-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, tmhgan0RRUmeQFBXs/bR/zQPerJplHOfsCEkBXuke6zzi6M2DdDd8xr5CGeQR85e j6twbzYXibuV9pL51RJkww== 0000084278-94-000007.txt : 19940317 0000084278-94-000007.hdr.sgml : 19940317 ACCESSION NUMBER: 0000084278-94-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19940131 FILED AS OF DATE: 19940316 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROANOKE ELECTRIC STEEL CORP CENTRAL INDEX KEY: 0000084278 STANDARD INDUSTRIAL CLASSIFICATION: 3312 IRS NUMBER: 540585263 STATE OF INCORPORATION: VA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 34 SEC FILE NUMBER: 000-02389 FILM NUMBER: 94516241 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 1ST QTR 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 January 31, 1994 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 incorporation or organization) Identification No.) 102 Westside Blvd., N.W., Roanoke, Virginia 24017 (Address of principal executive offices) (Zip Code) (703) 342-1831 (Registrant's telephone number, including area code ) N/A (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes x No Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of January 31, 1994. 5,308,909 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 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 - 9 Review by Independent Certified Public Accountants 10 2. Part II - Other Information 11 Item 1. Legal Proceedings 11 Item 4. Submission of Matters to a Vote of Security Holders 11 Item 6. Exhibits and Reports on Form 8-K 11 3. Signatures 12 4. Exhibit Index pursuant to Regulation S-K 13 5. Exhibits a. Executive Officer Incentive Arrangement 14 b. Roanoke Electric Steel Corporation Employees' Stock Option Plan 14 c. Independent Accountants' Report 15 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS ROANOKE ELECTRIC STEEL CORPORATION Consolidated Balance Sheets ASSETS (Unaudited) (Audited) January 31, October 31, 1994 1993 CURRENT ASSETS Cash and cash equivalents $ 1,645,923 $ 3,067,418 Investments 6,224,600 5,243,735 Accounts receivable 23,993,133 28,074,878 Inventories 24,231,908 24,069,180 Prepaid expenses 1,344,610 1,324,123 Total current assets 57,440,174 61,779,334 PROPERTY, PLANT AND EQUIPMENT Land 3,243,426 3,243,426 Buildings 15,122,803 15,121,826 Other property and equipment 93,851,865 93,677,568 Assets under construction 5,225,508 2,897,377 Sub-total 117,443,602 114,940,197 Less--accumulated depreciation 50,489,205 48,728,280 66,954,397 66,211,917 OTHER ASSETS Unamortized excess of cost of investment in subsidiary over net assets acquired 248,629 295,247 Other 1,055,210 1,015,741 1,303,839 1,310,988 $ 125,698,410 $ 129,302,239 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current portion of long-term debt $ 4,965,500 $ 4,965,500 Notes payable 5,000,000 6,000,000 Accounts payable 11,471,787 11,595,102 Dividend payable 637,069 636,589 Employees' taxes withheld 252,307 207,069 Accrued profit-sharing contribution 567,721 1,680,246 Accrued wages and expenses 1,189,645 1,536,585 Accrued income taxes 789,620 69,538 Total current liabilities 24,873,649 26,690,629 LONG-TERM DEBT Notes payable 28,307,625 30,486,500 Less--current portion 4,965,500 4,965,500 23,342,125 25,521,000 DEFERRED INCOME TAXES 10,701,093 13,887,033 POSTRETIREMENT LIABILITIES 60,500 - STOCKHOLDERS' EQUITY Common stock--no par value--authorized 10,000,000 shares, issued 5,906,738 shares in 1994 and 5,901,538 in 1993 751,151 722,151 Capital in excess of stated value 9,349,429 9,349,429 Retained earnings 57,815,331 54,326,865 67,915,911 64,398,445 Less--treasury stock, 597,829 shares--at cost 1,194,868 1,194,868 Total stockholders' equity 66,721,043 63,203,577 $ 125,698,410 $ 129,302,239 The accompanying notes to consolidated financial statements are an integral part of this statement. ROANOKE ELECTRIC STEEL CORPORATION Consolidated Statements of Earnings (Unaudited) Three Months Ended January 31, 1994 1993 NET SALES $ 46,712,540 $ 35,999,788 COST OF SALES 40,658,423 32,039,655 GROSS EARNINGS 6,054,117 3,960,133 OTHER OPERATING EXPENSES Administrative 3,307,537 2,533,262 Interest, net 454,737 435,282 Profit-sharing 567,721 172,903 4,329,995 3,141,447 EARNINGS BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLES 1,724,122 818,686 INCOME TAXES 692,526 300,830 NET EARNINGS BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLES 1,031,596 517,856 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLES FOR INCOME TAXES 3,093,940 - NET EARNINGS $ 4,125,536 $ 517,856 Weighted average number of common shares outstanding * 5,306,702 5,303,709 Net earnings per share of common stock Net earnings before cumulative effect of accounting change $ 0.20 $ 0.10 Cumulative effect of accounting change for income taxes $ 0.58 $ - Net earnings per share of common stock $ 0.78 $ 0.10 Cash dividends per share of common stock $ 0.12 $ 0.12 * Adjusted for 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) Three Months Ended January 31, 1994 1993 CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 4,125,536 $ 517,856 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 60,500 - Depreciation and amortization 1,865,385 1,851,186 Deferred income taxes (92,000) (42,000) Changes in assets and liabilities which provided (used) cash, exclusive of changes shown seperately 3,081,070 2,016,268 Net cash provided by operating activities 5,946,551 4,343,310 CASH FLOWS FROM INVESTING ACTIVITIES: Expenditures for property, plant and equipment (2,558,243) (516,788) Purchases of investments (980,865) (43,831) Other (42,474) (17,695) Net cash used in investing activities (3,581,582) (578,314) CASH FLOWS FROM FINANCING ACTIVITIES: Notes payable--net (1,000,000) (500,000) Cash dividends (637,069) (636,445) Increase in dividends payable 480 - Proceeeds from exercise of common stock options 29,000 - Redemption of long-term debt (2,178,875) (2,178,875) Net cash used in financing activities (3,786,464) (3,315,320) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,421,495) 449,676 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,067,418 1,766,134 CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,645,923 $ 2,215,810 CHANGES IN ASSETS AND LIABILITIES WHICH PROVIDED (USED) CASH, EXCLUSIVE OF CHANGES SHOWN SEPARATELY: (Increase) decrease in accounts receivable $ 4,081,745 $ 3,557,213 (Increase) decrease in inventories (162,728) (715,896) (Increase) decrease in prepaid expenses (20,487) (249,409) Increase (decrease) in accounts payable (123,315) 887,794 Increase (decrease) in employees' taxes withheld 45,238 69,551 Increase (decrease) in accrued profit-sharing (1,112,525) (724,935) Increase (decrease) in accrued wages and expenses (346,940) (711,114) Increase (decrease) in accrued income taxes 720,082 (96,936) Total $ 3,081,070 $ 2,016,268 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 592,639 $ 561,346 Income taxes $ 64,444 $ 439,766 The accompanying notes to consolidated financial statements are an integral part of this statement. ROANOKE ELECTRIC STEEL CORPORATION Notes to Consolidated Financial Statements January 31, 1994 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 January 31, 1994 and the results of operations and cash flows for the three months ended January 31, 1994 and 1993. Note 2. Inventories include the following major classifications: (Unaudited) (Audited) January 31, October 31, 1994 1993 Scrap Steel $ 1,157,412 $ 2,651,005 Melt Supplies 2,029,225 2,034,790 Billets 2,866,328 2,400,164 Mill Supplies 2,793,694 2,745,971 Finished Steel 15,385,249 14,237,250 $ 24,231,908 $ 24,069,180 Note 3. Effective November 1, 1993, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions". The Company currently provides certain health care benefits for eligible retired and terminated employees, and SFAS No. 106 requires the Company to accrue the estimated cost of retiree benefit payments during the years the employee provides services. The Company previously expensed the cost of these benefits as claims were incurred. SFAS No. 106 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 this Statement, but implementation decreased net earnings from continuing operations for the three months ended January 31, 1994 by $26,935 ($.01 per share). The following table sets forth the health care plan's funded status at November 1, 1993. Accumulated postretirement benefit obligation: Retirees $ 277,000 Fully eligible plan participants 566,000 Other active plan participants 538,000 1,381,000 Fair value of plan assets - Accumulated postretirement benefit obligation in excess of plan assets 1,381,000 Unrecognized transition obligation 1,381,000 Accrued postretirement benefit cost $ - Net postretirement benefit cost for the three months ended January 31, 1994 consisted of the following components: Service cost for 1994 $ 31,750 Interest cost for 1994 on accumulated postretirement benefit obligation 29,500 Amortization of transition obligation for 1994 17,250 Estimated expected benefit payments in 1994 (18,000) Return on plan assets - $ 60,500 The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation as of November 1, 1993 was 13% for 1993, 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 as of November 1, 1993 by approximately $103,000 and the net postretirement health care cost by approximately $26,000. The assumed discount rate used in determining the accumulated postretirement benefit obligation was 8%. Note 4. 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 $3,093,940 ($.58 per share) for the three months ended January 31, 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 November 1, 1993, the Company had total deferred tax liabilities of $12,111,290 and deferred tax assets of $1,318,197. Deferred tax liabilities result exclusively from excess tax depreciation, and deferred tax assets result, primarily, from reserves not currently deductible of $625,430 and alternative minimum tax credit carryforwards of $302,318. There were no valuation allowances. The Company's effective tax rate during fiscal 1993 was 36.79%. The provision for income tax expense for the three months ended January 31, 1994 was $692,526, of which $784,526 and $(92,000) is current and deferred tax expense, respectively. PART I - ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is management's discussion and analysis of certain significant factors which have affected the Company's earnings during the periods included in the accompanying consolidated statements of earnings. A summary of the period to period changes in the principal items included in the consolidated statements of earnings is shown below: Comparison of Increases (Decreases) Three months Ended January 31, 1994 and 1993 Amount Percent Net Sales 10,712,752 29.8 Cost of Sales 8,618,768 26.9 Administrative Expenses 774,275 30.6 Interest Expense 19,455 4.5 Profit-sharing Expense 394,818 228.3 Earnings before Income Taxes and Cumulative Effect of Change in Accounting Principles 905,436 110.6 Income Taxes 391,696 130.2 Net Earnings before Cumulative Effect of Change in Accounting Principles 513,740 99.2 Cumulative Effect of Change in Accounting Principles for Income Taxes 3,093,940 * Net Earnings 3,607,680 696.7 * Cannot be calculated Sales for the periods compared increased significantly as a result of increases in selling prices and tons shipped for both merchant bar products and fabricated products (bar joists and rebar). Improved selling prices for billets also contributed to the sales increase, eventhough billet shipments declined. The increased bar product shipments were due to much improved market conditions, while merchant bar selling prices improved as a result of higher scrap costs prompting industry-wide price increases. Shipments of fabricated products increased primarily due to successful job bidding and an easing of competition within the construction industry, while fabricated product selling prices continued to trend upward influenced by higher raw material costs. Billet selling prices increased mainly due to improved domestic demand and rising scrap prices which normally trigger changes in billet pricing. The decrease in billet tons shipped resulted entirely from a decline in export business caused by selling prices not keeping pace with rising production costs; however, domestic shipments nearly doubled last year's first quarter tonnage. Cost of sales increased as a result of the increases in both tons shipped of merchant bar and fabricated products and the cost of scrap steel, our main raw material, in spite of the reduction in billet tons shipped. Inflation in general was not significant. Gross profit as a percentage of sales increased by approximately 2.0% primarily a 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 resulted in significant improvements in gross profit and net earnings for the period. Administrative expenses increased mainly as a result of increased executive and other compensation, based on various incentive arrangements, together with higher insurance expenses and professional fees. Interest expense increased as higher interest rates more than offset lower average borrowings and increased capitalized interest and interest income. Profit-sharing expense, computed as a percentage of pretax income, increased due to the improvement in earnings. The effective income tax rate increased in 1994 due to lower tax-exempt investment income. The 1994 quarter 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 decreased $2,522,180 during the period to $32,566,525 mainly as a result of capital expenditures, dividends and current maturities of long-term debt amounting to $2,558,243, $637,069 and $2,178,875, respectively, which exceeded working capital provided from operations. Borrowings against the Registrant's $37,500,000 lines of credit were $5,000,000 leaving a balance of $32,500,000 for future use. As a condition of our loan agreements, the real estate and equipment at the Roanoke plant and the capital stock of Socar, Inc. 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, additional capital resources are available to the Company as the secured creditors are over-collateralized and the Company's lenders and other financial institutions have expressed confidence and their willingness to provide additional long-term financing. At January 31, 1994, there were commitments for the purchase of plant and equipment amounting to $2,987,763. Funding for these expenditures will come from internally generated funds or the use of the credit lines mentioned above. The percentage of long-term debt to total capital decreased from 28.8% to 25.9% during the quarter, due to current maturities reducing long-term debt by $2,178,875, while stockholders' equity increased as net earnings of $4,125,536 exceeded dividends of $637,069. REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The financial statements included in this filing on Form 10-Q have been reviewed by Deloitte & Touche, Independent Certified Public Accountants, in accordance with established professional standards and procedures for such a review. All adjustments or additional disclosures proposed by Deloitte & Touche have been reflected in the data presented. The report of Deloitte & Touche commenting upon their review is included as an Exhibit to this report. 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 were no material developments in or terminations of the legal proceedings reported earlier by Registrant on Form 10-K for fiscal year ended October 31, 1993, as previously filed with the commission. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. On January 17, 1994, the Annual Meeting of Shareholders was held and the following persons were elected as Directors of the Registrant: Frank A. Boxley Thomas L. Robertson T.A. Carter Donald G. Smith George B. Cartledge, Jr. Paul E. Torgersen John W. Hancock, Jr. Gordon C. Willis Charles I. Lunsford, II John D. Wilson William L. Neal Votes for 11 nominees - 4,592,560. Votes withheld for nominees as a group or individual nominees 4,492. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. a. Exhibits. (10)(a) Executive Officer Incentive Arrangement (incorporated herein by reference to Exhibit 10(a) to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1993) (10)(b) Roanoke Electric Steel Corporation Employees' Stock Option Plan (incorporated herein by reference to Exhibit 10(b) to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1992) (15) Independent Accountants' Report b. Reports on Form 8-K. No reports on Form 8-K have been filed during the quarter for which this report is filed. Items 2, 3 and 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 3/15/94 Donald G. Smith Donald G. Smith, Chairman, President, Treasurer and Chief Executive Officer (Principal Financial Officer) Date 3/15/94 John E. Morris John E. Morris, Vice President-Finance and Assistant Treasurer (Chief Accounting Officer) EXHIBIT INDEX Exhibit No. Exhibit Page (10) (a) Executive Officer Incentive Arrangement 14 (incorporated herein by reference to Exhibit 10(a) to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1993) (10) (b) Roanoke Electric Steel Corporation Employee's 14 Stock Option Plan (incorporated herein by reference to Exhibit 10(b) to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1992) (15) Independent Accountants' Report 15 EX-10 2 EXHIBIT 10 EXHIBIT NO. 10 (a) EXECUTIVE OFFICER INCENTIVE ARRANGEMENT Incorporated herein by reference to Exhibit 10(a) to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1993. (b) ROANOKE ELECTRIC STEEL CORPORATION EMPLOYEES' STOCK OPTION PLAN Incorporated herein by reference to Exhibit 10(b) to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1992. EX-15 3 EXHIBIT 15 EXHIBIT NO. 15 DELOITTE & TOUCHE Suite 1401 Telephone: (919) 721-2300 500 West Fifth Street Facsimile: (919) 721-2301 P.O. Box 20129 Winston-Salem, North Carolina 27120-0129 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 January 31, 1994 and the related consolidated statements of earnings and cash flows for the three-month periods ended January 31, 1994 and 1993. 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. As discussed in Notes 3 & 4 to the consolidated financial statements, the Corporation changed its method of accounting for income taxes and postretirement benefits in the three-month period ended January 31, 1994. 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, 1993, 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 19, 1993, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as October 31, 1993 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. Deloitte & Touche March 8, 1994 Deloitte Touche Tohmatsu International -----END PRIVACY-ENHANCED MESSAGE-----