,746 COST OF SALES 53,243,158 48,256,095 147,636,228 134,279,121 GROSS EARNINGS 15,326,922 7,658,343 40,656,536 20,314,625 OTHER OPERATING EXPENSES Administrative 4,228,458 3,381,756 12,176,843 9,903,733 Interest, net 545,855 500,284 1,594,703 1,401,295 Profit sharing 1,918,292 799,751 4,756,878 1,902,737 Total 6,692,605 4,681,791 18,528,424 13,207,765 EARNINGS BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLES 8,634,317 2,976,552 22,128,112 7,106,860 INCOME TAX EXPENSE 3,452,553 1,199,950 8,873,983 2,857,035 EARNINGS BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLES 5,181,764 1,776,602 13,254,129 4,249,825 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLES FOR INCOME TAXES - - - 3,093,940 NET EARNINGS $ 5,181,764 $ 1,776,602 $ 13,254,129 $ 7,343,765 Weighted average number of common shares outstanding * 8,060,688 7,999,613 8,038,278 7,977,495 Earnings per share of common stock Earnings before cumulative effect of accounting change $ 0.65 $ 0.22 $ 1.65 $ 0.53 Cumulative effect of accounting change for income taxes - - - 0.39 Net earnings per share of common stock $ 0.65 $ 0.22 $ 1.65 $ 0.92 Cash dividends per share of common stock $ 0.09 $ 0.08 $ 0.26 $ 0.24 * Adjusted for three-for-two stock split effective 5-1-95 and stock options exercised. The accompanying notes to consolidated financial statements are an integral part of this statement.
ROANOKE ELECTRIC STEEL CORPORATION Consolidated Statements of Cash Flows
(Unaudited) Nine Months Ended July 31, 1995 1994 CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 13,254,129 $ 7,343,765 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 189,443 181,500 Depreciation and amortization 6,039,134 5,612,778 Gain on sale of property, plant and equipment (177,027) (19,577) Deferred income taxes (213,000) (205,000) Changes in assets and liabilities which provided (used) cash, exclusive of changes shown separately (7,403,146) 1,787,875 Net cash provided by operating activities 11,689,533 11,607,401 CASH FLOWS FROM INVESTING ACTIVITIES: Expenditures for property, plant and equipment (7,689,570) (8,521,965) Proceeds from sale of property, plant and equipment 582,754 39,374 Sales (purchases) of investments 1,085,919 (275,794) Other - (61,391) Net cash used in investing activities (6,020,897) (8,819,776) CASH FLOWS FROM FINANCING ACTIVITIES: Notes payable--net 4,500,000 500,000 Cash dividends (2,094,724) (1,917,555) Increase (decrease) in dividends payable (611,274) 5,160 Proceeds from exercise of common stock options 323,228 598,375 Redemption of long-term debt (4,036,625) (4,036,625) Net cash used in financing activities (1,919,395) (4,850,645) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,749,241 (2,063,020) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 150,036 3,067,418 CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,899,277 $ 1,004,398 CHANGES IN ASSETS AND LIABILITIES WHICH PROVIDED (USED) CASH, EXCLUSIVE OF CHANGES SHOWN SEPARATELY: (Increase) decrease in accounts receivable $ (2,944,592) $ (1,863,883) (Increase) decrease in inventories (3,558,604) 134,136 (Increase) decrease in prepaid expenses 300,188 (62,930) Increase (decrease) in accounts payable (2,765,521) 3,370,935 Increase (decrease) in employees' taxes withheld 58,860 105,755 Increase (decrease) in accrued profit sharing contribution 1,407,190 222,491 Increase (decrease) in accrued wages and expenses 16,456 (351,398) Increase (decrease) in accrued income taxes 82,877 232,769 Total $ (7,403,146) $ 1,787,875 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 1,887,650 $ 1,744,665 Income taxes $ 9,004,106 $ 2,829,266 The accompanying notes to consolidated financial statements are an integral part of this statement.
ROANOKE ELECTRIC STEEL CORPORATION Notes to Consolidated Financial Statements July 31, 1995 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 July 31, 1995 and the results of operations for the three months and nine months ended July 31, 1995 and 1994 and cash flows for the nine months ended July 31, 1995 and 1994. Note 2. Inventories include the following major classifications: (Unaudited) (Audited) July 31, October 31, 1995 1994 Scrap Steel $ 2,958,219 $ 4,737,074 Melt Supplies 2,254,583 1,888,830 Billets 904,717 3,209,030 Mill Supplies 3,087,505 2,867,779 Finished Steel 21,323,242 14,266,949 $ 30,528,266 $ 26,969,662 Note 3. The Company adopted Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes", effective November 1, 1993. The cumulative effect of adopting SFAS No. 109 on the Company's statements was to increase income by $3,093,940 ($.39 per share) for the three months ended January 31, 1994 and the nine months ended July 31, 1994. Note 4. Certain amounts included in the consolidated financial statements for 1994 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 May 1, 1995, to shareholders of record May 1, 1995, with a distribution date of May 25, 1995. All references to the number of common shares and per common share amounts have been restated to retroactively reflect the stock split. DELOITTE & TOUCHE LLP Suite 1401 Telephone: (910) 721-2300 500 West Fifth Street Facsimile: (910) 721-2301 Winston-Salem, North Carolina 27152 INDEPENDENT ACCOUNTANTS' REPORT Board of Directors Roanoke Electric Steel Corporation: We have reviewed the accompanying consolidated balance sheet of Roanoke Electric Steel Corporation and subsidiaries as of July 31, 1995, and the related consolidated statements of earnings and cash flows for the three-month and nine-month periods ended July 31, 1995 and 1994. These financial statements are the responsibility of the Corporation's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquires of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to such consolidated financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Roanoke Electric Steel Corporation and subsidiaries as of October 31, 1994, 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, 1994, 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, 1994 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. Deloitte & Touche LLP August 30, 1995 Deloitte Touche Tohmatsu International PART I - ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is management's discussion and analysis of certain significant factors which have affected the Company's earnings during the periods included in the accompanying consolidated statements of earnings. A summary of the period to period changes in the principal items included in the consolidated statements of earnings is shown below: Comparison of Increases (Decreases)
Three Months Ended Nine Months Ended July 31, July 31, 1995 and 1994 1995 and 1994 Amount Percent Amount Percent Sales 12,655,642 22.6 33,699,018 21.8 Cost of Sales 4,987,063 10.3 13,357,107 9.9 Administrative Expenses 846,702 25.0 2,273,110 23.0 Interest Expense 45,571 9.1 193,408 13.8 Profit Sharing Expense 1,118,541 139.9 2,854,141 150.0 Earnings before Income Taxes and Cumulative Effect of Change in Accounting Principles 5,657,765 190.1 15,021,252 211.4 Income Tax Expense 2,252,603 187.7 6,016,948 210.6 Earnings before Cumulative Effect of Change in Accounting Principles 3,405,162 191.7 9,004,304 211.9 Cumulative Effect of Change in Accounting Principles for Income Taxes - - (3,093,940) * Net Earnings 3,405,162 191.7 5,910,364 80.5 * Cannot be Calculated
Sales increased significantly for both the nine month and three month periods compared as a result of substantial increases in tons shipped of fabricated products (bar joists and rebar) and billets, together with improved selling prices for merchant bar products, fabricated products and billets. Sales for the three months were also favorably affected by a slight increase in bar product tons shipped, while the nine month bar shipments declined slightly. Shipments of fabricated products increased substantially, due both to increased activity and reduced competition within the commercial construction industry, while fabricated product selling prices increased mainly as a result of higher raw material costs and the less competitive conditions. Improved market conditions and increased demand resulted in the higher level of billet shipments, while the improvement in billet selling prices was primarily due to higher scrap prices which normally trigger changes in billet pricing. Merchant bar selling prices improved as a result of higher scrap costs and increased demand, both prompting industry-wide price increases. During the nine months, excess inventories at steel service centers caused a temporary reduction in tons shipped of bar products, eventhough market conditions and backlogs remained strong, while shipments for the quarter showed a slight increase. Cost of sales increased for the nine months compared as a result of the increase in tons shipped of billets and fabricated products, together with an increase in both the cost of scrap steel, our main raw material, and in other raw material costs, in spite of the reduction in bar product tons shipped and the cost savings realized with the start-up of our modern auto shredding operation. Cost of sales increased for the three months compared due primarily to the increased tons shipped of all product classes, and an increase in both scrap steel and other raw material costs, in spite of the shredding operation efficiencies mentioned above. Inflation in general was not significant. Gross profit as a percentage of sales increased by approximately 8.5 % and 8.7 % for the nine months and three months compared, respectively. These increases were mainly the result of the higher selling prices for all product classes and increased production levels for raw steel, merchant bar and fabricated products which reduced unit costs for fixed expenses, in spite of higher scrap costs. The increase in gross profit margins at the higher shipment levels was the reason for the increase in both gross profit and net earnings for the periods compared. Administrative expenses increased in both periods compared primarily due to increased executive and other compensation, based on various incentive arrangements. Interest expense increased in both periods compared due to increased interest rates, higher average borrowings and reduced capitalized interest and interest income. Profit sharing expense, computed as a percentage of pretax income, increased in both periods compared as a result of the improvements in earnings. The effective income tax rate is relatively constant for both periods compared. The 1994 nine month period reflects the adoption of an accounting principles change in reporting for income taxes, resulting in the cumulative effect of $3,093,940 of increased income through a deferred tax benefit. Working capital increased $7,078,880 during the period to $41,583,300 mainly as a result of working capital provided from operations exceeding capital expenditures, dividends and current maturities of long-term debt amounting to $7,689,570, $2,094,724 and $3,125,003, respectively. The current ratio of 2.1 and the quick ratio of 1.2 both indicate very sound liquidity and a healthy financial condition. Borrowings against the Registrant's $39,500,000 lines of credit were $11,000,000 leaving a balance of $28,500,000 for future use. As a condition of our loan agreements, the real estate and equipment at the Roanoke plant have been pledged as security for the loans. In addition, the terms do not allow consolidated current assets or the assets of Socar, Inc. to be pledged. However, the secured creditors are over collateralized and additional long-term funding is available to the Company through its various lenders, who have expressed their confidence and willingness to provide additional financing. At July 31, 1995, there were commitments for the purchase of plant and equipment amounting to $11,277,752. Funding for most of these expenditures will come from internally generated funds and the use of the credit lines mentioned above. A portion of the above commitments includes the upgrade of an electric arc furnace and the addition of a ladle furnace to the Company's melt shop operations. The ladle furnace and upgrade will increase raw steel production, improve quality, decrease production costs and improve operating efficiencies. Completion and start-up is anticipated in January 1996, and earnings should be favorably impacted. The percentage of long-term debt to total capital decreased from 22.2 % to 17.3 % during the nine months, due to current maturities reducing long-term debt by $3,125,003, while stockholders' equity increased as net earnings of $13,254,129 exceeded dividends of $2,094,724. 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, 1994 and Forms 10-Q for the quarters ended January 31, 1995 and April 30, 1995, as previously filed with the commission. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. a. Exhibits. (27) Financial Data Schedule b. Reports on Form 8-K. No reports on Form 8-K have been filed during the quarter for which this report is filed. Items 2, 3, 4 and 5 are omitted because the information required by these items is not applicable. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ROANOKE ELECTRIC STEEL CORPORATION Registrant Date 09/05/95 Donald G. Smith Donald G. Smith, Chairman, President, Treasurer and Chief Executive Officer (Principal Financial Officer) Date 09/05/95 John E. Morris John E. Morris, Vice President-Finance and Assistant Treasurer (Chief Accounting Officer) EXHIBIT INDEX Exhibit No. Exhibit Page (27) Financial Data Schedule 13 EXHIBIT NO. 27 FINANCIAL DATA SCHEDULE EX-27 2
5 9-MOS OCT-31-1995 JUL-31-1995 3,899,277 4,237,492 37,785,430 0 30,528,266 78,524,902 129,936,457 58,093,406 150,584,548 36,941,602 17,604,163 1,653,878 0 0 82,246,423 150,584,548 188,292,764 188,292,764 147,636,228 147,636,228 16,933,721 0 1,594,703 22,128,112 8,873,983 13,254,129 0 0 0 13,254,129 1.65 1.65