-----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, IcQcF7pMAJu/V3E9HdQDotla3Nd4ka2Ew52XfNwjo5DJ5EzjomQPdVoAaciDQrfX IrLflviYTe9JqibSJUIyow== 0000084278-97-000002.txt : 19970130 0000084278-97-000002.hdr.sgml : 19970130 ACCESSION NUMBER: 0000084278-97-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19961031 FILED AS OF DATE: 19970129 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: 97512819 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 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, 1996 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 31, 1996: $112,713,413 Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of December 31, 1996. 7,492,097 Shares outstanding Portions of the following documents are incorporated by reference: (1) 1996 Annual Report to Stockholders in Part II. (2) Proxy Statement dated January 3, 1997 in Part III. PART I ITEM 1. BUSINESS (a) General Development of Business. During the fiscal year ended October 31, 1996, 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. 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, and currently 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. During the later part of 1996, the Registrant, at its main plant, completed the installation of a new ladle refining furnace and the upgrade of an electric arc furnace, for approximately $17,000,000. With this new state-of-the-art equipment in operation, the Registrant expects to increase raw steel production, improve quality, reduce production costs and improve operating efficiencies. Also in 1996, the Registrant closed on an unsecured $60,000,000 credit facility with a syndicate of lenders. The facility was comprised of a $30,000,000 ten-year term loan and a $30,000,000 five-year revolver. The term loan was used to purchase additional equipment and refinance debt at much lower interest rates. The revolver replaced lines of credit that were not legally binding. This restructuring of debt provided the Registrant with the capital resources necessary to maintain its competitive position and ensure future growth. In January 1996, Socar, Inc. , a South Carolina subsidiary, sold its long-time idle plant in Bucyrus, Ohio to the unaffiliated manufacturer who had been leasing the facility for several years under a lease-purchase agreement, for a final settlement price of $130,000. The other subsidiaries of the Registrant, John W. Hancock, Jr., Inc. and RESCO Steel Products Corporation, 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 1996 1995 1994 Sales to Unaffiliated Customers: Merchant Steel $104,180,746 $103,531,770 $96,782,588 Bar Joist & Rebar $112,572,549 $110,370,872 $78,854,207 Billets $ 29,533,357 $ 46,065,882 $40,172,433 $246,286,652 $259,968,524 $215,809,228 Net Earnings from Operations $ 15,414,834 $ 20,228,902 $ 8,766,435 Identifiable Assets $167,015,901 $157,774,658 $140,473,510 (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 10,000 to 15,000 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. 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. PART I (con'd.) 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 1996, 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 Registrant's total sales (tons), respectively. The largest nonaffiliated customer purchased approximately 21% of total sales (tons) ---11% 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 PART I (con'd.) 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. Demand and backlogs continued high through 1996, allowing for increased bar product shipments, in spite of increased competition, which forced sharp reductions in selling prices throughout the industry. 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. Generally strong business conditions within the commercial construction industry continued during 1996 to bring improvements to selling prices for fabricated products, while shipment levels were relatively flat, as weather related construction delays offset otherwise strong demand. 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 PART I (con'd.) 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 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. A planned melt shop shutdown during 1996 to install a new ladle furnace and upgrade an electric arc furnace was unexpectedly prolonged due to problems with construction and installation, resulting in a sharp decline in billet production and causing a significant reduction in billet shipments for the year, while the highly competitive export market remained in effect. Billet selling prices declined with a downward trend in scrap prices. (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 75% performed, and completion is expected within a 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 1996 Annual Report to Stockholders, filed as an Exhibit to this Form 10-K. PART I (con'd.) Near the end of fiscal year 1996, the Registrant began treating a portion of its electric arc furnace dust, a hazardous substance, utilizing its own stabilization process. Significant savings are being realized as this process replaces off-site and more expensive treatment methods that had been used 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 $9,600,000. Annual operating expenses and depreciation of all pollution control equipment and waste disposal costs are in excess of $3,900,000 in the aggregate. The Registrant is expected to spend approximately $1,000,000 to $1,500,000 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, 1996, the Registrant employed 508 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 276, 276, 50 and 45 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, although, there were no foreign sales of excess billets or other products during fiscal years 1994, 1995 and 1996. 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. 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 338,000 square feet of manufacturing space with an annual billet capacity of approximately 650,000 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 I (con'd.) 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 subsidiary are located in Florence, South Carolina, and in Continental, 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 32 acre site 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. 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 cost reimbursement received from other potentially responsible parties, if any. The County has filed suit to recover such costs. 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 PART I (con'd.) 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 1996 Annual Report to Stockholders, filed as an Exhibit to this Form 10-K. 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 18, 1997. The names, ages and positions of all of the executive officers of the Registrant as of October 31, 1996 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, 41, 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 19 years of service with the Registrant. Donald R. Higgins, 51, 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 31 years of service with the Registrant. John E. Morris, 55, 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 25 years of service with the Registrant. Donald G. Smith, 61, 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 39 years of service with the Registrant. PART I (con'd.) FORWARD-LOOKING STATEMENTS From time to time, the Company may publish forward-looking statements relating to such matters as anticipated financial performance, business prospects, technological developments, new products, research and development activities and similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with the terms of the safe harbor, the Company notes that a variety of factors could cause the Company's actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements. The risks and uncertainties that may affect the operations, performance, development and results of the Company's business include economic and industry conditions, availability and prices of supplies, prices of steel products, competition, governmental regulations, interest rates, inflation, labor relations, environmental concerns, and others. PART II 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 1996 Annual Report to Stockholders. The Registrant did not during fiscal year 1996 make any sale of securities not registered under the Securities Act of 1993. 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 1996 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 1996 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 1996 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 January 3, 1997, 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", "Certain Relationships and Related Transactions", "Performance Graph" and "Board of Directors and Committees -- Director Compensation" in the Proxy Statement dated January 3, 1997, 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 January 3, 1997, 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" and "Certain Relationships and Related Transactions" in the Proxy Statement dated January 3, 1997, 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 1996 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, as amended 19 (b) By-Laws, as amended 20 (4) Instruments Defining the Rights of 21 Security Holders (10) * (a) Executive Officer Incentive Arrangement 22 Incorporated by Reference * (b) Roanoke Electric Steel Corporation Employees' 22 Stock Option Plan Incorporated by Reference * (c) Roanoke Electric Steel Corporation 22 Consulting Arrangement * (d) Roanoke Electric Steel Corporation 22 Severance Agreements (13) 1996 Annual Report to Stockholders 23 (21) Subsidiaries of the Registrant 24 (23) Consent of Independent Auditors 25 (27) Financial Data Schedule 26 (b) Reports on Form 8-K. A report on Form 8-K was filed September 20, 1996, during the last quarter of the period covered by this report, stating that the Registrant had approved the repurchase of up to an additional 250,000 shares of the Company's common stock, both in the open market and in privately negotiated transactions. The Registrant had previously approved a plan for the repurchase of up to 500,000 shares of the Company's common stock during a twelve-month period ending April, 1997, but as of the Form 8-K report date, nearly all of the initially approved PART IV (con'd.) repurchase was complete. The repurchased shares, to be held as authorized and unissued shares, will be available for general corporate purposes and to fund the Company's stock option plan. * 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 21, 1997 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 21, 1997 Donald G. Smith, Chairman, President, Treasurer and Chief Executive Officer (Principal Executive Officer, Principal Financial Officer and Director) John E. Morris January 21, 1997 John E. Morris, Vice President - Finance and Assistant Treasurer (Principal Accounting Officer) George B. Cartledge, Jr. January 21, 1997 George B. Cartledge, Jr. Director Paul E. Torgersen January 21, 1997 Paul E. Torgersen Director William L. Neal January 21, 1997 William L. Neal Director Thomas L. Robertson January 21, 1997 Thomas L. Robertson Director EXHIBIT NO. 3 (a) ARTICLES OF INCORPORATION, AS AMENDED 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 1996 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. * (c) ROANOKE ELECTRIC STEEL CORPORATION CONSULTING ARRANGEMENT In January 1996, the Company entered into an arrangement with William L. Neal, a director of the Company and former President of John W. Hancock, Jr., Inc., whereby Mr. Neal has agreed to provide consultation and advisory services to the Company and its subsidiaries. The arrangement will continue in effect until terminated by either party. The Company has agreed to pay Mr. Neal compensation at a rate of $100,000 per year. * (d) ROANOKE ELECTRIC STEEL CORPORATION SEVERANCE AGREEMENTS On August 20, 1996 Severance Agreements in the forms attached hereto were executed by the Company and the following executive officers: Donald G. Smith - Chairman, President, Treasurer and Chief Executive Officer 415 Canterbury Lane S.W., Roanoke, VA 24014 Donald R. Higgins - Vice President - Sales 5014 Hunting Hills Circle S.W., Roanoke, VA 24014 John E. Morris - Vice President - Finance and Assistant Treasurer 1783 Laurel Mountain Drive, Salem, VA 24153 Thomas J. Crawford - Assistant Vice President and Secretary 1646 Millbridge Rd., Salem, VA 24153 THIS AGREEMENT ("Agreement") dated as of August 20, 1996, by and between Roanoke Electric Steel Corporation, 102 Westside Boulevard, N.W., Roanoke, Virginia 24017, a Virginia corporation (the "Company"), and ______________________ , _______________________ (the "Executive"). (address) WITNESSETH THAT: WHEREAS, the Company considers the establishment and maintenance of a sound and vital management to be essential to protecting and enhancing the best interest of the Company and its shareholders; and WHEREAS, the Company recognizes that the possibility of a change in control exists and may exist in the future, and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company and its shareholders; and WHEREAS, the Board of Directors of the Company ("Board") has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management to their assigned duties without distraction in the face of the circumstances arising from the possibility of a change in control. NOW, THEREFORE, in consideration of the promises and mutual agreements herein contained, the Company and the Executive hereby agree as follows: 1. The capitalized terms in this Agreement shall have the meanings set forth in the "Definitions Addendum" attached hereto as Exhibit A and incorporated herein by reference. 2. In order to protect the Executive against the possible consequences of a Change in Control and thereby induce the Executive to continue to serve as ______________________ of the Company and/or in such other office or position to which he may be elected, the Company agrees that if (a) a Change in Control occurs and (b) the Executive leaves the employment of the Company for whatever reason (except because of the Executive's death or Retirement, discharge by the Company for Cause or Disability, or voluntary termination by the Executive other than for Good Reason) within thirty-six (36) months after such Change in Control: (A) The Company shall pay the Executive his full salary (whether such salary has been previously been paid by the Company or by any of its subsidiaries) through the Date of Termination at the rate in effect at the time Notice of Termination is given and all other unpaid amounts, if any, to which the Executive is entitled as of the Date of Termination under any Plan or other arrangement of the Company at the time such payments are due; (B) The Company shall pay to the Executive an amount equal to 2.99 multiplied by the Executive's annualized includable compensation for the base period, as defined by Section 280G(d)(1) of the Internal Revenue Code of 1986, as amended, (the"Code") (hereinafter the "Severance Payment"), provided, however, that if any of such payment is or will be subject to the excise tax imposed by Section 4999 of the Code or any similar tax that may hereafter be imposed ("Excise Tax"), such payment shall be reduced to a smaller amount, even to zero, which shall be the largest amount payable under this paragraph that would not be subject, in whole or in part, to the Excise Tax after considering all other payments to the Executive required to be considered under Sections 4999 or 280G of the Code. In the event that the Severance Payment is subsequently determined to be less than the amount actually paid hereunder, the Executive shall repay the excess to the Company at the time that the proper amount is finally determined, plus interest on the amount of such repayment at the Applicable Federal Rate. In the event that the Severance Payment is determined to exceed the amount actually paid hereunder, the Company shall pay the Executive such difference, plus interest on the amount of such additional payment at the Applicable Federal Rate at the time that the amount of such difference is finally determined. (C) The Company shall also pay to the Executive all legal fees and related expenses incurred by the Executive in connection with this Agreement, including any dispute arising out of this Agreement, whether or not the Executive prevails (including, without limitation, all such fees and expenses, if any, incurred in contesting or disputing any termination or in seeking to obtain or enforce any right or benefit provided by this Agreement). (D) The Company shall maintain in full force and effect, for the Executive's continued benefit until the earlier of (a) three years after the Date of Termination; or (b) the Executive's commencement of full-time employment with a new employer, all life insurance, medical, health and accident, and disability plans, programs or arrangements in which the Executive was entitled to participate immediately prior to the Date of Termination, provided that the Executive continued participation is possible under the general terms and provisions of such plans and programs. In the event that the Executive's participation in any such plan or program is barred, the Company shall arrange to provide the Executive with benefits substantially similar to those which the Executive is entitled to receive under such plans and programs. 3. The Executive's benefits hereunder shall be considered severance pay in consideration of his past service, and pay in consideration of his continued service from the date hereof, and his entitlement thereto shall not be governed by any duty to mitigate his damages by seeking further employment nor offset by any compensation which he may receive from future employment. 4. The Company shall require any Successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to the Executive, prior to the effectiveness of any such Change in Control, to expressly assent and agree to perform the Company's obligations under this Agreement. 5. This Agreement shall be binding upon and shall inure to the benefit of the respective successors, assigns, legal representatives and heirs to the parties hereto. If the Executive should die while any amount would still be payable to the Executive hereunder if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive's beneficiary designated in writing and delivered to the Company, if any, and if none to the Executive's estate. 6. Any payment or delivery required under this Agreement shall be subject to all requirements of the law with regard to withholding, filing, making of reports and the like, and the Company shall use its best efforts to satisfy promptly all such requirements. 7. This Agreement shall commence on the date hereof and shall continue in effect through October 31, 2001. Prior to a Change in Control, this Agreement shall terminate if the Executive shall resign voluntarily, Retire, become Disabled, voluntarily take another position requiring a substantial portion of his time, or die. This Agreement shall also terminate if the Executive's employment as an officer of the Company shall have been terminated for any reason by the Board as constituted prior to any Change in Control. Notwithstanding anything in this Agreement to the contrary, this Agreement shall continue in effect for at least a period of thirty-six (36) months beyond the date of a Change in Control, if one shall have occurred during the term of this Agreement. 8. For the purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by certified or registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notices to the Company shall be directed to the attention of the President of the Company, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 9. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this agreement shall be governed by the law of the Commonwealth of Virginia without regard to the state's conflict of law rules. 10. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 11. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in the City of Roanoke, Virginia, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided however, that the Executive shall be entitled to seek specific performance of his right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. The Company shall bear all costs and expenses arising in connection with any arbitration proceeding pursuant to this Paragraph. IN WITNESS WHEREOF, this Agreement has been executed by the undersigned as of the date and year first above written. ROANOKE ELECTRIC STEEL CORPORATION By Donald G. Smith Its Chairman, President, Treasurer and Chief Executive Officer Witness: EXECUTIVE Carolyn J. Walker _________________________________________ Carolyn J. Walker Print Name EXHIBIT A To Agreement between ______________________ (the "Executive") and Roanoke Electric Steel Corporation Dated August 20, 1996 Definitions Addendum As used in this Agreement, the following capitalized terms have the indicated meanings unless the context clearly requires otherwise: (A) "Applicable Federal Rate" has the meaning ascribed to that term in Section 1274(d)(1) of the Internal Revenue Code of 1986, as amended. (B) "Board" means Board of Directors of the Company. (C) "Cause" means (i) the willful and continued failure by the Executive to substantially perform his duties hereunder (other than any such failure resulting from his incapacity due to physical or mental illness) after a written demand for substantial performance is delivered to the Executive by the Board (excluding the Executive), which demand specifically identifies the manner in which the Board believes that the Executive has not substantially performed his duties, or (ii) the willful engaging by the Executive in illegal conduct or any conduct which is demonstrably and materially injurious to the Company. Notwithstanding the foregoing, the Executive shall not be deemed to be terminated for Cause unless and until there has been delivered to Executive a copy of a resolution duly adopted by the affirmative vote of not less than 75% of the membership of the Board (excluding the Executive) at a meeting of such Board called and held for such purpose (after a reasonable notice to the Executive and an opportunity for the Executive, together with his counsel, to be heard before the Board), finding that in the good faith opinion of the Board the Executive was guilty of conduct set forth above and specifying the particulars thereof in detail. (D) "Change in Control" means a change in control of a nature that would be required to be reported (assuming such event has not been "previously reported") in response to Item 1(a) of the Current Report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended ("Exchange Act"); provided that, without limitation, such a Change in Control shall be deemed to have occurred at such time as (i) any Person is or becomes the "beneficial owner" (as defined in Rule 13d-3 or Rule 13d-5 under the Exchange Act as in effect on January 1, 1996), directly or indirectly, of 20% or more of the combined voting power of the Company's voting securities; (ii) the Incumbent Board ceases for any reason to constitute at least the majority of the Board; provided, however, that any person becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders was approved by a vote of at least 75% of the directors comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) shall be, for purposes of this clause (ii), considered as though such person were a member of the Incumbent Board; (iii) all or substantially all of the assets of the Company are sold, transferred or conveyed if the transferee is not controlled by the Company (control meaning the ownership of more than 50% of the combined voting power of such entity's voting securities); or (iv) the Company is merged or consolidated with another corporation or entity and as a result of such merger or consolidation less than 75% of the outstanding voting securities of the surviving or resulting corporation or entity shall be owned in the aggregate by the former shareholders of the Company. Notwithstanding anything in the foregoing to the contrary, no Change in Control shall be deemed to have occurred for purposes of this Agreement by virtue of any transaction (i) which results in the Executive or a group of Persons which includes the Executive, acquiring, directly or indirectly, 20% or more of the combined voting power of the Company's voting securities; or (ii) which results in the Company, any subsidiary of the Company or any profit-sharing plan, employee stock ownership plan or employee benefit plan of the Company or any of its subsidiaries (or any trustee of or fiduciary with respect to any such plan acting in such capacity) acquiring, directly or indirectly, 20% or more of the combined voting power of the Company's voting securities. (E) "Date of Termination" means (i) if the Executive's employment is terminated by the Executive for other than Good Reason, ninety (90) days after Notice of Termination is given, (ii) if the Executive's employment is to be terminated for Disability, thirty (30) days after Notice of Termination is given (provided that in the case of Disability, the Executive shall not have returned to the performance of his duties on a full-time basis during such thirty (30) day period), (iii) if the Executive's employment is to be terminated for Cause or by the Executive for Good Reason, the date specified in the Notice of Termination, (iv) the date of the Executive's death, or (v) if the Executive's employment is to be terminated by the Company for any reason other than Cause, the date specified in the Notice of Termination, which in no event shall be a date earlier than ninety (90) days after the date on which such Notice of Termination is given. (F) "Disability" means (i) as a result of the Executive's inability due to physical or mental illness, the Executive shall have been absent from the full-time performance of his duties with the Company for six (6) consecutive months, and (ii) within thirty (30) days after Notice of Termination is given the Executive shall not have returned to the full-time performance of his duties. (G) "Company" includes any corporation or other entity which is the surviving or continuing entity in respect of any merger, consolidation or form of business combination in which the Company ceases to exist. (H) "Federal Funds Rate" means a rate of interest equal to the average of (i) the near closing bid and (ii) offered as quoted in the Wall Street Journal for reserves traded among commercial banks for overnight use in amounts of $1,000,000 or more. Should such rate of interest ever cease to exist, the parties shall mutually agree upon a comparable rate of interest. (I) "Good Reason" means: (i) In the event of a Change in Control of the Company, an adverse change in the Executive's status or position(s) with the Company including, without limitation, any material diminution of his duties or responsibilities or the assignment to the Executive of any duties or responsibilities which, in the Executive's reasonable judgment, are inconsistent with such status or position(s); (ii) The failure by the Company to obtain from any Successor the assent to this Agreement; (iii) In the event of a Change in Control, any purported termination by the Company of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of subparagraph (K) below (and, if applicable, subparagraph (B) above); and for purposes of this Agreement, no such purported termination shall be effective; (iv) In the event of a Change in Control, the failure by the Company to continue in effect any Plan in which Executive participates at the time of the Change in Control (or Plans providing the Executive with at least substantially similar benefits) other than as a result of the normal expiration of any such Plan in accordance with its terms as in effect at the time of the Change in Control, or the taking of any action, or the failure to act, by the Company which would adversely affect the Executive's continued participation in any of such Plans on at least as favorable a basis as in the case on the date of the Change in Control or which would materially reduce the Executive's benefits in the future under any such Plans or deprive the Executive of any material benefit enjoyed by the Executive at the time of the Change in Control; (v) In the event of a Change in Control, the failure by the Company to provide and credit the Executive with a number of paid vacation days to which the Executive would then be entitled in accordance with the Company's normal vacation policy as in effect immediately prior to the Change in Control; or (vi) In the event of a Change in Control, the Company requiring the Executive to be based anywhere other than where his office is located immediately prior to the Change in Control. (J) "Incumbent Board" means the Board as constituted on the date hereof. (K) "Notice of Termination" means a written notice that indicates the specific termination provision of this Agreement relied upon and sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. (L) "Person" has the meaning ascribed to that term in Sections 3(d)(9) and 13(d)(3) of the Exchange Act. (M) "Plan" means any compensation plan such as an incentive, bonus, stock option or restricted stock plan, any pension or profit sharing plan or any welfare benefit plan (including, but not limited to, health, life or disability insurance). (N) "Retirement" and "Retire" means the Executive's voluntary termination of employment after the attainment of age sixty-five (65) or the attainment of age fifty-five (55) having worked full time for the Company for a period of ten (10) consecutive employment years. (O) "Successor" means any Person that succeeds to, or has the practical ability to control (either immediately or with the passage of time) the Company's business directly, by merger or consolidation, or indirectly by purchase of the Company's voting securities, all or substantially all of its assets or otherwise. ROANOKE ELECTRIC STEEL CORPORATION By Donald G. Smith Its Chairman, President, Treasurer and Chief Executive Officer Witness: EXECUTIVE Carolyn J. Walker _________________________________________ Carolyn J. Walker Print Name * 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 1996 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 21, 1996, 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, 1996. Deloitte & Touche LLP Winston-Salem, North Carolina January 21, 1997 Deloitte Touche Tohmatsu International EXHIBIT NO. 27 FINANCIAL DATA SCHEDULE EX-3 2 CERTIFICATE OF INCORPORATION OF ROANOKE ELECTRIC STEEL CORPORATION This is to certify that we, the undersigned, desire to and do hereby associate to establish a corporation under the provisions and subject to the requirements of the laws in such cases made and provided, and we, by this our certificate of incorporation, set forth as follows: I The name of the Corporation is to be ROANOKE ELECTRIC STEEL CORPORATION II The principal office of the Corporation is to be located in the County of Roanoke, Virginia. The post office address is to be Roanoke, Virginia. III The purposes for which the Corporation is formed are as follows: (1) To manufacture, buy, sell or otherwise deal or traffic in iron, steel, manganese, nickel, copper, coal, coke, or other metals or minerals. (2) To acquire, own, lease, occupy, use, develop or deal in, any lands containing coal, iron, manganese, nickel, copper, or other minerals, and to mine or otherwise extract or to remove such minerals. (3) To apply for, obtain, register, purchase, lease or otherwise to acquire, and to hold, use, own, exercise, develop, operate and introduce, and to sell, assign, grant licenses in respect to, or otherwise dispose of, any trade-marks, trade-names, patents or inventions, improvements or processes used in connection with or secured under letters patent of the United States or elsewhere in relation to any of the other purposes herein stated, and to acquire, use, exercise, or otherwise turn to gain licenses in respect of any such trade-marks, patents, inventions, processes and the like, or any such property or rights. (4) To acquire by purchase, subscription or otherwise, and to invest in, hold or dispose of stocks, bonds, securities or other obligations of any other corporation or corporations; domestic or foreign, and while owner of any such stocks, bonds, securities or other obligations to exercise all the rights, powers and privileges of ownership, including the right to vote thereon for any and all purposes; and to do any acts or things for the preservation, protection, improvement or enhancement of the value of any such stocks, bonds, securities or obligations. (5) To borrow money; to issue bonds, debentures or obligations of the corporation from time to time, for monies borrowed or in payment for property purchased or for any of the other obligations or purposes of the corporation; to secure the same by mortgage or mortgages or deed or deeds of trust upon or pledge of any or all of the property, rights, privileges, or franchises of the corporation, wheresoever situated, acquired or to be acquired; and to sell or otherwise dispose of any or all such bonds, debentures, and obligations; provided, that no bonded indebtedness, or increase in bonded indebtedness, secured by a lien on any of the property or franchises of the Corporation, shall be created until the creation or increase of such indebtedness be sanctioned by a vote in person or by proxy of a majority in amount of all the stockholders having voting power, present or represented and voting, at a meeting of the stockholders called by the Board of Directors for that purpose pursuant to notice according to law; provided further, that no approval of or submission to the stockholders shall be required for any notes or bonds given for deferred installments of the purchase price of property and secured by deeds of trust, mortgages, or other liens on the property of the Corporation. (6) To conduct its business in all or any of its branches in the State of Virginia and in other states of the United States of America, and in the territories and the District of Columbia, and in any or all dependencies, colonies, or possessions of the United States of America and in foreign countries, and for or in connection with such business, to hold, possess, purchase, mortgage and convey real and personal property and to maintain offices and agencies either within or without the State of Virginia. IN GENERAL, to do any or all of the things and exercise all of the powers hereinabove set forth to the same extent, within the limits of the law pertaining to corporations, as natural persons might or could do and in any part of the world, as principals, agents, contractors, or otherwise, either alone or in company with others, and to carry on any other business connected with the above set forth general purposes consistent with the powers conferred upon corporations by the laws of the State of Virginia. The purposes hereinabove enumerated are intended to be in furtherance of and not in limitation of the powers generally granted to corporations by the laws of the State of Virginia, and nothing herein contained is intended to limit the powers of this corporation to less than those powers granted generally under the law. IV The capital stock of the Corporation shall consist of common stock of no par value. The maximum amount of capital stock of the Corporation is to be five thousand (5,000) shares of common stock of no par value, and the minimum amount of capital stock of the Corporation is to be five hundred (500) shares of common stock of no par value. V The period for duration of the Corporation is unlimited. VI The names and residences of the Directors, who, unless sooner changed by the Stockholders, are for the first year to manage the affairs of the Corporation, are as follows: Name Residence John W. Hancock, Jr. 2801 Avenham Ave., S.W., Roanoke, Virginia Orran D. Oakey, Jr. 2425 Willow, Western Hills, R. D. 4, Roanoke, Virginia Barton W. Morris 2406 Wycliffe Avenue, S.W., Roanoke, Virginia A. Blair Antrim 3105 Somerset Avenue, S.W., Roanoke, Virginia Charles P. Lunsford 3015 Avenham Avenue, S.W., Roanoke, Virginia S. Colston Snead, Jr. 701 Red Lane, Salem, Virginia The names, residences and offices of the officers, who, unless sooner changed by the Stockholders, are for the first year to manage the affairs of the Corporation, are as follows: Name Residence Office John W. Hancock, Jr. 2801 Avenham Avenue, S.W., President Roanoke, Va. and Treasurer Elizabeth B. Hancock 2801 Avenham Avenue, S.W., Secretary Roanoke, Va. VII The amount of real estate to which the holdings of the Corporation are at any time to be limited is fifty thousand (50,000) acres. GIVEN under our hands and seals this ______ day of _________, 1955. John W. Hancock, Jr. (SEAL) Orran D. Oakey, Jr. (SEAL) Barton W. Morris (SEAL) STATE OF VIRGINIA ) ) To-wit: CITY OF ROANOKE ) I, ____________________________________________, a Notary Public in and for the City of Roanoke, State of Virginia, do hereby certify that JOHN W. HANCOCK, JR., ORRAN D. OAKEY, JR. and BARTON W. MORRIS, whose names are signed to the foregoing certificate of incorporation bearing date on the ______ day of April, 1955, have this day personally appeared before me in my City and State aforesaid and acknowledged the same. GIVEN under my hand this ______ day of April, 1955. __________________________________ Notary Public My Commission expires: _______________________ ARTICLES OF AMENDMENT OF ARTICLES OF INCORPORATION OF ROANOKE ELECTRIC STEEL CORPORATION These Articles of Amendment are filed pursuant to the provisions of 13.1-58 of the Code of Virginia of 1950 as amended. (a) The name of the corporation is ROANOKE ELECTRIC STEEL CORPORATION. (b) Article IV of the Articles of Incorporation is amended to read as follows: "The maximum capital stock of the corporation is to be One Hundred Thousand (100,000) shares of common stock of no par value." (c) On October 15, 1958, after proper notice, the proposed amendment was found in the best interests of the corporation and was adopted by the Board of Directors by a vote of six "for" and one absent and not voting. On December 15, 1958, notice was given to each stockholder of record entitled to vote in the manner provided in 13.1 Code of Virginia of 1950 as amended, accompanied by a copy of the proposed amendment, and such proposed amendment was adopted at a regular meeting of the stockholders held pursuant to such notice on January 19, 1959. (d) On the date of such meeting, 2720 shares were outstanding and entitled to vote on the proposed amendment. (e) On the date of such meeting, 2291 shares were voted in person or by proxy for such amendment, and no shares were voted in person or by proxy against such amendment. (f) Such amendment does not effect a change in the amount of stated capital of the corporation. (g) Such amendment does not effect a restatement of the Articles of Incorporation. WITNESS the signature of ROANOKE ELECTRIC STEEL CORPORATION by John W. Hancock, Jr., its President, attested by William M. Meador, its Secretary, with its corporate seal duly affixed, this ____________ day of January, 1959. ROANOKE ELECTRIC STEEL CORPORATION BY: John W. Hancock, Jr. John W. Hancock, Jr., President ATTEST: William M. Meador William M. Meador, Secretary STATE OF VIRGINIA ) ) To-wit: CITY OF ROANOKE ) I, ________________________________________, a Notary Public in and for the City of Roanoke, State of Virginia, do hereby certify that John W. Hancock, Jr., President, and William M. Meador, Secretary, respectively, of the Roanoke Electric Steel Corporation, whose names are affixed to the foregoing Articles of Amendment bearing date on the ___________ day of January, 1959, have each this day personally appeared before me in my City and State aforesaid and acknowledged the same. GIVEN under my hand this __________ day of January, 1959: __________________________________ Notary Public My Commission expires: ____________________ Admitted to record by State Corporation Commission, January 28, 1959. ARTICLES OF AMENDMENT TO ARTICLES OF INCORPORATION OF ROANOKE ELECTRIC STEEL CORPORATION Pursuant to Section 13.1 - 58, Code of Virginia, 1950, as amended, Roanoke Electric Steel Corporation executes Articles of Amendment to its Articles of Incorporation as follows: (a) The name of the Corporation is ROANOKE ELECTRIC STEEL CORPORATION. (b) The amendment so adopted amends Article IV of the Articles of Incorporation to read as follows: "The maximum capital stock of the Corporation is to be Six Hundred Thousand (600,000) shares of common stock of no par value." (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 6th day of December, 1960. Notice was given to each stockholder of record entitled to vote on the 15th day of December, 1960, 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 16th day of January, 1961. (d) The number of shares outstanding and the number of shares entitled to vote on the amendment was 55,330 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 50,925 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 17th day of January, 1961. ROANOKE ELECTRIC STEEL CORPORATION BY John W. Hancock, Jr. President ATTEST: William M. Meador Secretary STATE OF VIRGINIA ) ) To-Wit: CITY OF ROANOKE ) I, Elizabeth G. Dyer, a Notary Public in and for the City of Roanoke, State of Virginia, do hereby certify that John W. Hancock, Jr., and William M. Meador, 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 17th day of January, 1961. My commission expires January 5, 1962. Elizabeth G. Dyer Notary Public ARTICLES OF AMENDMENT TO ARTICLES OF INCORPORATION OF ROANOKE ELECTRIC STEEL CORPORATION Pursuant to Section 13.1 - 58, Code of Virginia, 1950, as amended, Roanoke Electric Steel Corporation executes Articles of Amendment to its Articles of Incorporation as follows: (a) The name of the Corporation is ROANOKE ELECTRIC STEEL CORPORATION. (b) The amendment so adopted amends Article IV of the Articles of Incorporation to read as follows: "The maximum capital stock of the Corporation is to be One Million (1,000,000) shares of common stock of no par value." (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 13th day of November, 1968. Notice was given to each stockholder of record entitled to vote on the 16th day of December, 1968, 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 20th day of January, 1969. (d) The number of shares outstanding and the number of shares entitled to vote on the amendment was 599,076 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 512,678 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 25th day of January, 1969. ROANOKE ELECTRIC STEEL CORPORATION By William M. Meador President ATTEST: Donald G. Smith Secretary STATE OF VIRGINIA ) ) To-Wit: COUNTY OF ROANOKE ) I, Estelle S. DeWitt, 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 25th day of January, 1969. My commission expires September 19, 1976. Estelle S. DeWitt Notary Public ARTICLES OF AMENDMENT TO THE ARTICLES OF INCORPORATION OF ROANOKE ELECTRIC STEEL CORPORATION Pursuant to Section 13.1-58 of the Code of Virginia, the Articles of Amendment to the Articles of Incorporation of Roanoke Electric Steel Corporation are hereby set forth as follows: (a) The name of the corporation is ROANOKE ELECTRIC STEEL CORPORATION. (b) The amendment so adopted reads as follows: "Article IV of the Articles of Incorporation is amended by deleting existing Article IV and substituting in lieu thereof: "Article IV "The aggregate number of shares which the corporation shall have authority to issue and the par value per share are as follows: Class No. of Shares Par Value Per Share Common 2,000,000 No Par" (c) The date of 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 the stockholders was November 12, 1973. The date when notice was given to each stockholder of record entitled to vote was December 20, 1973. Such notice was given in the manner provided by the Virginia Stock Corporation Act and was accompanied by a copy of the proposed amendment. The date of the adoption of the amendment by the stockholders was January 21, 1974. (d) The number of shares outstanding is 763,228 shares, each share being entitled to vote on the amendment. (e) The number of shares voted for the amendment was 652,250 shares, and the number of shares voted against the amendment was 3,773 shares. Executed this 21st day of January, 1974, by Roanoke Electric Steel Corporation, by its President and Secretary. ROANOKE ELECTRIC STEEL CORPORATION By William M. Meador William M. Meador, President Donald G. Smith Donald G. Smith, Secretary STATE OF VIRGINIA ) ) To-Wit: COUNTY OF ROANOKE ) I, Estelle S. DeWitt, 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 ____________ day of ________________, 19___. My commission expires September 19, 1976. Estelle S. DeWitt Notary Public ARTICLES OF AMENDMENT TO THE ARTICLES OF INCORPORATION OF ROANOKE ELECTRIC STEEL CORPORATION Pursuant to Section 13.1-58 of the Code of Virginia, the Articles of Amendment to the Articles of Incorporation of Roanoke Electric Steel Corporation are hereby set forth as follows: (a) The name of the corporation is ROANOKE ELECTRIC STEEL CORPORATION. (b) The amendment so adopted reads as follows: "Article IV of the Articles of incorporation is amended by deleting existing Article IV and substituting in lieu thereof: "Article IV "The aggregate number of shares which the corporation shall have authority to issue and the par value per share are as follows: Class No. of Shares Par Value Per Share Common 4,000,000 No Par" (c) The date of 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 the stockholders was November 20, 1979. The date when notice was given to each stockholder of record entitled to vote was December 21, 1979. Such notice was given in the manner provided by the Virginia Stock Corporation Act and was accompanied by a copy of the proposed amendment. The date of the adoption of the amendment by the stockholders was January 21, 1980. (d) The number of shares outstanding is 1,185,065 shares, each share being entitled to vote on the amendment. (e) The number of shares voted for the amendment was 1,037,578 shares, and the number of shares voted against the amendment was 8,349 shares. Executed this 25th day of January, 1980, by Roanoke Electric Steel Corporation, by its President and Secretary. ROANOKE ELECTRIC STEEL CORPORATION By William M. Meador William M. Meador, President Donald G. Smith Donald G. Smith, Secretary STATE OF VIRGINIA ) ) To-Wit CITY OF ROANOKE ) I, C. William Sarver, Jr., a Notary Public in and for the City 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 __________ day of ______________, 19___. My commission expires ________________________________. C. William Sarver, Jr. Notary Public ARTICLES OF AMENDMENT OF THE ARTICLES OF INCORPORATION OF ROANOKE ELECTRIC STEEL CORPORATION Pursuant to Section 13.1-710 of the Code of Virginia of 1950, as amended, the Articles of Incorporation of Roanoke Electric Steel Corporation are hereby amended as follows: A. The name of the Corporation is: Roanoke Electric Steel Corporation. B. The Amendment of the Articles of Incorporation is as follows: Article IV of the Articles of Incorporation is amended by deleting existing Article IV and substituting in lieu thereof: "ARTICLE IV The aggregate number of shares which the Corporation shall have authority to issue and the par value per share are as follows: Class Number of Shares Par Value Per Share Common 10,000,000 No Par" C. The amendment was adopted by the shareholders of the Corporation at the annual meeting held January 20, 1986. D. The Amendment was proposed by the Board of Directors and submitted to the shareholders in accordance with the provisions of Chapter 9 of Title 13.1 of the Code of Virginia. As of the record date for the annual meeting 2,369,832 shares of the Common Voting Stock of the Corporation were outstanding and entitled to vote. Of the total shares voted, 1,896,227 undisputed votes were cast in favor of the Amendment by the holders of Common Voting Stock, which number was sufficient for approval of the Amendment pursuant to Section 13.1-707 of the Code of Virginia of 1950, as amended. Executed this 27 day of January, 1986 on behalf of Roanoke Electric Steel Corporation by its President and Secretary. ROANOKE ELECTRIC STEEL CORPORATION By: Donald G. Smith Donald G. Smith, President By: Thomas J. Crawford Thomas J. Crawford, Secretary ARTICLES OF AMENDMENT OF THE ARTICLES OF INCORPORATION OF ROANOKE ELECTRIC STEEL CORPORATION Pursuant to Section 13.1-710 of the Code of Virginia, the Articles of Amendment of the Articles of Incorporation of Roanoke Electric Steel Corporation are hereby set forth as follows: (a) The name of the Corporation is ROANOKE ELECTRIC STEEL CORPORATION. (b) The amendment of the Articles of Incorporation is as follows: Article IV of the Articles of Incorporation, as amended, is amended by adding the following sentence: "No stockholder shall have any preemptive right to acquire unissued shares of the Corporation's capital stock when issued." (c) The amendment was adopted at the Annual Meeting of Shareholders held on January 19, 1987. (d) The amendment was proposed by the Board of Directors of the Corporation and submitted to the shareholders in accordance with the requirements of the Virginia Stock Corporation Act. (e) At the meeting of the shareholders where the proposed amendment was voted upon, a quorum of the shareholders of the Corporation's Common Stock was present, in person or by proxy. (f) As of the record date for the Annual Meeting, there were 3,554,706 shares of Common stock of Roanoke Electric Steel Corporation issued and outstanding. 2,667,917 votes were cast "For" the amendment and 157,601 votes were withheld or cast "Against" the amendment. The number of votes cast "For" the amendment was sufficient for approval of the amendment by the shareholders. EXECUTED this 28th day of January, 1987, on behalf of Roanoke Electric Steel Corporation, by its President. ROANOKE ELECTRIC STEEL CORPORATION By Donald G. Smith Donald G. Smith, President ARTICLES OF AMENDMENT OF THE ARTICLES OF INCORPORATION OF ROANOKE ELECTRIC STEEL CORPORATION Pursuant to Section 13.1-710 of the Code of Virginia, the Articles of Amendment of the Articles of Incorporation of Roanoke Electric Steel Corporation are hereby set forth as follows: A. The name of the Corporation is Roanoke Electric Steel Corporation. B. The Amendment of the Articles of Incorporation is as follows: Article IV of the Articles of Incorporation is amended by deleting existing Article IV and substituting in lieu thereof: "IV The aggregate number of shares which the Corporation shall have authority to issue and the par value per share are as follows: Class Number of Shares Par Value Per Share Common 20,000,000 No Par" Article VI of the Articles of Incorporation is amended by deleting existing Article VI and substituting in lieu thereof: "VI (a) The number of directors of the Corporation, not less than five nor more than eleven, shall be fixed by the Bylaws and, in the absence of a Bylaw fixing the number, shall be eleven. Upon the adoption of this Article VI, the directors shall be divided into three classes (A, B and C) as nearly equal in number as possible. The initial term of office for members of Class A shall expire at the annual meeting of shareholders in 1997; the initial term of office for members of Class B shall expire at the annual meeting of shareholders in 1998; and the initial term of office for members of Class C shall expire at the annual meeting of shareholders in 1999. At each annual meeting of shareholders following such initial classification and election, directors elected to succeed those directors whose terms expire shall be elected for a term of office to expire at the third succeeding annual meeting of shareholders after their election and shall continue to hold office until their respective successors are elected and qualify. In the event of any increase or decrease in the number of directors fixed by the Bylaws, any newly-created directorships and any decrease in directorships shall be so apportioned among the classes by the Board of Directors so as to make all classes as nearly equal in number as possible. (b) Newly-created directorships resulting from an increase in the number of directors or any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office, or other cause shall be filled by the affirmative vote of a majority of the directors then in office, whether or not a quorum. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. A director may be removed from office only for a cause." C. The Amendment was adopted at the Annual Meeting of Shareholders held on February 20, 1996. D. The Amendment was proposed by the Board of Directors of the Corporation and submitted to the shareholders in accordance with the requirements of the Virginia Stock Corporation Act. E. The only voting group entitled to vote on the Amendment is the holders of the Corporation's common stock. As of December 12, 1995, the record date for the Annual Meeting, there were 8,076,897 shares of common stock of the Corporation issued and outstanding and entitled to vote. 7,258,843 votes were cast "for" the Amendment to Article IV, and 135,567 votes were withheld or cast "against" such Amendment. 5,391,480 votes were cast "for" the Amendment to Article VI, and 1,298,924 votes were withheld or cast against such Amendment. The number of votes cast "for" the Amendments to Article IV and Article VI, respectively, was sufficient for approval of the Amendment by shareholders. EXECUTED this 6 day of March, 1996, on behalf of Roanoke Electric Steel Corporation, by its President. ROANOKE ELECTRIC STEEL CORPORATION By: Donald G. Smith Donald G. Smith, President 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 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 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 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 Bylaws 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 III to read as follows: "Section 1 - Number and Term of Office. The number of directors of the Corporation shall be nine. The directors shall be divided into three classes (A, B and C) as nearly equal in number as possible. The initial term of office for members of Class A shall expire at the annual meeting of stockholders in 1997; the initial term of office for members of Class B shall expire at the annual meeting of stockholders in 1998; and the initial term of office for members of Class C shall expire at the annual meeting of stockholders in 1999. At each annual meeting of stockholders following such initial classification and election, directors elected to succeed those directors whose terms expire after their election and shall continue to hold office until their respective successors are elected and qualify." C. The Amendment also amends Section 2 of Article III to read as follows: "Section 2 - Vacancies. Newly-created directorships resulting from an increase in the number of directors or any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office, or other cause shall be filled by the affirmative vote of a majority of the directors then in office, whether or not a quorum. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. A director may be removed from office only for cause." 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 15 day of October, 1996. WITNESS the signature of Roanoke Electric Steel Corporation, by its President, with the corporate seal affixed and attested by the Secretary thereof, this 15 day of October, 1996. ROANOKE ELECTRIC STEEL CORPORATION By Donald G. Smith President Attest: Thomas J. Crawford Secretary EX-13 3 ANNUAL REPORT FOR 1996 ROANOKE ELECTRIC STEEL CORPORATION / ANNUAL REPORT 1996 1996 Highlights Net earnings second highest on record Sales second highest in history Record earnings by our fabricating subsidiaries Record shipments of mill products Record production of mill products Record working capital of $59,630,189 Record total assets of $167,015,901 Record stockholders' equity of $94,433,091 16.7 % return on average equity 15.2 % pretax return on average total assets $60,000,000 unsecured credit facility closed 750,000 share repurchase plan approved Cash dividend increased 9.1 % New ladle refining furnace and upgrade of electric arc furnace completed Dust stabilization process placed in operation 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. To Our Shareholders Results of Operations Earnings for fiscal year 1996 of $15,414,834 were the second best on record and were achieved on sales of $246,286,652. Earnings for 1995 were $20,228,902 on sales of $259,968,524. Earnings per share for 1996 were $1.96 compared to $2.51 last year - down 21.9%. Gross profit margins narrowed during the year due mainly to lower selling prices for our mill products. Selling prices came under pressure during the year as softer markets reduced demand and increased competition. While competition reduced selling prices, it had little impact on orders as shipments of mill products reached record levels. In spite of the reduced demand, we were able to sustain shipments with an exceptional marketing effort. Strong business conditions continued within the construction industry as our margins for fabricated products improved, and our fabricating subsidiaries attained record earnings. Unfortunately, we were not able to overcome the lower selling prices for mill products. In addition, billet shipments and earnings were negatively affected when the planned shutdown of our melt shop to install a new ladle furnace and upgrade an electric arc furnace was unexpectedly prolonged due to construction problems. Other notable achievements of 1996 were: - a record year for mill production. - a $14,146,429 increase in working capital to a record $59,630,189. - an increase in total assets to a record $167,015,901. - an increase in stockholders' equity to a record $94,433,091. - a return on average equity of 16.7%. - a pretax return on average total assets of 15.2%. Financial Condition Our financial condition remained strong. In addition to the increases in working capital and stockholders' equity, the current ratio improved to 3.5 to 1 and the quick ratio improved to 2.0 to 1. During the year, we closed on an unsecured $60,000,000 credit facility with a syndicate of lenders. The facility was comprised of a $30,000,000 ten-year term loan and a $30,000,000 five-year revolver. The term loan was used to purchase additional equipment and refinance debt at much lower interest rates. The revolver replaced lines of credit that were not legally binding. In spite of the additional debt, the percentage of long-term debt to total capital was 27.2%, and the ratio of debt to equity was .77 to 1- both indicators of very respectable debt levels. The substantial amount of working capital and the revolver have provided the capital resources necessary to maintain our competitive position and ensure future growth. Dividends In an effort to reaffirm their confidence in the future of the Company and the steel industry, the Board of Directors approved during the year the repurchase of up to 750,000 shares of the Company's common stock. At year end, the Company had acquired 556,200 shares under the plan at a cost of $7,735,949. Also, in recognition of the excellent performance during the current fiscal year, the Board, on October 15, 1996, approved a 9.1% increase in the cash dividend and declared the 152nd consecutive quarterly cash dividend in the amount of 12 cents per share payable November 25, 1996. The increased quarterly dividend pushed the annual dividend rate to 48 cents per share, putting the current yield on our common stock in the 3.5% range. Construction and Development As part of our continuing effort to build and maintain a strong competitive Company, we completed the installation of our new ladle refining furnace and the upgrade of an electric arc furnace, accounting for most of the $18,194,216 in capital expenditures for 1996. The ladle furnace and furnace upgrade are expected to increase raw steel production, improve quality, reduce production costs and improve operating efficiencies. These state-of-the-art improvements to our melting facilities have considerably enhanced our competitive position. In addition, near year end, we began treating a portion of our electric furnace dust, a hazardous substance, utilizing our own stabilization process. Significant savings will be realized as our process replaces off-site and more expensive treatment methods. The melt shop enhancements and dust stabilization process have added significant long-term value and will help to maximize the future results of the Company. Looking Ahead As we begin 1997, backlogs and selling values of fabricated products are excellent, while the backlogs for mill products are at comfortable levels. Selling prices for mill products continue to be depressed; however, scrap steel prices are falling which should result in improved margins in the first quarter. Economic forecasts call for continued slow growth. Interest rates and inflation are low, although some economists fear they could come under pressure. With no signs of recession and favorable looking markets, the prospects are encouraging for another good year in fiscal 1997. We are performing as well or better than most of the industry and remain optimistic about the future of Roanoke Electric Steel Corporation. We have invested over $100,000,000 in plant and equipment since 1986 to improve operating efficiencies, increase production capacity, and maximize earnings. The Company has made key acquisitions over the years and looks to new acquisitions for future growth. Our efforts to sustain profitable growth are ongoing, and by being well positioned financially, we can continue to produce positive results for our Company and shareholders. We are confident that at the peak of the next cycle, we will again achieve record results. We are pleased with the results for fiscal 1996 and again acknowledge, with appreciation, the efforts of our dedicated employees. As always, we thank our valued customers for another successful year and our shareholders for their confidence and investment in Roanoke Electric Steel Corporation. Donald G. Smith Chairman of the Board and Chief Executive Officer SELECTED FINANCIAL DATA
Year Ended October 31, 1996 1995 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------------------ Operations Sales $246,286,652 $259,968,524 $215,809,228 $167,294,378 $146,036,301 Gross earnings 47,914,269 56,097,685 33,732,184 22,565,662 17,562,115 Interest expense-net 1,538,191 2,053,643 1,891,263 1,730,822 2,031,154 Income taxes 9,305,808 13,035,243 5,684,150 2,785,168 1,491,474 Earnings before cumulative effect of change in accounting principle 15,414,834 20,228,902 8,766,435 4,750,106 2,655,006 Net earnings 15,414,834 20,228,902 11,860,375 4,750,106 2,655,006 - ------------------------------------------------------------------------------------------------------------------------ Financial Position Working capital $ 59,630,189 $ 45,483,760 $ 34,504,420 $ 36,406,901 26,188,178 Total assets 167,015,901 157,774,658 140,473,510 130,620,435 125,558,910 Long-term debt 35,291,666 16,979,166 20,729,166 25,521,000 20,486,500 Stockholders' equity 94,433,091 90,062,598 72,417,669 63,203,577 60,990,935 - ------------------------------------------------------------------------------------------------------------------------ Selected Ratios Gross profit margin 19.5% 21.6% 15.6% 13.5% 12.0% Operating income margin 6.3% 7.8% 5.5% 2.8% 1.8% Effective tax rate 37.6% 39.2% 39.3% 37.0% 36.0% Current ratio 3.5 2.2 2.0 2.4 1.9 Quick ratio 2.0 1.3 1.2 1.4 1.1 Funded debt as a percentage of total capital 29.5% 26.1% 30.7% 36.6% 38.0% Pretax return on average total assets 15.2% 22.3% 10.7% 5.9% 3.3% Return on average stockholders' equity 16.7% 24.9% 12.9%* 7.6% 4.4% - ------------------------------------------------------------------------------------------------------------------------ Per Share Data Earnings before cumulative effect of change in accounting principle $1.96 $2.51 $1.09 $0.60 $0.33 Net earnings 1.96 2.51 1.48 0.60 0.33 Cash dividends 0.45 0.37 0.41 0.32 0.32 Stockholders' equity 11.99 11.19 9.06 7.94 7.67 - ------------------------------------------------------------------------------------------------------------------------ Weighted average common shares outstanding 7,876,987 8,045,644 7,988,985 7,956,339 7,952,539
Per share information has been adjusted for three-for-two stock split effective May 1, 1995 * 1994 accounting change of $3.1 million excluded [GRAPH] 1996 1995 1994 1993 1992 Stockholders' Equity $94,433,091 $90,062,598 $72,417,669 $63,203,577 $60,990,935 Long-Term Debt $35,291,666 $16,979,166 $20,729,166 $25,521,000 $20,486,500 8 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF EARNINGS
Year Ended October 31, ----------------------- 1996 1995 1994 ------------ ------------ ------------ SALES $246,286,652 $259,968,524 $ 215,809,228 COST OF SALES 198,372,383 203,870,839 182,077,044 ------------ ------------ ------------ GROSS EARNINGS 47,914,269 56,097,685 33,732,184 ------------ ------------ ------------ OTHER OPERATING EXPENSES Administrative 17,315,039 16,194,810 14,047,008 Interest, net 1,538,191 2,053,643 1,891,263 Profit sharing 4,340,397 4,585,087 3,343,328 ------------ ------------ ------------ 23,193,627 22,833,540 19,281,599 ------------ ------------ ------------ EARNINGS BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 24,720,642 33,264,145 14,450,585 INCOME TAX EXPENSE 9,305,808 13,035,243 5,684,150 ------------ ------------ ------------ EARNINGS BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 15,414,834 20,228,902 8,766,435 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE FOR INCOME TAXES - - 3,093,940 ------------ ------------ ------------ NET EARNINGS $ 15,414,834 $ 20,228,902 $ 11,860,375 ============ ============ ============ EARNINGS PER SHARE OF COMMON STOCK EARNINGS BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE $ 1.96 $ 2.51 $ 1 .09 CUMULATIVE EFFECT OF ACCOUNTING CHANGE FOR INCOME TAXES - - 0.39 ------------ ------------ ------------ NET EARNINGS PER SHARE OF COMMON STOCK $ 1.96 $ 2.51 $ 1.48 ============ ============ ============ CASH DIVIDENDS PER SHARE OF COMMON STOCK $ 0.45 $ 0.37 $ 0.41 ============ ============ ============
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, 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 Repurchase of common stock - - - - 556,200 7,735,949 Stock options exercised 23,750 187,293 - - - - Net earnings - - - 15,414,834 - - Cash dividends - - - (3,495,685) - - --------- ---------- ---------- ----------- --------- ---------- BALANCE, OCTOBER 31, 1996 8,994,140 $1,916,796 $9,349,429 $92,097,683 1,452,943 $8,930,817 ========= =========== ========== =========== ========= ==========
See notes to consolidated financial statements. 9 CONSOLIDATED BALANCE SHEETS
1996 1995 ----------- ------------ ASSETS CURRENT ASSETS Cash and cash equivalents $ 1,038,689 $ 6,999,644 Investments 6,059,853 4,179,418 Accounts receivable 40,479,798 40,159,523 Inventories 34,314,899 30,866,238 Prepaid expenses 651,013 722,729 Deferred income taxes 1,039,542 1,125,441 ------------ ------------ Total current assets 83,583,794 84,052,993 ------------ ------------ PROPERTY, PLANT AND EQUIPMENT Land 4,291,522 4,312,689 Buildings 17,889,855 17,195,735 Other property and equipment 123,215,697 104,825,380 Assets under construction 1,054,026 5,741,611 ------------ ------------ Sub-total 146,451,100 132,075,415 Less-accumulated depreciation 63,216,681 58,569,617 ------------ ------------ 83,234,419 73,505,798 ------------ ------------ OTHER ASSETS 197,688 215,867 ------------ ------------ $167,015,901 $157,774,658 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current portion of long-term debt $ 4,250,000 $ 3,750,000 Notes payable - 11,000,000 Accounts payable 10,977,510 14,483,781 Dividends payable 904,944 888,101 Employees' taxes withheld 284,466 226,677 Accrued profit sharing contribution 3,911,957 4,403,031 Accrued wages and expenses 2,745,159 2,396,913 Accrued income taxes 879,569 1,420,730 ------------ ------------ Total current liabilities 23,953,605 38,569,233 ------------ ------------ LONG-TERM DEBT Notes payable 39,541,666 20,729,166 Less-current portion 4,250,000 3,750,000 ------------ ------------ 35,291,666 16,979,166 ------------ ------------ POSTRETIREMENT LIABILITIES 742,839 494,591 ------------ ------------ DEFERRED INCOME TAXES 12,594,700 11,669,070 ------------ ------------ COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 7) STOCKHOLDERS' EQUITY Common stock-no par value-authorized 20,000,000 shares, issued 8,994,140 shares in 1996 and 8,970,390 in 1995 1,916,796 1,729,503 Capital in excess of stated value 9,349,429 9,349,429 Retained earnings 92,097,683 80,178,534 ------------ ------------ 103,363,908 91,257,466 Less-treasury stock, 1,452,943 shares in 1996 and 896,743 in 1995 - at cost 8,930,817 1,194,868 ------------ ------------ Total stockholders' equity 94,433,091 90,062,598 ------------ ------------ $167,015,901 $157,774,658 ============ ============
See notes to consolidated financial statements. 10 CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended October 31, ------------------------------------------------------------ 1996 1995 1994 ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $15,414,834 $20,228,902 $11,860,375 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 248,248 252,591 242,000 Depreciation and amortization 8,380,456 7,989,663 7,559,118 Gain on sale of investments and property, plant and equipment (59,312) (193,926) (12,017) Deferred income taxes 1,011,529 (160,859) (88,605) Changes in assets and liabilities which provided (used) cash, exclusive of changes shown separately (7,829,691) (8,383,359) (2,054,358) ----------- ----------- ----------- Net cash provided by operating activities 17,166,064 19,733,012 14,412,573 ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Expenditures for property, plant and equipment (18,194,216) (11,654,366) (11,744,913) Proceeds from sale of property, plant and equipment 200,666 952,635 189,849 Purchase of investments (3,840,892) (1,879,186) (3,489,816) Proceeds from sale of investments 1,910,093 3,022,446 3,342,493 Other 12,328 - 783,577 ----------- ----------- ----------- Net cash used in investing activities (19,912,021) (9,558,471) (10,918,810) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Increase (decrease) in notes payable (11,000,000) 4,500,000 500,000 Cash dividends (3,495,685) (2,981,050) (3,254,782) Cash paid for fractional shares on stock split - (1,776) - Increase (decrease) in dividends payable 16,843 (449,126) 700,638 Proceeds from exercise of common stock options 187,293 398,853 608,499 Payment of long-term debt (15,687,500) (4,791,834) (4,965,500) Proceeds from long-term debt 34,500,000 - - Repurchase of common stock (7,735,949) - - ----------- ----------- ----------- Net cash used in financing activities (3,214,998) (3,324,933) (6,411,145) ----------- ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (5,960,955) 6,849,608 (2,917,382) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 6,999,644 150,036 3,067,418 ----------- ----------- ----------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,038,689 $ 6,999,644 $ 150,036 =========== =========== =========== CHANGES IN ASSETS AND LIABILITIES WHICH PROVIDED (USED) CASH, EXCLUSIVE OF CHANGES SHOWN SEPARATELY (Increase) decrease in accounts receivable $ (320,275) $ (5,318,685) $ (6,765,960) (Increase) decrease in inventories (3,448,661) (3,896,576) (2,900,482) (Increase) decrease in prepaid expenses 71,716 436,345 165,049 Increase (decrease) in accounts payable (3,506,271) (2,076,376) 4,965,055 Increase (decrease) in employees' taxes withheld 57,789 (28,288) 47,896 Increase (decrease) in accrued profit sharing contribution (491,074) 1,133,391 1,589,394 Increase (decrease) in accrued wages and expenses 348,246 632,050 228,278 Increase (decrease) in accrued income taxes (541,161) 734,780 616,412 ----------- ----------- ----------- Total $ (7,829,691) $ (8,383,359) $ (2,054,358) =========== =========== =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Interest (net of amount capitalized) $ 1,979,832 $ 2,484,598 $ 2,343,960 ----------- ----------- ----------- Income taxes $ 8,835,440 $12,461,322 $ 5,156,266 ----------- ----------- -----------
See notes to consolidated financial statements. 11 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. Goodwill of $1,864,703 has been fully amortized through October 31, 1994. 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 1997 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 balance sheets at fair value, which approximates amortized cost. Accordingly, there were no adjustments to equity at October 31, 1996 and 1995. 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 11%, 15% and 13% of consolidated sales for 1996, 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, 1996, 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). USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (NOTE 2) INVENTORIES If the FIFO method of valuing inventories had been used by John W. Hancock, Jr., Inc., consolidated inventories would have been $1,480,377 greater in 1996 and $1,549,596 greater in 1995. Inventories include the following major classifications:
October 31, ------------------------------------------------------------ 1996 1995 1994 ----------- ----------- ----------- Scrap steel $ 5,313,335 $ 3,728,612 $ 4,737,074 Melt supplies 2,416,879 2,443,827 1,888,830 Billets 7,103,342 1,748,778 3,209,030 Mill supplies 3,085,749 3,210,946 2,867,779 Finished steel 16,395,594 19,734,075 14,266,949 ----------- ----------- ----------- Total inventories $ 34,314,899 $ 30,866,238 $ 26,969,662 =========== =========== ===========
12 (NOTE 3) PROPERTIES AND DEPRECIATION Depreciation expense for the years ended October 31, 1996, 1995 and 1994 amounted to $8,366,012, $7,863,154 and $7,332,833, 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 1996, 1995 and 1994 included $438,346, $10,146 and $19,341 of interest capitalized, respectively. (NOTE 4) SHORT-TERM DEBT The following information relates to aggregate short-term borrowings:
October 31, ---------------------------- 1996 1995 ----------- ----------- Notes payable to banks $ - $ 11,000,000 =========== =========== Maximum borrowings outstanding at any month end $ 12,500,000 $ 14,000,000 =========== =========== Weighted average loans outstanding to banks $ 3,337,432 $ 11,364,384 =========== =========== Weighted average interest rates for the year 6.03% 6.33% =========== =========== Weighted average interest rates at October 31 - % 6.17% =========== ===========
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 were reviewed periodically by the lending banks for renewal, and although not legally binding, commitments were traditionally honored, without requiring compensating balances. On February 15, 1996, the Company replaced these lines of credit with a syndicated loan facility, part of which provides a five-year $30,000,000 revolver, as explained in note 6. Also provided by this credit facility is a $5,000,000 line of credit to be used to cover overdrafts in a demand deposit account. (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 1996 and 1995 and 34.33% for 1994:
Year Ended October 31, ---------------------------------------------------------- 1996 1995 1994 --------- ----------- ---------- Federal tax at the statutory rate $8,652,225 $11,642,451 $4,960,886 Increase (decrease) in taxes resulting from: State income taxes, net of federal tax benefit 785,077 1,297,302 560,240 Other items, net (131,494) 95,490 163,024 ---------- ----------- ---------- Income taxes per consolidated statements of earnings $9,305,808 $13,035,243 $5,684,150 ========== =========== ==========
The components of income tax expense are as follows:
Year Ended October 31, ----------------------------------------------------------- 1996 1995 1994 ---------- ----------- ---------- Current income taxes: Federal $7,192,428 $11,463,015 $4,859,095 State 1,101,851 1,733,087 913,660 ---------- ----------- ---------- Total current income taxes 8,294,279 13,196,102 5,772,755 ---------- ----------- ---------- Deferred income taxes: Federal 905,569 (122,692) (28,059) State 105,960 (38,167) (60,546) ---------- ----------- ---------- Total deferred income taxes 1,011,529 (160,859) (88,605) ---------- ----------- ---------- Total income taxes $9,305,808 $13,035,243 $5,684,150 ========== =========== ==========
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, 1996, 1995 and 1994, the Company had total deferred tax liabilities of $12,594,700, $11,669,070 and $11,920,039, respectively, and deferred tax assets of $1,039,542, $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 $675,026 for 1996, $988,429 for 1995 and $1,001,280 for 1994. There were no valuation allowances. 13 (NOTE 6) LONG-TERM DEBT Long-term debt consisted of the following:
October 31, ------------------------------- 1996 1995 ----------- ----------- Revolving credit agreement $ 2,500,000 $ - Syndicated term loan, unsecured, payable in quarterly installments of $750,000 beginning May 21, 1996. Interest payable quarterly at the LIBOR rate of 5.43% plus 3/4%. Due February 21, 2006. 28,500,000 - Term loan, unsecured, payable in monthly installments of $104,167, plus interest at 6.44%. Due September 1, 2003. 8,541,666 9,791,666 Term loan collateralized by equipment at Roanoke plant, payable in annual installments of $1,250,000. Interest payable monthly at the LIBOR rate of 5.94% plus 1/2%. Due November 1, 1999. (Paid February 20, 1996) - 6,250,000 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. (Paid February 20, 1996) - 4,687,500 ----------- ----------- Total 39,541,666 20,729,166 Less-current portion 4,250,000 3,750,000 ----------- ----------- Long-term debt $ 35,291,666 $ 16,979,166 ============ ===========
In February 1996, the Company entered into a new $30,000,000 revolving credit agreement with a group of banks that extends through February 21, 2001. This agreement replaced existing lines of demand credit which were not legally binding. The rate of interest payable under the new agreement is based on LIBOR, which at October 31, 1996 is 5.38% plus 35 basis points. The agreement requires the Company to pay a facility fee at an annual rate of .15%. Revolving credit debt at October 31, 1996 was classified as long-term, based on the terms of the agreement. The Company does not use derivatives for trading purposes. Interest rate swaps, a form of derivative, are used to manage interest costs. During 1996 and 1995, the Company used three interest rate swaps, two of which matured in 1996. Currently, the Company maintains an interest rate swap agreement resulting in a fixed rate of 6.68% on the notional amount of $28,500,000 through February 2006. At the close of fiscal year 1995, the two swap agreements, then in place, resulted in fixed rates of 8.78% on the notional amount of $4,687,500 and 8.92% on the notional amount of $6,250,000. The difference between fixed rate and floating rate interest is recognized as an adjustment to interest expense in the period incurred. The fair value of the current swap is estimated based on current settlement prices and was approximately $138,000, in favor of the Company, at October 31, 1996. Under the loan agreements, the Company must maintain consolidated current assets of not less than 1.5 times consolidated current liabilities and maintain consolidated funded debt of not greater than .5 times consolidated total capitalization. Currently, consolidated tangible net worth cannot be less than $69,624,450. In addition, the ratio of EBITDA to the sum of current maturities of long-term debt and consolidated interest expense must equal at least 1.5. 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 debt approximates fair value. The fair value of the 1996 swap agreement is mentioned above, while the 1995 swap agreements were near maturity at October 31, 1995, and therefore approximated fair value. Annual aggregate long-term debt maturities are $4,250,000 in 1997, 1998, 1999 and 2000 and $6,750,000 in 2001. (NOTE 7) COMMITMENTS AND CONTINGENT LIABILITIES At October 31, 1996, the Company was committed for $1,507,294 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 75% 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 $550,000 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. Additional recoveries, if any, are uncertain. 14 (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; 3,023,804 shares, less the equivalent of 152 fractional shares, issued in 1995 at no stated value and 23,750 shares issued in 1996 at no stated value. During the years ended October 31, 1986 and October 31, 1996, the Company increased authorized common stock from 4,000,000 shares to 10,000,000 shares, and from 10,000,000 shares to 20,000,000 shares, respectively. Earnings per share have been computed based on the weighted average number of shares outstanding of 7,876,987 for 1996, 8,045,644 for 1995 and 7,988,985 for 1994. The average number of shares outstanding were weighted after giving effect both to stock options exercised during 1996, 1995 and 1994 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 $4,340,397 for 1996, $4,585,087 for 1995 and $3,343,328 for 1994. (NOTE 10) INTEREST EXPENSE Interest expense is stated net of interest income of $711,274 in 1996, $400,692 in 1995 and $438,466 in 1994. (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 75,000 shares were granted for 1996, for 41,500 shares 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, 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 Granted 11.90 75,000 Exercised 4.11 - 11.90 (23,750) Expired or terminated 4.11 (3,000) ------- Balance, October 31, 1996 4.11 - 11.90 123,400 ======= Shares available for grant at year end None =======
(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 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 1996, 1995 and 1994 by approximately $154,500 ($.02 per share), $154,200 ($.02 per share) and $152,000 ($.02 per share), respectively. 15 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:
1996 1995 --------- --------- Accumulated postretirement benefit obligation: Retirees $ 378,968 $ 347,019 Fully eligible plan participants 652,789 723,491 Other active plan participants 688,737 661,479 --------- --------- Accumulated postretirement benefit obligation 1,720,494 1,731,989 Unrecognized net actuarial gains (losses) 196,345 5,602 Unrecognized transition obligation (1,174,000) (1,243,000) --------- --------- Accrued postretirement benefit cost $ 742,839 $ 494,591 ========= ========= Net postretirement benefit cost consisted of the following components: Service cost $ 141,393 $ 143,279 Interest cost on accumulated postretirement benefit obligation 130,705 120,658 Net amortization 64,185 69,000 ---------- --------- Net postretirement benefit cost $ 336,283 $ 332,937 ========== =========
The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation was 10.5% for 1995, decreasing linearly each successive year until it reached 6.5% in 2003, 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 $112,000 and the net postretirement benefit cost by approximately $29,000. The assumed discount rate used in determining the accumulated postretirement benefit obligation was 8% for the years ended October 31, 1996 and 1995. (NOTE 13) UNAUDITED QUARTERLY FINANCIAL DATA Summarized unaudited quarterly financial data for 1996 follows:
Three Months Ended --------------------------------------------------------------------------------------- January 31 April 30 July 31 October 31 ----------- ----------- ----------- ---------- Sales $ 58,429,217 $ 58,144,393 $ 61,532,232 $ 68,180,810 =========== =========== =========== =========== Gross earnings $ 11,955,299 $ 11,063,635 $ 10,001,165 $ 14,894,170 =========== =========== =========== =========== Net earnings $ 3,928,413 $ 3,365,754 $ 2,954,292 $ 5,166,375 =========== =========== =========== =========== Earnings per share $ .49 $ .41 $ .39 $ .67 =========== =========== =========== ===========
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 =========== =========== =========== ===========
16 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, 1996 and 1995, and the related consolidated statements of earnings, stockholders' equity, and cash flows for each of the three years in the period ended October 31, 1996. 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, evidences 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, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended October 31, 1996 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. As discussed in Note 1 to the consolidated financial statements, effective November 1, 1994, the Corporation changed its method of accounting for investments. /s/ DELOITTE & TOUCHE LLP Winston-Salem, North Carolina November 21, 1996 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 834 shareholders of record. The following has been adjusted for the three-for-two stock split effective May 1, 1995.
1996 1995 Stock Prices Stock Prices - --------------------------------------------------------------------------------------- High Low High Low - --------------------------------------------------------------------------------------- First Quarter 18 1/4 13 11 3/8 10 Second Quarter 16 13 1/4 11 7/8 10 1/2 Third Quarter 14 7/8 12 3/4 14 1/2 11 Fourth Quarter 14 12 16 7/8 13 3/4 Cash Dividends - --------------------------------------------------------------- 1996 1995 - --------------------------------------------------------------- First Quarter $.11 $.08 Second Quarter .11 .09 Third Quarter .11 .09 Fourth Quarter .12 .11
17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS SALES In 1994, sales increased 29% due mainly to significant increases in shipments of bar and fabricated products (bar joist and rebar) and increased selling prices for all product classes, while shipments of billets declined slightly. 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. The 20.5% increase in sales in 1995 was the result of 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. In 1996, sales declined 5.3% due, primarily, to sharp reductions in both selling prices for bar products and billet shipments, while selling prices for billets declined only slightly. However, sales were favorably impacted by increased bar shipments and selling prices for fabricated products, while shipments of fabricated products were flat. Selling prices for bar products declined as a result of increased competition, prompting industry-wide price reductions. The planned shutdown of the melt shop during the year to install a new ladle furnace and upgrade an electric arc furnace was unexpectedly prolonged due to problems with construction and installation, resulting in an 11% decline in billet production for the year and causing the significant reduction in billet shipments. In addition, the export markets for billets remained highly competitive. Billet selling prices declined with a downward trend in scrap prices. Bar products shipments increased as demand and backlogs remained high, in spite of the increased competition. Selling prices for fabricated products improved as a result of generally strong business conditions within the commercial construction industry. COST OF SALES AND GROSS MARGINS In 1994, the increase in cost of sales was attributable to the increased tons shipped of bar and fabricated products, together with increased costs of scrap steel. Cost of sales increased in 1995, primarily, as a result of the higher shipments of fabricated products and billets in addition to increases in both scrap and other raw material costs. The decrease in cost of sales in 1996 was due, mainly, to the decreased tons of billets shipped, together with a reduction in the cost of scrap steel, in spite of the increased bar products shipments. Gross earnings as a percentage of sales improved 2.1% to 15.6% for 1994 due to the higher selling prices for all product classes and the efficiencies of much improved production, in spite of the significant increase in scrap costs. The gross profit percentage continued to increase in 1995 and finished up 6.0% to 21.6%. 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. In 1996, gross earnings as a percentage of sales declined 2.1% to 19.5%. The decrease was, primarily, the result of the lower selling prices for bar products and billets, and the negative effect of reduced billet production on fixed costs, which more than offset the effects of the lower scrap costs and the improvement in fabricated products selling prices. For 1994 and 1995, the increased shipment levels at the higher gross profit margins provided the improvements in gross and net earnings. The decline in gross profit margins and the reduced billet shipments were the main causes for the lower gross profits and net earnings in 1996. ADMINISTRATIVE EXPENSES In 1994, administrative expenses increased as a result of higher taxes, insurance, bad debts, professional fees and executive and management compensation which increased with production, shipments and earnings in accordance with various incentive arrangements. However, administrative expenses were 6.5% of sales - down from 6.9% in 1993. The percentage declined further in 1995 to 6.2%, even though administrative expenses increased due, mainly, to higher executive and management compensation as production, shipments and earnings improved significantly. The majority of the increase in administrative expenses in 1996 was attributable to bad debts and insurance expenses. The percentage of administrative expenses to sales increased to 7.0%. 18 INTEREST EXPENSE In 1994, interest expense increased due to higher interest rates, lower interest income of $438,466 and decreased capitalized interest of $19,341, even though average borrowings were lower. Interest expense increased in 1995 as a result of higher interest rates, increased average borrowings and declines in interest income and capitalized interest to $400,692 and $10,146, respectively. In 1996, interest expense declined due to lower interest rates, higher interest income of $711,274 and increased capitalized interest of $438,346, in spite of higher average borrowings. 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 1994 and 1995, income tax expense was affected by higher tax rates, and the effective income tax rates were relatively constant. In 1996, income tax expense as a percentage of pretax income declined due to differences in the recognition of income and expenses between tax and books. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES At October 31, 1996, working capital was $59,630,189, the current ratio was 3.5 to 1 and the quick ratio was 2.0 to 1 - all vastly improved and very sound. Cash, investments and accounts receivable of $47,578,340 were more than adequate to pay current liabilities of $23,953,605 which is a good indication of liquidity and a healthy financial condition. The effects of $18,194,216 in capital expenditures and $7,735,949 in repurchases of 556,200 shares of common stock were reflected in the above ratios and amounts. Repurchases of up to 193,800 additional shares of the Company's common stock will affect future liquidity. Commitments for the purchase of property, plant and equipment at year end were $1,507,294 and 1997 maturities of long-term debt will be $4,250,000. These obligations will also affect future liquidity and working capital; however, profits and depreciation should provide adequate working capital to fund these items. Total long-term and short-term borrowings increased $7,812,500 during the year. In February 1996, the Company closed on $60,000,000 of unsecured credit facilities with a syndicate of lenders. The facilities were comprised of a $30,000,000 ten-year term loan and a $30,000,000 five-year revolver. The term loan was used to purchase equipment and refinance debt. The revolver replaced lines of credit that were not legally binding. At October 31, 1996, $2,500,000 had been borrowed against the revolver. These new loan facilities improved liquidity, provided capital resources and reduced interest rates significantly. In spite of the additional borrowings, the ratio of debt to equity was only .77 to 1, compared to .75 to 1 last year. The percentage of long-term debt to total capital increased from 15.9% to 27.2%. The Company believes its debt levels are respectable and 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. FORWARD-LOOKING STATEMENTS From time to time, the Company may publish forward-looking statements relating to such matters as anticipated financial performance, business prospects, technological developments, new products, research and development activities and similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with the terms of the safe harbor, the Company notes that a variety of factors could cause the Company's actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements. The risks and uncertainties that may affect the operations, performance, development and results of the Company's business include economic and industry conditions, availability and prices of supplies, prices of steel products, competition, governmental regulations, interest rates, inflation, labor relations, environmental concerns, and others. 19 OFFICERS Donald G. Smith, 61 Chairman, President, Treasurer and Chief Executive Officer 39 years of service Frank S. Key, Jr., 72 President, Socar, Inc. 30 years of service James F. Garlow, 60 President, John W. Hancock, Jr., Inc. 35 years of service H. James Akers, Jr., 57 Vice President, Melt Operations 40 years of service Donald R. Higgins, 51 Vice President - Sales 31 years of service Watson B. King, 57 Vice President, Mill Operations 35 years of service John E. Morris, 55 Vice President - Finance and Assistant Treasurer 25 years of service Thomas J. Crawford, 41 Assistant Vice President and Secretary 19 years of service Daniel L. Board, 59 Assistant Vice President, Purchasing 36 years of service William O. Warwick, 64 Assistant Vice President, Human Resources and Environmental Affairs 29 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 Retired 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 John D. Wilson Retired President, Washington & Lee University COMMITTEES OF THE BOARD Executive: D. G. Smith, Chairman; T. L. Robertson, P. E. Torgersen, G. B. Cartledge, Jr. Audit: T. L. Robertson, Chairman; T. A. Carter, P. E. Torgersen Profit Sharing: C. I. Lunsford, II, Chairman; D. G. Smith Compensation and Stock Option: G. B. Cartledge, Jr., Chairman; F. A. Boxley, C. I. Lunsford, II, J. D. Wilson CORPORATE INFORMATION Annual Meeting The 1997 annual meeting of shareholders will be held at 10:00 a.m. on Tuesday, February 18, 1997 at the American Electric 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 Wachovia Bank of North Carolina, N.A. Winston-Salem, North Carolina 1-800-633-4236 Written shareholder correspondence and requests for transfer should be sent to: Wachovia Bank of North Carolina, N.A. P.O. Box 8217 Boston, Massachusetts 02266-8217 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. Stock Listing Nasdaq National Market; Symbol: RESC 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. Corporate Office 102 Westside Boulevard, P.O. Box 13948, Roanoke, Virginia 24038 540-342-1831 20 EX-27 4
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-31-1996 OCT-31-1996 1,038,689 6,059,853 40,479,798 0 34,314,899 83,583,794 146,451,100 63,216,681 167,015,901 23,953,605 35,291,666 0 0 1,916,796 92,516,295 167,015,901 246,286,652 246,286,652 198,372,383 198,372,383 21,655,436 0 1,538,191 24,720,642 9,305,808 15,414,834 0 0 0 15,414,834 1.96 1.96
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