-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JEK271zscp3B+46ux6H41ve/5B7hfgL321+kG6kYXZiV1E6uZwNfgkiEst+WHeBk NtrfNOhaYTLhKLll1QNffA== 0000084278-96-000008.txt : 19960131 0000084278-96-000008.hdr.sgml : 19960131 ACCESSION NUMBER: 0000084278-96-000008 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19951031 FILED AS OF DATE: 19960129 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-02389 FILM NUMBER: 96508363 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-K 1 10-K FOR 1995 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (x) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended October 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.) P.O. Box 13948, Roanoke, Virginia 24038-3948 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (540) 342-1831 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, No Par Value (Title of class) 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (x) State the aggregate market value of the voting stock held by nonaffiliates of the Registrant. Aggregate market value at December 29, 1995: $120,486,030 Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of December 29, 1995. 8,076,897 Shares outstanding Portions of the following documents are incorporated by reference: (1) 1995 Annual Report to Stockholders in Part II. (2) Proxy Statement dated December 22, 1995 in Part III. PART I ITEM 1. BUSINESS (a) General Development of Business. During the fiscal year ended October 31, 1995, the Registrant continued for the most part to operate its business as it has the past four years by manufacturing merchant steel bar products, fabricating open-web steel joists and concrete reinforcing steel, and extracting scrap steel and other materials from junked automobiles. In December 1988, however, the Registrant's rebar subsidiary, RESCO Steel Products Corporation, purchased the assets of another rebar fabricating facility located in Salem, Virginia at a cost of $775,000, doubling its production capacity. Due to adverse economic conditions, and in order to initiate cost saving measures, in November 1990, the two rebar facilities were consolidated into one plant, now operating out of the newer location. Roanoke Technical Treatment & Services, Inc., a Roanoke, Virginia subsidiary, was formed in 1990 to license a process for the treatment of electric arc furnace dust. The subsidiary is awaiting various approvals and permits and is uncertain as to a specific time for start-up. In March 1991, the Registrant closed its merchant steel bar rolling mill located in Salem, Virginia due to a decline in order rates. The products manufactured at the Salem plant were produced at the Roanoke plant, which is considerably more efficient. During fiscal year 1994, the Registrant's auto shredding subsidiary, Shredded Products Corporation, completed construction of its new modern facility in Rocky Mount, Virginia, and in November 1994 began operations at the new locality, at a total investment in excess of $8,000,000 for plant and equipment. The new facility, with its own landfill, is providing considerable savings in waste disposal costs. In addition, cost savings and better metal recoveries are being achieved through the use of the more technologically advanced equipment. The other subsidiaries of the Registrant, John W. Hancock, Jr., Inc. and Socar, Inc., have had no material changes in operations or in the mode of conducting their business for the past five years. John W. Hancock, Jr. founded both the Hancock joist subsidiary and its parent, Roanoke Electric Steel Corporation, and served on the Registrant's Board of Directors as Chairman of the Executive Committee until his death in March 1994. PART I (con'd.) The Registrant currently anticipates no material changes in operations during the next fiscal year unless there are unforeseen changes in market conditions and profitability. (b) Financial Information about Industry Segments. The Registrant's business consists of one industry segment or line of business, which is the extracting of scrap metal from discarded automobiles and the manufacturing, fabricating and marketing of merchant steel bar products, reinforcing bars, open-web steel joists and billets. The industry segment consists of three classes of products - merchant steel products, fabricated bar joists and reinforcing bars and billets. FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS AND CLASSES OF PRODUCTS OR SERVICES 1995 1994 1993 Sales to Unaffiliated Customers: Merchant Steel $103,531,770 $96,782,588 $75,531,009 Bar Joists & Rebar $110,370,872 $78,854,207 $56,503,380 Billets $46,065,882 $40,172,433 $35,259,989 $259,968,524 $215,809,228 $167,294,378 Net Earnings from Operations $20,228,902 $8,766,435 $4,750,106 Identifiable Assets $157,774,658 $140,473,510 $130,620,435 (c) Narrative Description of Business. (1) (i) The Registrant manufactures merchant steel products consisting of Angles, Plain Rounds, Flats, Channels and Reinforcing Bars of various sizes and lengths. The principal markets for the Registrant's products are steel fabricators and steel service centers. The products are distributed directly to customers from orders solicited by a paid sales staff of the Registrant. PART I (con'd.) The Registrant's subsidiary, Shredded Products Corporation, is involved in the extraction of scrap iron and steel and other metals from junked automobiles and other waste materials. Almost all of the ferrous material is used by the Parent as raw materials. The non-ferrous metals are sold to unrelated purchasers. Two other subsidiaries, John W. Hancock, Jr., Inc. and Socar, Inc., are engaged in the manufacturing of long- and short-span steel joists. Joists are open-web steel horizontal supports for floors and roofs, used primarily in the construction of commercial and industrial buildings such as shopping centers, factories, warehouses, hospitals, schools, office buildings, nursing homes, and the like. Joists are cheaper and lighter than structural steel or reinforced concrete. The joists are distributed by these subsidiaries to their customers from orders solicited by manufacturer's representatives and pursuant to successful bids placed directly by the companies. The Registrant's subsidiary, RESCO Steel Products Corporation, fabricates concrete reinforcing steel by cutting and bending rebars to contractors' specifications. The rebars are distributed to contractors from orders solicited by a paid sales staff and pursuant to successful bids placed directly by the subsidiary. (ii) The Registrant has not recently introduced a new product or begun to do business in a new industry segment that will require the investment of a material amount of assets or that otherwise is material. (iii) The Registrant's main raw material, scrap steel, is supplied for the most part by scrap dealers within a 200 mile radius of the mill. It is purchased through the David J. Joseph Company who are scrap brokers. The Shredded Products subsidiary supplies 9,000 to 13,000 tons of scrap per month. Although scrap is generally available to the Registrant, the price of scrap steel is highly responsive to changes in demand, including demand in foreign countries as well as in the United States. The ability to maintain satisfactory profit margins in times when scrap is relatively high priced is dependent upon the levels of steel prices, which are determined by market forces. Alloys and other materials needed for the melting process are provided by various domestic and foreign companies. PART I (con'd.) Shredded Products Corporation often experiences difficulty in purchasing scrap automobiles at a satisfactory level. Competition from an increasing number of shredding operations and reluctance by dealers to sell scrap automobiles due to market conditions are the main causes. High offering prices generally increase the supply; however, the increased cost to produce sometimes is very competitive with the price of similar scrap that can be purchased on the outside. Substantially all of John W. Hancock, Jr., Inc.'s steel components are purchased from the Parent, which is located conveniently nearby and, therefore such components are generally available to the Company as needed. RESCO Steel Products Corporation purchases most of its steel components from suppliers within its market area, determined mainly by freight cost. Such components would be generally available to the Company, since the Parent could produce and supply this raw material, as needed. Socar, Inc. receives most of its raw steel material from the Parent and other nearby suppliers, the determinant usually being freight cost. The availability of raw materials is not of major concern to the Company, since the Parent could supply most of its needs. (iv) The Registrant currently holds no patents, trade marks, licenses, franchises or concessions that are material to its business operations. (v) The business of the Registrant is not seasonal. (vi) The Registrant does not offer extended payment terms to its customers nor is it normally required to carry significant amounts of inventory to meet rapid delivery requirements of customers; although, at times market conditions have required the stockpiling of popular bar products for rapid delivery. Working capital practices generally remain constant during the course of business except when the Registrant determines it to be advantageous to stockpile raw materials due to price considerations. (vii) During fiscal year 1995, sales (tons) by the Registrant to John W. Hancock, Jr., Inc., Socar, Inc. and RESCO Steel Products Corporation, wholly-owned subsidiaries, were approximately 10%, 8% and less than 1% of the PART I (con'd.) Registrant's total sales (tons), respectively. The largest nonaffiliated customer purchased approximately 26% of total sales (tons) ---15% of total sales (dollars). Alternative marketing and production arrangements were available to the Registrant, so that the loss of this nonaffiliate would not have had a materially adverse effect on the Registrant and its subsidiaries taken as a whole. (viii) The Registrant is of the opinion that the amount of its backlog is not generally material to an understanding of the business. All backlog is shipped within the current fiscal year. (ix) None of the business of the Registrant is subject to renegotiation of profits or termination of contracts or subcontracts at the election of the Government. (x) The Registrant competes with steel-producing mills of similar size operative within its market region and also larger mills producing similar products. The market region in which the Registrant sells its products consists of the majority of states east of the Mississippi River. Price, including transportation cost, is the major determinant in securing business. Economic recession began to intensify competition during 1990, as selling prices dropped due to a softening in demand. This trend continued through most of 1991 with sharp declines in selling prices due to poor demand and excess inventories and capacity at most mills, although by year-end prices rose slightly. In comparison to the 1991 recession lows, order rates in 1992 showed some improvement while selling prices remained flat. In 1993, market conditions and demand improved significantly, while industry-wide selling prices increased to offset higher raw material costs. Demand in 1994 was fueled by continued improvement in business conditions and economic growth, with higher raw material costs again forcing selling prices upward, although some of the increased selling prices were demand driven. Even though market conditions and backlogs remained strong for much of 1995, shipments were flat due to customers' inventory reductions, while improved selling prices were attributable to higher raw material costs and rising demand, although by year-end prices fell slightly. PART I (con'd.) The joist business is highly competitive. Due to similarity of product, relatively small price differences are often determinative in placing business. Ability to meet the customer's time requirements for delivery also is important in securing business. Competing successfully becomes more difficult with the distance to point of delivery due to transportation costs. In 1990, selling prices and order rates declined as a result of a weakened construction industry, causing increased competition. The severely depressed activity in the construction industry, due to overbuilding, again in 1991 resulted in drastic declines in selling prices and demand. In spite of depressed conditions, 1992 brought improved shipments due mainly to successful job bidding; however, in order to book a higher percentage of quotations, selling prices consequently suffered. Again in 1993, successful job bidding resulted in improved shipment levels, while higher raw material costs pushed selling prices upward, even though the construction industry remained depressed and highly competitive. In 1994, an easing of competitive conditions within the construction industry led to increased shipment levels, while selling prices were again forced upward by higher raw material costs. Reduced competition and increased activity in 1995 again led to higher shipment levels within the construction industry, as demand and increased raw material costs forced selling prices higher. Billets are semi-finished products used by the Registrant in its rolling mill process to manufacture various merchant bar products. With the addition of new casting equipment in recent years, the Registrant has anticipated a growing billet market of nonaffiliated customers who further fabricate the billets for various end uses. Competition within the industry caused a drop in selling prices in 1990, with demand slowing. In 1991, selling prices trended further downward, while order rates fell due to the sagging economy. Billet sales improved significantly in 1992 as a result of increased domestic demand and entry into the much more competitive export markets, although selling prices still continued to slump. Again in 1993, increased export business and improved domestic demand resulted in significantly higher billet shipments. Selling prices also rose in reaction to higher scrap steel costs. Shipments of billets declined slightly in 1994 due to a lack of export shipments, although domestic shipments improved significantly. While the export markets PART I (con'd.) were much more competitive, domestic demand improved dramatically. Higher billet prices were also driven by higher scrap steel costs, but the increased domestic billet shipments, which bring a higher price, also contributed. Improved market conditions and increased domestic demand resulted in improved 1995 billet shipments, as export markets remained highly competitive. Higher scrap steel costs and improved product mix together caused billet selling prices to climb. (xi) During the last three fiscal years, the Registrant was not involved in any material research and development activities. (xii) The United States Environmental Protection Agency (EPA) has notified the Registrant and the County of Roanoke (County) of their potential liability and responsibility for costs of response to materials at a County-owned landfill site and adjacent streams near Salem, Virginia. The Registrant has entered into a cost-sharing agreement with the County for response action (cleanup) at the landfill site and the streams. Pursuant to a Consent Decree to which EPA, the County and the Registrant were parties, the County completed a remedial action at the landfill in 1995. Under a separate consent order with EPA, the Registrant is performing a removal action at the streams, which includes removal, treatment and on-site placement of materials and affected sediment and soil. That work is approximately 30% performed, and completion is expected in approximately one year. The Registrant has not received notification of other claims associated with the landfill or streams. The Registrant does not anticipate significant future potential liability for response costs associated with the landfill, and while the cost of future response activities or any future claims associated with the streams is difficult to project, management believes such costs would not have a materially adverse effect on the consolidated financial position, results of operations and competitive position of the Registrant. See Note 7, "Commitments and Contingent Liabilities", in Notes to Consolidated Financial Statements contained in the Registrant's 1995 Annual Report to Stockholders, filed as an Exhibit to this Form 10-K. PART I (con'd.) The Registrant currently disposes of the furnace dust through a contract with an approved waste disposal firm. The Registrant believes it is in substantial compliance with applicable federal, state and local regulations. However, future changes in regulations may require expenditures which could adversely affect earnings in subsequent years. The Registrant has constructed over the years pollution control equipment at an aggregate cost of over $7,700,000. Annual operating expenses and depreciation of all pollution control equipment and waste disposal costs are in excess of $4,300,000 in the aggregate. The Registrant is expected to spend approximately $1,000,000 to $2,000,000 for additional pollution control and waste disposal equipment and facilities during subsequent fiscal years. Adoption of the Clean Air Act Amendments of 1990 is not anticipated to have a materially adverse effect on the Registrant's operations, capital resources or liquidity, nor should any incremental increase in capital expenditures occur due to the Act. (xiii) At October 31, 1995, the Registrant employed 499 persons at its Roanoke plant, with no employment at its Salem division, idle since mid-1991. The Registrant's subsidiaries, John W. Hancock, Jr., Inc., Socar, Inc., Shredded Products Corporation and RESCO Steel Products Corporation employed 259, 259, 47 and 44 persons, respectively. (d) Financial Information about Foreign and Domestic Operations and Export Sales. When the Registrant's billet production exceeds its required needs, this semi-finished product is offered for sale. During past years, a portion of the excess billets has been sold to brokers who represent foreign purchasers. During 1993, export (billet) sales to China and Mexico amounted to $4,485,565 and $620,028, respectively, slightly below break-even margins. There were no foreign sales of excess billets or other products during fiscal years 1994 and 1995. The information required by this paragraph by geographical area, as to foreign and domestic operations, is not provided since it is identical to the table in paragraph (b) with all information pertaining to the United States. PART I (con'd.) ITEM 2. PROPERTIES The Registrant owns 68 acres situated in the City of Roanoke, Virginia, which comprises its main plant, of which 25 acres are used to provide 334,000 square feet of manufacturing space with an annual billet capacity of approximately 600,000 tons. A 30 acre site is owned in Salem, Virginia, of which 10 acres were used to provide 51,355 square feet of manufacturing space, until March 1991, when the plant was idled. The Registrant acquired in 1991 a 447 acre tract of land in Franklin County, Virginia, 100 acres of which was transferred to Shredded Products Corporation in a move of shredding operations from its Montvale location. Part of this new Shredded Products property is being used as an approved industrial landfill. The remaining 337 acres of this land, 47 acres of which was sold in 1995, will be marketed as an industrial park for Franklin County. Shredded Products Corporation operates in both Montvale and Rocky Mount, Virginia. The Montvale plant is situated on a 75 acre site owned by the Registrant, approximately 20 acres of which are regularly used in its scrap processing operation, with an annual production capacity of approximately 18,000 tons. The new Rocky Mount facility is located on a 100 acre site owned by Shredded Products Corporation, partially consisting of a 25 acre industrial landfill used for the disposal of its auto fluff, and another 25 acres of which are regularly used in its shredding operation, with an annual production capacity of approximately 150,000 tons. John W. Hancock, Jr., Inc. is located in Roanoke County near Salem, Virginia. The plant is situated on a 37 acre site owned by Hancock, Inc., 17 acres of which are regularly used in its operations. Buildings on the site contain 131,614 square feet of floor space. Socar, Inc. and its subsidiaries are located in Florence, South Carolina, and in Continental and Bucyrus, Ohio. The Florence facility is located on a 28 acre site owned by Socar, Inc., 16 acres of which are regularly used in its operations. Buildings on the site contain 93,359 square feet of floor space. The plant located on a 31 acre site PART I (con'd.) in Continental, Ohio, owned by Socar, Inc., has 81,172 square feet of floor space in manufacturing buildings, situated on 8 acres regularly used in its operations. There is an idle facility in Bucyrus, Ohio, owned by Socar, Inc. (leased to an unaffiliated manufacturer), and located on a 17 acre site, 7 acres of which contain 118,228 square feet of building floor space. RESCO Steel Products Corporation operates from a building containing 43,340 square feet of floor space, located in Salem, Virginia, on a 7 acre site owned by RESCO. The various buildings are of modern design, well-maintained, and suitable and adequate for the requirements of the business. ITEM 3. LEGAL PROCEEDINGS A County of Roanoke (County) landfill site, where the Registrant disposed of furnace dust from 1969 until 1976, was placed on the National Priorities List as a Superfund site in 1989. The United States Environmental Protection Agency (EPA) has notified the Registrant and the County of their potential liability and responsibility for costs of response at the landfill site and adjacent streams. The Registrant has entered into a cost-sharing agreement with the County for response action (cleanup) at the landfill site and sharing of contribution received from other potentially responsible parties, if any. Under EPA oversight, the County completed remediation action there in 1995. The Registrant's costs associated with that work were reflected in past financial statements or in the accompanying financial statements. Under a consent order and EPA oversight, the Registrant, is implementing a removal action (cleanup) of the streams. While the cost of future response activities or any future claims associated with the streams is difficult to project, management believes such costs would not have a materially adverse effect on the consolidated financial position, results of operations and competitive position of the Registrant. See Note 7, "Commitments and Contingent Liabilities", in Notes to Consolidated Financial Statements contained in the Registrant's 1995 Annual Report to Stockholders, filed as an Exhibit to this Form 10-K. PART I (con'd.) ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of stockholders during the fourth quarter of the fiscal year covered. EXECUTIVE OFFICERS OF THE REGISTRANT Pursuant to General Instruction G(3) of Form 10-K, the following list is included as an unnumbered Item in Part I of this report in lieu of being included in the Proxy Statement for the Annual Meeting of Shareholders to be held on February 20, 1996. The names, ages and positions of all of the executive officers of the Registrant as of October 31, 1995 are listed below with their business experience with the Registrant for the past five years. Officers are elected annually by the Board of Directors at the first meeting of directors following the annual meeting of shareholders. There are no family relationships among these officers, nor any agreement or understanding between any officer and any other person pursuant to which the officer was selected. Thomas J. Crawford, 40, has served as Secretary of the Registrant since January 1985 and as Assistant Vice President since January 1993; prior thereto, he had served as Manager of Inside Sales since 1984 and as a Sales Representative since 1977. He has 18 years of service with the Registrant. Donald R. Higgins, 50, has served as Vice President - Sales of the Registrant since January 1986; prior thereto, he had served as General Sales Manager since 1984 and Assistant Sales Manager since 1978. He has 30 years of service with the Registrant. John E. Morris, 54, has served as Vice President - Finance of the Registrant since October 1988 and as Assistant Treasurer since 1985; prior thereto, he had served as Controller since 1971. He has 24 years of service with the Registrant. PART I (con'd.) William L. Neal, 68, has served as President of John W. Hancock, Jr., Inc. (wholly-owned subsidiary of the Registrant) since October 1984 and as Director of the Registrant since January 1989; prior thereto, he had served as Executive Vice President since December 1972. He has 40 years of service with Hancock, Inc. Donald G. Smith, 60, has served as Chairman of the Board of the Registrant since February 1989, as Chief Executive Officer since November 1986, as President and Treasurer since January 1985 and as Director of the Registrant since April 1984; prior thereto, he had served as Vice President - - Administration since September 1980 and as Secretary since January 1967. He has 38 years of service with the Registrant. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The specified information required by this item is incorporated by reference to the information under the heading "Stock Activity" in the 1995 Annual Report to Stockholders. ITEM 6. SELECTED FINANCIAL DATA The specified information required by this item is incorporated by reference to the information under the heading "Selected Financial Data" in the 1995 Annual Report to Stockholders. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The specified information required by this item is incorporated by reference to the information under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the 1995 Annual Report to Stockholders. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The specified information required by this item is incorporated by reference to the information under the headings "Independent Auditors' Report", "Consolidated Financial Statements" and "Notes to Consolidated Financial Statements" in the 1995 Annual Report to Stockholders. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The specified information required by this item is incorporated by reference to the information under the heading "Information Concerning Directors and Nominees" in the Proxy Statement dated December 22, 1995, as filed with the Commission, or is included under the heading "Executive Officers of the Registrant" in Part I of this 10-K filing. The disclosure required by Item 405 of Regulation S-K is not applicable. ITEM 11. EXECUTIVE COMPENSATION The specified information required by this item is incorporated by reference to the information under the headings "Executive Compensation", "Compensation and Stock Option Committee Report on Executive Compensation", "Compensation Committee Interlocks and Insider Participation", "Performance Graph" and "Board of Directors and Committees - -- Director Compensation" in the Proxy Statement dated December 22, 1995, as filed with the Commission. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The specified information required by this item is incorporated by reference to the information under the headings "Security Ownership of Certain Beneficial Owners" and "Security Ownership of Management" in the Proxy Statement dated December 22, 1995, as filed with the Commission. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The specified information required by this item is incorporated by reference to the information under the heading "Compensation Committee Interlocks and Insider Participation" in the Proxy Statement dated December 22, 1995, as filed with the Commission. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as a part of this report: (1) The following financial statements are filed as part of the 1995 Annual Report to Stockholders which is incorporated by reference: (a) Consolidated Balance Sheets (b) Consolidated Statements of Stockholders' Equity (c) Consolidated Statements of Earnings (d) Consolidated Statements of Cash Flows (e) Notes to Consolidated Financial Statements (f) Independent Auditors' Report Individual financial statements of the Registrant are not being filed because the Registrant is primarily an operating company and its subsidiaries do not have minority equity interests and/or long-term indebtedness (including current portions) to any person outside the consolidated group (excluding long-term indebtedness which is collateralized by the Registrant by guarantee, pledge, assignment or otherwise), in amounts which together exceed 5 percent of the total consolidated assets. . PART IV (con'd.) (2) Pursuant to Regulation S-K the following Exhibit Index is added immediately preceding the exhibits filed as part of the subject Form 10-K: EXHIBIT INDEX EXHIBIT NO. EXHIBIT PAGE (3) (a) Articles of Incorporation 20 Incorporated by Reference (b) By-Laws, as amended 21 (4) Instruments Defining the Rights of Security Holders 22 (10) * (a) Executive Officer Incentive Arrangement 23 Incorporated by Reference * (b) Roanoke Electric Steel Corporation Employees'Stock Option Plan 23 Incorporated by Reference (13) 1995 Annual Report to Stockholders 24 (21) Subsidiaries of the Registrant 25 (23) Consent of Independent Auditors 26 (27) Financial Data Schedule 27 (b) Reports on Form 8-K. There were no reports on Form 8-K filed by the Registrant during the last quarter of the fiscal period covered by the Annual Report. * Management contract, or compensatory plan or agreement, required to be filed as an Exhibit to this Form 10-K pursuant to Item 14 (c). SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 By: Donald G. Smith Donald G. Smith, Chairman, President, Treasurer and Chief Executive Officer (Principal Executive Officer, Principal Financial Officer and Director) Date: January 25, 1996 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Name and Title Date Donald G. Smith January 25, 1996 Donald G. Smith, Chairman, President, Treasurer and Chief Executive Officer (Principal Executive Officer, Principal Financial Officer and Director) John E. Morris January 25, 1996 John E. Morris, Vice President - Finance and Assistant Treasurer (Principal Accounting Officer) George B. Cartledge, Jr. January 25, 1996 George B. Cartledge, Jr. Director Paul E. Torgersen January 25, 1996 Paul E. Torgersen Director William L. Neal January 25, 1996 William L. Neal Director Thomas L. Robertson January 25, 1996 Thomas L. Robertson Director Gordon C. Willis January 25, 1996 Gordon C. Willis Director EXHIBIT NO. 3 (a) ARTICLES OF INCORPORATION Incorporated by reference to the previously filed Form 10-K for October 31, 1990 on file in the Commission office. EXHIBIT NO. 3 (b) BY-LAWS, AS AMENDED EXHIBIT NO. 4 INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS Pursuant to Item 601(b) (4) (iii) of Regulation S-K, the Registrant hereby undertakes to furnish to the Commission, upon request, copies of the instruments defining the rights of holders of the long-term debt of Roanoke Electric Steel Corporation and its subsidiaries described in its 1995 Annual Report to Stockholders and Form 10-K. EXHIBIT NO. 10 * (a) EXECUTIVE OFFICER INCENTIVE ARRANGEMENT Incorporated by reference to the previously filed Form 10-K for October 31, 1993 on file in the Commission office. * (b) ROANOKE ELECTRIC STEEL CORPORATION EMPLOYEES' STOCK OPTION PLAN Incorporated by reference to the previously filed Form 10-K for October 31, 1992 on file in the Commission office. * Management contract, or compensatory plan or agreement, required to be filed as an Exhibit to this Form 10-K pursuant to Item 14 (c). EXHIBIT NO. 13 1995 ANNUAL REPORT TO STOCKHOLDERS EXHIBIT NO. 21 SUBSIDIARIES OF THE REGISTRANT Registrant: Roanoke Electric Steel Corporation Organized Under Subsidiary of Registrant Jurisdiction of Shredded Products Corporation Virginia John W. Hancock, Jr., Inc. Virginia Socar, Incorporated South Carolina RESCO Steel Products Corporation Virginia Roanoke Technical Treatment and Services, Inc. Virginia EXHIBIT NO. 23 DELOITTE & TOUCHE LLP Suite 1401 Telephone: (910) 721-2300 500 West Fifth Street Facsimile: (910) 721-2301 P.O. Box 20129 Winston-Salem, North Carolina 27120-0129 CONSENT OF INDEPENDENT AUDITORS Roanoke Electric Steel Corporation: We hereby consent to the incorporation by reference in Registration Statement Nos. 33-27359 and 33-35243 on Form S-8 of our report dated November 17, 1995, appearing in and incorporated by reference in this Annual Report on Form 10-K of Roanoke Electric Steel Corporation for the year ended October 31, 1995. Deloitte & Touche LLP Winston-Salem, North Carolina January 25, 1996 Deloitte Touche Tohmatsu International EXHIBIT NO. 27 FINANCIAL DATA SCHEDULE EX-13 2 ANNUAL REPORT FOR 1995 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 EX-27 3 FINANCIAL DATA SCHEDULE 10-K 1995
5 The Schedule contains summary financial information extracted from the 4th Quarter Consolidated Balance Sheets and Statement of Earnings and is qualified in its entirety by reference to such financial statements. YEAR OCT-31-1995 OCT-31-1995 6,999,644 4,179,418 40,159,523 0 30,866,238 84,052,993 132,075,415 58,569,617 157,774,658 38,569,233 16,979,166 0 0 1,729,503 88,333,095 157,774,658 259,968,524 259,968,524 203,870,839 203,870,839 20,779,897 0 2,053,643 33,264,145 13,035,243 20,228,902 0 0 0 20,228,902 2.51 2.51
EX-3 4 BY-LAWS OF ROANOKE ELECTRIC STEEL CORPORATION ARTICLE I Offices The principal office and place of business of the Corporation shall be in the County of Roanoke, State of Virginia, and the post office address of the Corporation shall be in the City of Roanoke, State of Virginia. ARTICLE II Stockholders Section 1 - Annual Meeting - The annual meeting of the Stockholders of the Corporation shall be held on the third Monday in January of each year. Section 2 - Special Meetings - Special meetings of the Stockholders may be called by the President and shall be called by the President or Secretary at the request in writing of a majority of the Board of Directors, or at the request in writing by Stockholders owning a majority in amount of the entire capital stock of the Corporation issued and outstanding and entitled to vote. Section 3 - Notice and Place of Meetings - The Secretary shall cause written notice of the time and place of the holding of each annual or special meeting to be mailed, at least ten (10) days prior to such meeting, to each Stockholder entitled to vote, to the post office address of record with the Corporation. Notice of special meetings of the Stockholders shall state the purpose or purposes of such meetings. Meetings shall be held at such place in the City or County of Roanoke as may be designated in the notice. Section 4 - Quorum - At any meeting of the Stockholders, the holders of a majority of the shares of the capital stock of the Corporation, issued and outstanding and entitled to vote, present in person or represented by proxy, shall represent a quorum of the Stockholders for all purposes. If the holders of the amount of stock necessary to constitute a quorum shall fail to attend, in person or by proxy, at the time and place of meeting, the Chairman of the meeting may adjourn such meeting from time to time without notice, other than by announcement at the meeting, until holders of the amount of stock requisite to constitute a quorum shall attend. At any such adjourned meeting, at which a quorum be present, any business may be transacted which might have been transacted at the meeting as originally called. Section 5 - Organization - The President, and in his absence, the Vice-President, shall call all of the meetings of the Stockholders to order and shall act as Chairman of such meetings. In the absence of the President and Vice-President, the Board of Directors shall appoint any stockholder to act as Chairman of such meeting. The Secretary of the Corporation shall act as Secretary of all meetings of the Stockholders, and in the absence of the Secretary, the presiding officer may appoint any person to act in such capacity. Section 6 - Voting - At each meeting of the Stockholders, every Stockholder shall be entitled to vote in person or by proxy appointed by an instrument in writing, subscribed by such Stockholder, or by his duly authorized attorney, and delivered to the Secretary at the meeting, and he shall have one vote for each share of stock entitled to vote and registered in his name at the time of taking the list of Stockholders for such meeting. No share of stock shall be voted at any election which shall have been transferred on the books of the Corporation within twenty (20) days next preceding such election. Upon the demand of any Stockholder, the vote upon any question before the meeting shall be by ballot. It shall be the duty of the Secretary to prepare, at least ten (10) days before every meeting, a complete list of the Stockholders entitled to vote, arranged in alphabetical order and indicating the number of shares held by each. Such list shall be open for inspection by any Stockholder at the principal place of business of the Corporation during business hours for the ten (10) days preceding the meeting. Section 7 - Inspectors - At each meeting of the Stockholders, one (1) or more inspectors of election may be appointed by the presiding officer. It shall be the duty of the inspectors of election to count and certify to the Secretary the results of all votes at such meeting. In the absence of the appointment of such inspector or inspectors, the Secretary shall perform such duties. Section 8 - Order of Business - At meetings of the Stockholders, the order of business shall be: (1) Calling of roll. (2) Proof of due notice of meeting or of waiver of notice. (3) Reading and disposal of unapproved minutes. (4) Reports of officers and committees. (5) Election of Directors. (6) Unfinished business. (7) New business. (8) Adjournment. ARTICLE III Board of Directors Section 1 - Number and Term of Office - The business and property of the Corporation shall be managed and controlled by a Board of not less than five, nor more than nine Directors. The Directors shall be elected by ballot, by a majority of the Stockholders present and voting in person or by proxy, at each annual meeting of the Stockholders, and shall be elected to serve for a term of one (l) year and until their successors shall be elected and shall qualify. Section 2 - Vacancies - In case of any vacancy in the Board of Directors through death, resignation, disqualification or other cause, the remaining Directors, by an affirmative vote of the majority thereof, may elect a successor to hold office for the unexpired portion of the term. Section 3 - Annual Meetings - The annual meeting of the Board of Directors of the Corporation shall be held on the second Tuesday following the annual meeting of the Stockholders of the Corporation. Section 4 - Special Meetings - Special meetings of the Board of Directors shall be held whenever called by the direction of its Chairman or the President, or by one-third in number of the Directors then in office. Section 5 - Time, Place and Notice of Meetings - The Secretary shall cause written notice of the time and place of the holding of each annual or special meeting to be mailed, at least ten (10) days prior to the date of such meeting, to each Director to the post office address of record with the Corporation. Section 6 - Quorum - A majority of the Board of Directors shall constitute a quorum for the transaction of business, but if at any meeting of the Board, there be less than a quorum present, a majority of those present shall adjourn the meeting from time to time. Section 7 - Election and Salaries of Officers - The Directors shall elect the officers of the Corporation and fix their salaries. Section 8 - Order of Business - At meetings of the Board of Directors, the order of business shall be: (1) Calling of roll. (2) Proof of due notice of meeting or of waiver of notice. (3) Reading and disposal of any unapproved minutes. (4) Reports of officers and committees. (5) Election of officers. (6) Unfinished business. (7) New business. (8) Adjournment. ARTICLE IV Section 1 - Officers - The officers of the Corporation shall be a Chairman of the Board of Directors, a President, a Vice-President, a Secretary and a Treasurer. Any two or more of such offices, other than those of President and Secretary, may be held by one person. The Board of Directors may, in its discretion, elect more than one Vice-President, and an Assistant Secretary and Assistant Treasurer. The officers shall be elected at each annual meeting of the Board of Directors and shall be elected to serve for a term of one (1) year or until removed by a majority vote of the entire Board of Directors. Section 2 - Powers and Duties of Officers (a) The Chairman of the Board of Directors shall preside at all meetings of the Board of Directors. (b) President - The President shall be elected from the Board of Directors and shall preside at all meetings of the Stockholders, and, in the absence of the Chairman of the Board of Directors, at all meetings of the Directors. He shall have power to sign certificates of stock, to sign and execute all contracts, deeds, leases and other documents, and to sign checks, drafts, notes and orders for the payment of money, and to appoint, discharge and fix the salaries of agents and employees. He shall have general and active management of the business of the Corporation and shall perform all of the duties incident to the office of President. (c) Vice-President - The Vice-President, or Vice-Presidents, shall have such powers and perform such duties as may be delegated to him or them by the Board of Directors. In the absence or disability of the President, the senior Vice-President may perform the duties and exercise the powers of the President. (d) Treasurer and Assistant Treasurer - The Treasurer shall have custody of all funds and securities of the Corporation and shall keep a full and accurate account of all monies received and paid by him on account of the Corporation. He shall have power to sign all checks, drafts, notes and orders for the payment of money and shall perform all acts incident to the position of Treasurer, subject to the control of the Board of Directors. The Assistant Treasurer shall have such powers and duties as may be delegated to him by the Board of Directors and, in the absence or disability of the Treasurer, may perform the duties and exercise the powers of the Treasurer. (e) Secretary and Assistant Secretary - The Secretary shall keep the minutes of all meetings of the Board of Directors and Stockholders, and shall give and serve all notices. The Secretary shall attest and countersign all contracts, deeds, leases and other documents where necessary, and shall have charge and custody of the seal, and of the stock certificate books, transfer books and stock ledgers of the Corporation, and shall, in general, perform all duties usually incident to the office of Secretary. The Assistant Secretary shall have such powers and duties as may be delegated to him by the Board of Directors and, in the absence or disability of the Secretary, may perform the duties and exercise the powers of the Secretary. ARTICLE V Capital Stock, Dividends and Seal Section 1 - Certificates of Shares - The certificates for the shares of the capital stock of the Corporation shall be in such form as may be approved by the Board of Directors. The certificates shall be signed by the President and the Secretary or Treasurer of the Corporation and shall be consecutively numbered. The name of the person owning the shares represented by each certificate, with the number of such shares and the date of issue, shall be entered on the Corporation's books. The Corporation may treat the holder of record of any share or shares of stock as the holder-in-fact thereof, and shall not be bound to recognize any claim to or interest in any such share on the part of any other person. Section 2 - Transfer of Shares - Shares of the capital stock of the Corporation shall be transferable by the holder thereof in person, or by his duly authorized attorney, upon surrender and cancellation of certificates for a like number of shares properly endorsed. Section 3 - Regulations - The Board of Directors shall have power and authority to make all such rules and regulations as they may deem expedient concerning the issue, transfer and registration of certificates for the shares of stock of the Corporation. Section 4 - Dividends - The Board of Directors may declare dividends from the surplus of the Corporation or from the net profits from the operation of its business at such times and in such amounts as the Board, in its sole discretion, may determine. Before the payment of any dividend or the distribution of any profits, there may be set aside out of the surplus or net profits arising out of the operation of the business of the Corporation, such sum or sums as the Directors from time to time think proper, either as working capital, a reserve fund to meet contingencies, for the repair and maintenance of the property of the Corporation, or for such other purposes as the Directors shall think conducive to the interests of the Corporation. Section 5 - Corporate Seal - The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization, and the words "Corporate Seal" and "Virginia". Section 6 - Fiscal Year and Financial Statements - The fiscal year of the Corporation shall begin on the first day of November and terminate on the 31st day of October in each year. The Board of Directors shall publish and submit to the Stockholders, along with the notice of the time and place of the annual meeting, an operating statement of the Corporation for the preceding fiscal year and a consolidated balance sheet showing the assets and liabilities of the Corporation at the end of the preceding fiscal year. ARTICLE VI Amendment of By-Laws The By-Laws of the Corporation may be amended at any annual or special meeting of the Corporation by a vote of the holders of a majority of the shares of the capital stock of the Corporation issued and outstanding and entitled to vote, present in person or represented by proxy. John W. Hancock, Jr. President ATTEST: Elizabeth B. Hancock Secretary WAIVER OF NOTICE We, the undersigned, being all of the members of the Board of Directors of Roanoke Electric Steel Corporation, hereby waive notice of the first meeting of the Board of Directors to be held at the offices of Roanoke Iron and Bridge Works in the City of Roanoke, Virginia at 4 p.m. o'clock on the 27th day of April, 1955, and consent to the transaction of all business that may properly come before such meeting. DATED at Roanoke, Virginia this 27th day of April, 1955. John W. Hancock, Jr. O.D. Oakey, Jr. S. Colston Snead, Jr. B.W. Morris Charles P. Lunsford A. Blair Antrim John M. Donalson ARTICLES OF AMENDMENT TO BY-LAWS OF ROANOKE ELECTRIC STEEL CORPORATION Pursuant to Section 13.1 - 3(n), Code of Virginia, 1950, as amended, Roanoke Electric Steel Corporation executes Articles of Amendment to its By-Laws as follows: (a) The name of the Corporation is ROANOKE ELECTRIC STEEL CORPORATION. (b) The amendment so adopted amends Article VI of the By-Laws to read as follows: "The Corporation shall indemnify each director and officer of the Corporation, his heirs, executors, administrators and personal representatives, against any and all liabilities, judgments, fines, penalties and claims (including amounts paid in settlement) imposed upon or asserted against him by reason of his being or having been an officer or director of the Corporation or of any other corporation in which he served or serves as a director or officer pursuant to the written request of the Corporation (whether or not he continues to be an officer or director at the time of such imposition or assertion), and against all expenses (including counsel fees) reasonably incurred by him in connection therewith, except in respect of matters as to which he shall have been finally adjudged to be liable by reason of having been guilty of negligence or misconduct in the performance of his duty as such director or officer. In the event of any other judgment against such officer or director or in the event of a settlement, the indemnification shall be made only if the Corporation shall be advised (a) by the Board of Directors, in case none of the persons involved shall then be a director of the Corporation, or (b) by independent counsel appointed by the Board of Directors, in case any of the persons involved shall then be a director of the Corporation, that in its or his opinion, as the case may be, such director or officer was not guilty of negligence or misconduct in the performance of his duty, and, in the event of a settlement, that such settlement was, or, if still to be made, would be, in the best interests of the Corporation. If the determination is to be made by the Board of Directors, it may rely, as to all questions of law, upon the advice of independent counsel. The foregoing right of indemnification shall not be exclusive of other rights to which any director or officer may be entitled as a matter of law or otherwise." (c) The meeting of the Board of Directors at which the amendment was found to be in the best interests of the Corporation and directed to be submitted to a vote at a meeting of stockholders was held on the 18th day of October, 1967. Notice was given to each stockholder of record entitled to vote on the 15th day of December, 1967, such notice being given more than twenty-five and less than fifty days before the date of the meeting and was given in the manner provided in this Act, and was accompanied by a copy of the proposed amendment; the date of the adoption of the amendment by the stockholders was the 15th day of January, 1968. (d) The number of shares outstanding and the number of shares entitled to vote on the amendment was 560,000 shares; all shares being common stock of no par value, there was no class entitled to vote thereon as a class. (e) The number of shares present in person or by proxy voted for the amendment was 441,265 shares and none against such amendment. (f) Such amendment does not effect a change in the amount of stated capital. (g) Such amendment does not effect a restatement of the Articles of Incorporation. Witness the signature of Roanoke Electric Steel Corporation, by its President, with the corporate seal affixed and attested by the Secretary thereof, this 20th day of January, 1968. ROANOKE ELECTRIC STEEL CORPORATION BY William M. Meador President ATTEST: Donald G. Smith Secretary STATE OF VIRGINIA ) ) To-Wit: COUNTY OF ROANOKE ) I, Paul D. Sturgill, a Notary Public in and for the County of Roanoke, State of Virginia, do hereby certify that William M. Meador, and Donald G. Smith, President and Secretary respectively of Roanoke Electric Steel Corporation, have this day personally appeared before me and executed the foregoing Articles of Amendment, and made oath that the matters therein stated are true and correct. Given under my hand this 20th day of January, 1968. My commission expires April 4, 1968. Paul D. Sturgill Notary Public ARTICLES OF AMENDMENT TO BY-LAWS OF ROANOKE ELECTRIC STEEL CORPORATION Pursuant to Section 13.1 - 24, Code of Virginia, 1950, as amended, Roanoke Electric Steel Corporation executes Articles of Amendment to its By-Laws as follows: (a) The name of the Corporation is ROANOKE ELECTRIC STEEL CORPORATION. (b) The amendment so adopted adds a new by-law, which would be new Article VII, to read as follows: "The power to alter, amend or repeal the By-laws or adopt new by-laws shall be vested in the Board of Directors. But by-laws made by the Board of Directors may be repealed or changed, and new by-laws made, by the stockholders and the stockholders may prescribe that any by-law made by them shall not be altered, amended or repealed by the Directors." (c) The meeting of the Board of Directors at which the amendment was found to be in the best interests of the Corporation and directed to be submitted to a vote at a meeting of stockholders was held on the 18th day of October, 1967. Notice was given to each stockholder of record entitled to vote on the 15th day of December, 1967, such notice being given more than twenty-five and less than fifty days before the date of the meeting and was given in the manner provided in this Act, and was accompanied by a copy of the proposed amendment; the date of the adoption of the amendment by the stockholders was the 15th day of January, 1968. (d) The number of shares outstanding and the number of shares entitled to vote on the amendment was 560,000 shares; all shares being common stock of no par value, there was no class entitled to vote thereon as a class. (e) The number of shares present in person or by proxy voted for the amendment was 441,265 shares and none against such amendment. (f) Such amendment does not effect a change in the amount of stated capital. (g) Such amendment does not effect a restatement of the Articles of Incorporation. Witness the signature of Roanoke Electric Steel Corporation, by its President, with the corporate seal affixed and attested by the Secretary thereof, this 20th day of January, 1968. ROANOKE ELECTRIC STEEL CORPORATION BY William M. Meador President ATTEST: Donald G. Smith Secretary STATE OF VIRGINIA ) ) To-Wit: COUNTY OF ROANOKE ) I, Paul D. Sturgill, a Notary Public in and for the County of Roanoke, State of Virginia, do hereby certify that William M.Meador, and Donald G. Smith, President and Secretary respectively of Roanoke Electric Steel Corporation, have this day personally appeared before me and executed the foregoing Articles of Amendment, and made oath that the matters therein stated are true and correct. Given under my hand this 20th day of January, 1968. My commission expires April 4, 1968. Paul D. Sturgill Notary Public ARTICLES OF AMENDMENT TO BY-LAWS OF ROANOKE ELECTRIC STEEL CORPORATION Pursuant to Section 13.1-24 of the Code of Virginia and Article VII of the By-Laws of Roanoke Electric Steel Corporation, The Board of Directors of Roanoke Electric Steel Corporation hereby amends the By-Laws of the Corporation as follows: (a) Section 2 of Article V is amended by inserting "(subject to such restrictions as may be placed upon the transfer of shares under the terms of the following section)" between "transferable" and "by". (b) Section 3 of Article V is amended by adding to the end of such section the following sentence: "The Board of Directors may place such restrictions upon the transferability of all or part of the shares of the capital stock of the Corporation as may be necessary in the opinion of the Board to insure that any issue of stock by the Corporation will comply with applicable federal and state securities laws and with the terms of any agreement of merger or other corporate reorganization duly approved by the Board." (c) The meeting of the Board of Directors at which the amendment was found to be in the best interest of the Corporation was held on the 19th day of August, 1975. Witness the signature of Roanoke Electric Steel Corporation, by its President, with the corporate seal affixed and attested by the Secretary thereof, this 19th day of August, 1975. ROANOKE ELECTRIC STEEL CORPORATION By William M. Meador President ATTEST: Donald G. Smith Secretary ARTICLES OF AMENDMENT TO BY-LAWS OF ROANOKE ELECTRIC STEEL CORPORATION Pursuant to Section 13.1-24 of the Code of Virginia and Article VII of the By-Laws of Roanoke Electric Steel Corporation, the Board of Directors of Roanoke Electric Steel Corporation executes Articles of Amendment to its By-Laws as follows: (a) The name of the Corporation is ROANOKE ELECTRIC STEEL CORPORATION. (b) The amendment so adopted amends Section 1 of Article III to read as follows: "The business and property of the Corporation shall be managed and controlled by a Board of not less than five, nor more than ten Directors. The Directors shall be elected by ballot, by a majority of the Stockholders present and voting in person or by proxy, at each annual meeting of the Stockholders, and shall be elected to serve for a term of one (1) year and untill their successors shall be elected and shall qualify." (c) The meeting of the Board of Directors at which the amendment was found to be in the best interest of the Corporation was held on the 16th day of September, 1975. Witness the signature of Roanoke Electric Steel Corporation, by its President, with the corporate seal affixed and attested by the Secretary thereof, this 16th day of September, 1975. ROANOKE ELECTRIC STEEL CORPORATION By William M. Meador President ATTEST: Donald G. Smith Secretary ARTICLES OF AMENDMENT TO BY-LAWS OF ROANOKE ELECTRIC STEEL CORPORATION Pursuant to Section 13.1-24 of the Code of Virginia and Article VII of the By-Laws of Roanoke Electric Steel Corporation, the Board of Directors of Roanoke Electric Steel Corporation executes Articles of Amendment to its By-Laws as follows: (a) The name of the Corporation is ROANOKE ELECTRIC STEEL CORPORATION. (b) The amendment so adopted amends Section 1 of Article III to read as follows: "The business and property of the Corporation shall be managed and controlled by a Board of not less than five, nor more than eleven Directors. The Directors shall be elected by ballot, by a majority of the Stockholders present and voting in person or by proxy, at each annual meeting of the Stockholders, and shall be elected to serve for a term of one (1) year and until their successors shall be elected and shall qualify." (c) The meeting of the Board of Directors at which the amendment was found to be in the best interest of the Corporation was held on the 17th day of April 1984. Witness the signature of Roanoke Electric Steel Corporation, by its President, with the corporate seal affixed and attested by the Secretary thereof, this 17th day of April 1984. ROANOKE ELECTRIC STEEL CORPORATION By William M. Meador President ATTEST: Donald G. Smith Secretary ARTICLES OF AMENDMENT TO BYLAWS OF ROANOKE ELECTRIC STEEL CORPORATION Pursuant to Section 13.1-24 of the Code of Virginia and Article VII of the Bylaws of Roanoke Electric Steel Corporation, the Board of Directors of Roanoke Electric Steel Corporation hereby executes and approves these Articles of Amendment to its Bylaws as follows: (a) Article III, "Board of Directors", is hereby amended by the addition of Section 9 as follows: Section 9 - Executive Committee and Other Committees The Board of Directors of the Corporation, by resolution adopted by a majority of the Directors in office, may designate an Executive Committee and/or such other committees as from time to time shall be deemed necessary and appropriate. The Executive Committee shall be composed of two or more Directors of the Corporation, appointed by the Board of Directors, and, to the extent provided in such resolution, shall have and exercise all of the authority of the Board of Directors except to approve an amendment of the Articles of Incorporation, a plan of merger or consolidation, a plan of exchange under which the Corporation would be acquired, the sale, lease or exchange, or the mortgage or pledge of for a consideration other than money, of all or substantially all of the property and assets of the Corporation otherwise than in the ordinary and regular course of business, the voluntary dissolution of the Corporation, or revocation of voluntary dissolution proceedings. Other committees consisting of two or more Directors, appointed by the Board of Directors, may be designated by resolution adopted by a majority of the Directors present at a meeting at which a quorum is present. Upon designation of any committee, including the Executive Committee, the Board of Directors shall appoint a chairman thereof. (b) A meeting of the Board of Directors at which this Amendment was found to be in the best interest of the Corporation was held January 29, 1985. A majority of the Board of Directors then in office voted in favor of the Amendment. WITNESS the signature of Roanoke Electric Steel Corporation, by its President, with the corporate seal affixed and attested by the Secretary of, this 29th day of January, 1985. ROANOKE ELECTRIC STEEL CORPORATION By Donald G. Smith Attest: Thomas J. Crawford Secretary ARTICLES OF AMENDMENT TO BYLAWS OF ROANOKE ELECTRIC STEEL CORPORATION Pursuant to Section 13.1-714 of the Code of Virginia, 1950, as amended, and Article VII of the Bylaws of Roanoke Electric Steel Corporation, the Board of Directors of Roanoke Electric Steel Corporation hereby executes and approves these Articles of Amendment to its Bylaws as follows: (a) Article IV, Section 1 is hereby amended to read as follows: Section 1 - Officers - The officers of the Corporation shall be a Chairman of the Board of Directors, a President, a Vice President, an Assistant Vice President, a Secretary and a Treasurer. The Board of Directors may, in its discretion, elect more than one Vice President, more than one Assistant Vice President, and an Assistant Secretary and Assistant Treasurer. The same individual may simultaneously hold more than one office in the Corporation. The officers shall be elected at each annual meeting of the Board of Directors for a term of one (1) year or until removed by a majority vote of the entire Board of Directors. (b) Article IV, Section 2 (c) is hereby amended to read as follows: (c) Vice President and Assistant Vice President - The Vice President(s) and Assistant Vice President(s) shall have the powers and perform such duties as may be delegated to him or them by the Board of Directors. In the absence or disability of the President, the senior Vice President may perform the duties and exercise the powers of the President. (c) The meeting of the Board of Directors at which these Amendments were found to be in the best interest of the Corporation was held October 18, 1988. The majority of the Board of Directors then in office voted in favor of the Amendments. The Amendments were ratified by a majority of the Board of Directors at its meeting on November 15, 1988. WITNESS the signature of Roanoke Electric Steel Corporation, by its President, with the corporate seal affixed and attested by the Secretary thereof, this 15th day of November, 1988. ROANOKE ELECTRIC STEEL CORPORATION By Donald G. Smith President ATTEST: Thomas J. Crawford Secretary ARTICLES OF AMENDMENT TO BYLAWS OF ROANOKE ELECTRIC STEEL CORPORATION Pursuant to Section 13.1-714 of the Code of Virginia, 1950, as amended, and Article VII of the Bylaws of Roanoke Electric Steel Corporation, the Board of Directors of Roanoke Electric Steel Corporation hereby executes and approves these Articles of Amendment to its Bylaws as follows: (a) Section 1 of Article IV of the Bylaws is hereby amended in its entirety to read as follows: "Section 1 - Officers - The officers of the Corporation shall be a Chairman of the Board of Directors, a President, a Vice President, an Assistant Vice President, a Secretary and a Treasurer and such other officers as the Board may by resolution appoint. The same individual may simultaneously hold more than one office in the Corporation. The Board of Directors may, in its discretion, elect more than one Vice President, more than one Assistant Vice President, and an Assistant Secretary and Assistant Treasurer. The officers shall be elected at each annual meeting of the Board of Directors and shall be elected to serve for a term of one (1) year or until removed by a majority vote of the entire Board of Directors." (b) The meeting of the Board of Directors at which this Amendment was found to be in the best interests of the Corporation was held on November 16, 1993. The majority of the members of the Board of Directors then in office voted in favor of the Amendment. WITNESS the signature of Roanoke Electric Steel Corporation, by its President, with the corporate seal affixed and attested by the Secretary thereof, this 16th day of November, 1993. ROANOKE ELECTRIC STEEL CORPORATION By: Donald G. Smith President ATTEST: Thomas J. Crawford Secretary ARTICLES OF AMENDMENT TO BY-LAWS OF ROANOKE ELECTRIC STEEL CORPORATION Pursuant to Section 13.1-714 of the Code of Virginia and Article VII of the By-Laws of Roanoke Electric Steel Corporation, the Board of Directors of Roanoke Electric Steel Corporation executes Articles of Amendment to its By-Laws as follows: (a) The name of the Corporation is Roanoke Electric Steel Corporation. (b) The amendment so adopted (the "Amendment") amends Section 1 of Article II to read as follows: "Section 1 - Annual Meeting - The annual meeting of the Stockholders of the Corporation shall be held on the third Tuesday in February of each year, or on such other date as the Board of Directors may determine." (c) The Amendment also amends Section 3 of Article III to read as follows: "Section 3 - Annual Meeting - The annual meeting of the Board of Directors of the Corporation shall be held immediately following the annual meeting of Stockholders, or at such other time as the Board of Directors may determine." (d) The meeting of the Board of Directors at which the Amendment was found to be in the best interest of the Corporation was held on the 19th day of September, 1995. Witness the signature of Roanoke Electric Steel Corporation, by its President, with the corporate seal affixed and attested by the Secretary thereof, this 19th day of September, 1995. ROANOKE ELECTRIC STEEL CORPORATION By Donald G. Smith President ATTEST: Thomas J. Crawford Secretary -----END PRIVACY-ENHANCED MESSAGE-----