UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended July 31, 2005

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission file number 0-2389

ROANOKE ELECTRIC STEEL CORPORATION

(Exact name of Registrant as specified in its charter)

Virginia	54-0585263
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer 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

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 whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  x    No  ¨

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of July 31, 2005, 11,145,813 shares of Roanoke Electric Steel Corporation common stock were issued and outstanding.

ROANOKE ELECTRIC STEEL CORPORATION

FORM 10-Q

CONTENTS

			Page
Part I		Financial Information
	Item 1.	Financial Statements
		Condensed Consolidated Balance Sheets (Unaudited)	1
		Condensed Consolidated Statements of Earnings (Unaudited)	2
		Condensed Consolidated Statements of Cash Flows (Unaudited)	3
		Notes to Condensed Consolidated Financial Statements (Unaudited)	4
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	19
	Item 4.	Controls and Procedures	19
Part II		Other Information
	Item 6.	Exhibits and Reports on Form 8-K	20
Signatures			20

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

Roanoke Electric Steel Corporation

Condensed Consolidated Balance Sheets

	(Unaudited) July 31, 2005		October 31, 2004
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	9,019,261	$	869,000
Accounts receivable, net of allowances of $5,179,428 in 2005 and $5,338,719 in 2004		70,974,508		75,558,674
Inventories		96,801,164		102,099,659
Prepaid and other expenses		1,901,557		1,898,841
Deferred income taxes		9,040,762		8,011,122
Total current assets		187,737,252		188,437,296
PROPERTY, PLANT AND EQUIPMENT
Land		7,589,353		7,734,589
Buildings		44,569,179		44,811,189
Manufacturing machinery and equipment		137,816,469		136,230,189
Trucks and forklifts		7,564,267		7,673,533
Fabricating plant equipment		21,042,697		20,238,613
Land improvements		8,926,208		8,800,131
Office equipment		2,727,918		2,648,100
Assets under construction		2,725,319		2,205,425
Total		232,961,410		230,341,769
Less—accumulated depreciation		126,778,492		117,318,369
Property, plant and equipment, net		106,182,918		113,023,400
GOODWILL		13,868,647		13,868,647
OTHER ASSETS		3,592,272		3,641,690
TOTAL ASSETS	$	311,381,089	$	318,971,033
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Current portion of long-term debt and capital lease obligation	$	6,020,375	$	6,019,598
Bank overdraft		—		4,777,540
Accounts payable		27,653,212		31,286,346
Dividends payable		1,226,039		1,211,740
Employees’ taxes withheld		297,889		248,408
Accrued profit sharing contribution		7,342,821		7,281,552
Accrued wages and expenses		14,325,258		11,964,585
Accrued income taxes		3,627,423		10,146,773
Total current liabilities		60,493,017		72,936,542
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATION
Notes and capital lease obligation		49,737,489		64,960,960
Less—current portion		6,020,375		6,019,598
Total long-term debt and capital lease obligation		43,717,114		58,941,362
DEFERRED INCOME TAXES		26,198,620		28,152,620
OTHER LIABILITIES		4,071,860		3,545,148
STOCKHOLDERS’ EQUITY
Common stock—no par value—authorized 20,000,000 shares, issued 12,418,927 shares in 2005 and 12,288,927 in 2004		6,930,935		5,333,829
Additional paid-in capital		1,644,501		885,427
Retained earnings		169,132,926		149,731,709
Accumulated other comprehensive income		9,984		262,264
Total		177,718,346		156,213,229
Less—treasury stock, 1,273,114 shares — at cost		817,868		817,868
Total stockholders’ equity		176,900,478		155,395,361
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	311,381,089	$	318,971,033

The accompanying notes to condensed consolidated financial statements are an integral part of these statements.

Roanoke Electric Steel Corporation

Condensed Consolidated Statements of Earnings

	(Unaudited) Three Months Ended July 31,						(Unaudited) Nine Months Ended July 31,
	2005			2004			2005			2004
SALES	$	136,398,926		$	125,262,181		$	405,577,363		$	326,448,737
COSTS
Cost of sales		115,033,325			99,822,282			333,163,800			273,368,830
Profit sharing		2,245,714			3,319,828			7,196,819			6,352,920
Total		117,279,039			103,142,110			340,360,619			279,721,750
GROSS EARNINGS		19,119,887			22,120,071			65,216,744			46,726,987
OTHER OPERATING EXPENSES (INCOME)
Administrative		6,652,325			7,725,940			22,278,915			21,435,609
Interest expense		895,802			815,257			2,689,072			2,747,865
Profit sharing		482,182			778,724			1,667,727			1,490,191
Interest income		(40,538	)		(44,163	)		(87,782	)		(176,873	)
Antitrust litigation settlement		—			—			—			(3,061,820	)
Total		7,989,771			9,275,758			26,547,932			22,434,972
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES		11,130,116			12,844,313			38,668,812			24,292,015
INCOME TAX EXPENSE		3,818,836			5,135,762			14,663,516			9,708,994
EARNINGS FROM CONTINUING OPERATIONS		7,311,280			7,708,551			24,005,296			14,583,021
DISCONTINUED OPERATIONS (NOTE 1):
EARNINGS (LOSS) FROM OPERATIONS OF DISCONTINUED OPERATIONS (INCLUDING LOSS ON SALE)		—			81,657			(1,518,263	)		(116,239	)
INCOME TAX EXPENSE (BENEFIT)		—			32,663			(592,302	)		(46,495	)
EARNINGS (LOSS) ON DISCONTINUED OPERATIONS		—			48,994			(925,961	)		(69,744	)
NET EARNINGS	$	7,311,280		$	7,757,545		$	23,079,335		$	14,513,277
Earnings (loss) per share of common stock:
Earnings from continuing operations:
Basic	$	0.66		$	0.70		$	2.16		$	1.33
Diluted	$	0.65		$	0.70		$	2.14		$	1.32
Earnings (loss) on discontinued operations:
Basic		—			0.00			(0.08	)		(0.01	)
Diluted		—			0.00			(0.08	)		(0.01	)
Net earnings per share of common stock:
Basic	$	0.66		$	0.71		$	2.08		$	1.33
Diluted	$	0.65		$	0.70		$	2.05		$	1.32
Cash dividends per share of common stock	$	0.11		$	0.10		$	0.33		$	0.25
Weighted average number of common shares outstanding :
Basic		11,145,813			10,958,009			11,109,218			10,943,266
Diluted		11,253,028			11,045,557			11,238,401			11,014,517

The accompanying notes to condensed consolidated financial statements are an integral part of these statements.

2

Roanoke Electric Steel Corporation

Condensed Consolidated Statements of Cash Flows

	(Unaudited) Nine Months Ended July 31,
	2005			2004
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings	$	23,079,335		$	14,513,277
Adjustments to reconcile net earnings to net cash provided by operating activities:
Directors’ retirement plan liability		870,803			—
Deferred compensation liability		(68,969	)		24,647
Postretirement liabilities		(302,171	)		(114,637	)
Landfill closure obligation		27,049			25,226
Depreciation and amortization		10,767,116			11,540,685
Stock-based compensation expense		759,074			—
Loss on sale of property, plant and equipment		79,026			3,868
Loss on sale of investments		—			48,525
Deferred income taxes		(2,843,194	)		(1,438,000	)
Loss on sale of subsidiary		790,685			—
Changes in assets and liabilities which provided (used) cash, exclusive of changes shown separately		(2,420,046	)		(24,454,429	)
Net cash provided by operating activities		30,738,708			149,162
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment		(4,854,164	)		(2,675,051	)
Proceeds from sale of property, plant and equipment		126,612			29,360
Sale of investments		—			3,686,141
Proceeds from sale of subsidiary		4,206,829			—
Net cash provided by (used in) investing activities		(520,723	)		1,040,450
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends		(3,678,118	)		(2,739,103	)
Increase in dividends payable		14,299			551,040
Payment of long-term debt		(44,208,868	)		(3,788,295	)
Proceeds from long-term debt		29,000,000			—
Proceeds from exercise of common stock options		1,597,106			454,860
Repayment of bank overdraft		(4,777,540	)		—
Interest rate swap termination fee		—			(548,817	)
Payment of capital lease principal		(14,603	)		(13,864	)
Net cash used in financing activities		(22,067,724	)		(6,084,179	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		8,150,261			(4,894,567	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		869,000			13,422,044
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	9,019,261		$	8,527,477
CHANGES IN ASSETS AND LIABILITIES WHICH PROVIDED (USED) CASH, EXCLUSIVE OF CHANGES SHOWN SEPARATELY
(Increase) decrease in accounts receivable	$	2,238,588		$	(20,090,994	)
(Increase) decrease in refundable income taxes		—			608,244
(Increase) decrease in inventories		3,484,141			(26,079,197	)
(Increase) decrease in prepaid and other expenses		(373,905	)		36,442
(Increase) decrease in other assets		(107,809	)		271,370
Increase (decrease) in accounts payable		(3,613,134	)		7,849,412
Increase (decrease) in employees’ taxes withheld		49,481			47,266
Increase (decrease) in accrued profit sharing contribution		61,269			6,342,762
Increase (decrease) in accrued wages and expenses		2,360,673			2,304,796
Increase (decrease) in accrued income taxes		(6,519,350	)		4,255,470
Total	$	(2,420,046	)	$	(24,454,429	)

The accompanying notes to condensed consolidated financial statements are an integral part of these statements.

3

ROANOKE ELECTRIC STEEL CORPORATION

Notes to Condensed Consolidated Financial Statements

July 31, 2005

Note 1.	Roanoke Electric Steel Corporation is both an operating company and a holding company with both direct and indirect subsidiaries. A complete list of Roanoke Electric Steel’s subsidiaries is incorporated by reference to the previously filed Form 10-K (Exhibit No. 21) for October 31, 2004, as filed with the Securities and Exchange Commission. For purposes of this Form 10-Q, the defined term “Company” will, depending on the context, refer to Roanoke Electric Steel Corporation and its subsidiaries on a consolidated basis or refer to Roanoke Electric Steel Corporation as an operating company.
	In the opinion of the management, the accompanying unaudited condensed consolidated financial statements contain all normal and recurring adjustments necessary to present fairly the financial position as of July 31, 2005 and the results of operations for the three months and nine months ended July 31, 2005 and 2004 and cash flows for the nine months ended July 31, 2005 and 2004. Refer to the Company’s annual report on Form 10-K for a description of major accounting policies.
	Revenue is primarily recognized when title transfers upon shipment. Additionally, revenue is recognized on certain fabricated products sold pursuant to construction contracts utilizing the percentage-of-completion method. Percentage of completion is measured principally based on steel consumed on finished product as a percentage of the estimated steel required for each contract. The Company recognizes profit based on estimates as to the project status and the costs remaining to complete a particular project. Costs and estimated earnings on uncompleted contracts were $6,818,649 as of July 31, 2005 and $3,367,434 as of October 31, 2004, and are included in accounts receivable. Such fabricated products accounted for approximately 17% and 15% of the Company’s consolidated sales for the nine-month periods ended July 31, 2005 and 2004, respectively, and approximately 15% and 16% of the Company’s consolidated sales for the three-month periods ended July 31, 2005 and 2004, respectively.
	The Company records shipping and handling expenses in accordance with Emerging Issues Task Force Issue (“EITF”) No. 00-10, “Accounting for Shipping and Handling Fees and Cost”. Shipping and handling charges, billed to the customer, are included in sales revenues and costs associated with such shipments are included in cost of sales.
	Certain amounts included in this Form 10-Q filing for prior years have been reclassified from their original presentation to conform with the current year presentation.
	Stock-Based Compensation
	The 2005 Stock Plan
	On January 28, 2005, the shareholders of the Company approved the “Roanoke Electric Steel Corporation 2005 Stock Incentive Plan” (the “2005 Stock Plan”). The 2005 Stock Plan is integral to the Company’s compensation strategy and programs and is intended to help the Company recruit, motivate and retain the caliber of employees and outside directors essential to the Company’s success, and will further align the interests of those employees and outside directors with the interests of the Company’s shareholders.
	A maximum of 1,750,000 shares of the Company’s common stock is available for issuance under the 2005 Stock Plan, subject to adjustment upon the occurrence of any stock dividend or other distribution, stock split, merger, consolidation, combination, share repurchase or exchange or other similar transaction or event. No more than 1,500,000 shares of the Company’s common stock may be issued under incentive awards to employees of the Company or its subsidiaries, and no more than 250,000 shares of the Company’s common stock may be issued to outside directors.
	The 2005 Stock Plan provides for the grant of stock options, restricted stock, restricted stock units, stock appreciation rights, performance grants, and deferred shares and is administered by the Compensation Committee of the Company’s Board of Directors. The 2005 Stock Plan does not amend the Employees’ Stock Option Plan or the Non-Employee Director Stock Option Plan. There are 0 and 1,000 shares available for

4

future issuance under these existing plans. As of July 31, 2005, options covering 217,500 and 22,000 shares of the Company’s common stock were outstanding under the Employee’s Stock Option Plan and Non-Employee Director Stock Option Plan, respectively.

On January 28, 2005, the Compensation Committee approved, and the Board of Directors ratified, an aggregate of 192,080 performance grants to certain executives under the 2005 Stock Plan. A performance grant is an award of a base number of performance shares. Of these awards, 34,570 performance shares have a one-year performance period ending on October 31, 2005, 69,140 have a two-year performance period ending on October 31, 2006, and 88,370 have a three-year performance period ending on October 31, 2007. An employee is entitled to receive one share of the Company’s common stock for each performance share that vests at the end of a specified performance period. For any performance shares to vest, an employee must remain in continuous employment (subject to certain exceptions for death, disability, or retirement) until the end of the specified performance period. The number of performance shares that vest will be determined based on the Company’s average return on invested capital relative to the average return on invested capital of peer companies, with none of the base number of shares vesting if the Company’s relative average return on invested capital is less than the 45^th percentile, and 25%, 100%, and 200% of the base number of shares vesting if the Company’s relative average return on invested capital equals the 45^th, 75^th and 95^th percentile, respectively. Notwithstanding the vesting schedule, if the Company’s average return on invested capital is negative for a performance period, no more than 25% of the base number of performance shares will vest. In the event of a change of control, 100% of the base number of performance shares will vest.

Also on January 28, 2005, each of the Company’s six outside directors received an automatic award of 1,500 shares of restricted stock of the Company pursuant to the terms of the 2005 Stock Plan. The shares of restricted stock will become fully vested and transferable if the outside director remains in continuous service on the Board of Directors until January 28, 2006.

Accounting for Stock-Based Compensation

Prior to November 1, 2004, the Company accounted for share-based payments under the intrinsic value method recognition and measurement principles of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees”, and related Interpretations. In accordance with APB No. 25, compensation cost was recognized over the applicable service period for the difference between the exercise price of the award and the fair value of the stock price on the grant date. During 2004, options were granted for 112,500 shares. There was full recognition of the related compensation cost of $137,250 and $68,625 during the nine months and three months ended July 31, 2004, respectively.

On November 1, 2004, the Company early adopted Statement of Financial Accounting Standards No. 123 (Revised 2004), “Share-Based Payment” (“SFAS No. 123 R”). SFAS No. 123R requires all share-based payments to employees, including grants of employee stock options and purchases under employee stock purchase plans, to be recognized as an operating expense in the income statement. The cost of such share-based payments is to be recognized over the requisite service period based on fair values measured on the grant date of the award. The Company adopted SFAS No. 123R using the modified prospective method. Under this method, SFAS No. 123R applies to new awards and to awards modified, repurchased, or cancelled after October 31, 2004. Additionally, compensation cost for the portion of awards for which the requisite service has not been rendered that are outstanding as of October 31, 2004 is recognized as the requisite service is rendered. The adoption of SFAS No. 123R had no effect on the Company’s financial statements at the date of adoption, since the requisite service had been rendered for all awards outstanding as of October 31, 2004.

Under SFAS No. 123R, the fair value of each performance grant and each share of restricted stock issued on January 28, 2005, is equal to the market price of the Company’s common stock on that date. Unamortized compensation cost of $1,896,790 related to 96,040 performance shares will be recognized over the requisite service period of one to three years and may be adjusted based on management’s future estimates of the amount of performance shares that will vest based on the Company’s performance relative to its peers. Compensation expense of $290,662 and $581,324 is reflected in the consolidated statements of earnings for the three months and nine months ended July 31, 2005, respectively. The total fair value of 9,000 restricted shares awarded to directors of $177,750 was recognized during the 2005 second quarter.

5

	Discontinued Operations
	On January 27, 2005, RESCO Steel Products Corporation (“RESCO”), a wholly-owned subsidiary of the Company, sold its reinforcing bar fabrication assets, which represented substantially all of its assets, to Rockingham Steel, Inc. (“Rockingham Steel”), a reinforcing bar fabricator located in Harrisonburg, Virginia. The agreed upon price for the assets sold by RESCO was $4.2 million. In connection with the close of operations of RESCO, the Company incurred one-time charges of $550,000 associated with the sale, representing (1) $330,000 for costs associated with termination of employees, including severance, accrued vacation, insurance and other miscellaneous benefits and (2) $220,000 for transaction costs, including legal, investment banking, accounting and other professional fees, and other miscellaneous costs of the transaction. Such costs are included in the loss from discontinued operations in the accompanying statement of earnings for the nine months ended July 31, 2005. The results of RESCO are presented as discontinued operations in the accompanying consolidated statements of earnings and include a pre-tax loss on the sale and discontinued operations of RESCO of $1,340,685.
	Revenues of $4,045,515 and pre-tax loss of $1,518,263 (which includes the $1,340,685 loss on sale) related to RESCO are included in discontinued operations for the nine months ended July 31, 2005. Revenues of $9,200,284 and $4,181,808 and pre-tax loss of $116,239 and earnings of $81,657 related to RESCO are included in discontinued operations for the nine months and three months ended July 31, 2004, respectively. The carrying amounts as of October 31, 2004 of the major classes of assets and liabilities disposed were as follows: accounts receivable of $2,589,211, inventories of $1,891,114, and net property, plant and equipment of $864,090.
Note 2.	Inventories of the Company are valued at the lower of cost or market. Cost is determined principally using either the first-in, first-out (“FIFO”) or cost averaging method of accounting and includes materials, costs of production and manufacturing overhead. The determination of market includes such factors as utility of goods, the ability to dispose of the goods in the ordinary course of business, physical obsolescence and changes in price levels.
	Inventories include the following major classifications:

	(Unaudited) July 31, 2005		October 31, 2004
Scrap steel	$	7,728,799	$	13,839,442
Melt supplies		4,509,894		4,216,074
Billets		13,819,671		12,226,288
Mill supplies		5,932,790		4,840,071
Work-in-process		13,305,702		14,568,837
Finished steel		51,504,308		52,408,947
Total inventories	$	96,801,164	$	102,099,659

Note 3. Basic earnings per share is computed by dividing the net income available to common shareholders by the weighted average shares of outstanding common stock. The calculation of diluted earnings per share is similar to basic earnings per share except that the denominator includes dilutive common stock equivalents such as stock options and performance grants. Basic earnings per share and diluted earnings per share calculated in accordance with SFAS No. 128, “Earnings per Share”, are presented in the consolidated statements of earnings. No options were antidilutive at July 31, 2005. Performance grants for 96,040 shares of common stock were outstanding at July 31, 2005, for the three month period then ended, but were not included in the computation of diluted earnings per share because the effect would be antidilutive. Options to purchase 206,500 and 121,500 shares of common stock were outstanding at July 31, 2004, for the nine month and three month periods then ended, respectively, but were not included in the computation of diluted earnings per share because the effect would be antidilutive.

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Note 4. The components of comprehensive earnings, net of taxes, were as follows:

	(Unaudited) Three Months Ended July 31,					(Unaudited) Nine Months Ended July 31,
	2005		2004			2005			2004
Net earnings	$	7,311,280	$	7,757,545		$	23,079,335		$	14,513,277
Other comprehensive earnings (loss):
Unrealized gains (losses) on qualifying cash flow hedges:
Unrealized gains (losses) arising during period (net of tax)		9,984		(60,039	)		(270,959	)		(41,111	)
Reclassification adjustments for gains realized in net earnings (net of tax)		—		47,310			60,290			98,225
Net unrealized gains (losses)		9,984		(12,729	)		(210,669	)		57,114
Unrealized losses on securities:
Unrealized holding losses arising during period (net of tax)		—		—			(41,611	)		(116	)
Reclassification adjustments for gains realized in net earnings (net of tax)		—		—			—			116
Net unrealized losses		—		—			(41,611	)		—
Accretion of past hedging relationships		—		102,856			—			323,493
Other comprehensive earnings (loss)		9,984		90,127			(252,280	)		380,607
Total comprehensive earnings	$	7,321,264	$	7,847,672		$	22,827,055		$	14,893,884

The components of accumulated other comprehensive income are as follows:

	(Unaudited) July 31, 2005		October 31, 2004
Unrealized gains on securities, net of taxes of $27,741		—	$	41,611
Unrealized gains on qualifying cash flow hedges, net of taxes of $6,656 and $147,102	$	9,984		220,653
Accumulated other comprehensive income	$	9,984	$	262,264

Note 5. The Company’s business consists of one industry segment, which is the extracting of scrap metal from discarded automobiles and the manufacturing, fabricating and marketing of merchant steel bar products and specialty steel sections, open-web steel joists and billets. The industry segment consists of three classes of products - merchant steel products and specialty steel sections, fabricated bar joists and billets. Due to the January 27, 2005 sale of RESCO Steel Products Corporation, a wholly-owned reinforcing bar subsidiary, rebar sales have been excluded from the fabricated products class, as a result of discontinued operations.

7

Financial Information Relating to Classes of Products

	(Unaudited) Three Months Ended July 31,				(Unaudited) Nine Months Ended July 31,
	2005		2004		2005		2004
Sales to unaffiliated customers:
Merchant steel and specialty steel sections	$	96,399,787	$	92,569,737	$	286,558,094	$	245,272,284
Fabricated bar joists		27,472,220		26,949,171		85,509,468		63,743,532
Billets		12,526,919		5,743,273		33,509,801		17,432,921
Total consolidated sales	$	136,398,926	$	125,262,181	$	405,577,363	$	326,448,737

Note 6. Supplemental cash flow information:

	(Unaudited) Nine Months Ended July 31,
	2005		2004
Cash paid during the period for:
Interest	$	2,653,949	$	2,752,900
Income taxes (net of cash received)	$	23,433,758	$	6,236,785

Note 7.	Historically, the Company utilized interest rate swaps to manage its exposure to movements in interest rates paid on corporate debt and that qualified as cash flow hedges. On June 25, 1999, the Company entered into a reverse swap, converting $40,000,000 of existing term debt to a variable interest rate from a fixed rate. A fee of $1,300,000 was received and being recorded in income ratable over the 6 1/2 years which remained to maturity of the term loan.
	Effective November 1, 2000, the Company adopted SFAS No. 133 and, in accordance with the transition provisions, recorded a cumulative effect adjustment of $1,663,516 in other comprehensive income to recognize the fair value of the swap as a cash flow hedging instrument. On April 1, 2002, the Company effected an early termination, or unwind, of its interest rate swap agreement and incurred a $3,000,179 termination fee payable to the counterparty over the term of the existing debt.
	In connection with the Company’s debt refinancing on October 4, 2004, the remaining unamortized fee earned, $200,000, and unrecognized amounts included in other comprehensive loss related to these past hedges, $680,491 ($408,295 net of taxes), were recorded as adjustments to interest expense in the statement of earnings.
	During fiscal year 2004, and in the third quarter 2005, the Company entered into derivative commodity instruments, of one-year or less, to minimize the exposure of price risk related to certain natural gas purchases used in the manufacturing process at its West Virginia facility. The contracts used to mitigate the price risk related to natural gas purchases were/are designated as effective cash flow hedges for a portion of the natural gas usage over the periods in the agreements. Unrealized gains and losses associated with marking the contracts to market were/are recorded as a component of other comprehensive income (loss) and included in the stockholders’ equity section of the balance sheet as part of accumulated comprehensive income. These gains and losses were/are recognized in earnings in the month in which the related natural gas was/is used, or in the month a hedge was/is determined to be ineffective. There were no ineffective hedges as of July 31, 2004, but all of the 2004 cash flow hedges became ineffective during the quarter ended April 30, 2005 with the maturity, and termination, of the related commodity derivative contracts. The 2005 cash flow hedges were fully effective as of July 31, 2005.

8

Note 8.	The Company has adopted the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets”, which requires allocating goodwill to each reporting unit and testing for impairment using a two-step approach. Based on the Company’s current reporting structure, it has determined that it operates as three reporting units and, therefore, has assigned goodwill at the operating division level. Fair value is measured using a valuation based on market multiples, comparable transactions and discounted cash flow methodologies. The goodwill impairment test is performed annually as of May 31 or whenever an event has occurred that would more likely than not reduce the fair value of a reporting unit below its carrying amount
	At fiscal year-end October 31, 2001, the Company had goodwill of $13,868,647, net of accumulated amortization of $2,328,313. The Company early adopted SFAS No. 142 on November 1, 2001 and, subsequently, discontinued goodwill amortization. The Company completed the first step of the transitional goodwill impairment test, which indicated that the Company’s goodwill was not impaired as of October 31, 2001. The Company performed annual goodwill impairment testing as of May 31 of 2002, 2003, 2004 and 2005, which indicated that the Company’s goodwill was not impaired. At least quarterly, the Company will analyze whether an event has occurred that more likely than not will reduce the reporting unit’s fair value below its carrying amount and, if necessary, a goodwill impairment test will be performed between the annual dates. Impairment adjustments recognized after adoption, if any, will be recognized as operating expenses.
Note 9.	SFAS No. 143, “Accounting for Asset Retirement Obligations” requires that the discounted fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of the fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. The Company adopted SFAS No. 143 on November 1, 2002. Application of the statement encompasses an industrial landfill located on the site of the Company’s subsidiary, Shredded Products Corporation, which will operate for approximately thirty-four more years before closing.
	At July 31, 2005 and October 31, 2004, the asset retirement obligation totaled $525,952 and $498,903, respectively, and is included in other non-current liabilities. Accretion expense was $27,049 and $25,226 for the nine months, and $9,016 and $8,409 for the three months ended July 31, 2005 and 2004, respectively.
Note 10.	SFAS No. 132 (Revised 2003), “Employers’ Disclosures about Pensions and Other Postretirement Benefits”, requires disclosures about the assets, obligations, cash flows and net periodic benefit cost of defined benefit postretirement plans. The Company adopted the disclosure requirements of this statement at October 31, 2004. The following table sets forth components of net periodic postretirement benefit cost for the three-month and nine-month periods ended July 31, 2005 and 2004:
	Components of net periodic postretirement benefit cost (other benefits):

	(Unaudited) Three months ended July 31,						(Unaudited) Nine months ended July 31,
	2005			2004			2005			2004
Service cost		—			—			—			—
Interest cost	$	22,105		$	26,053		$	66,313		$	78,159
Expected return on plan assets		—			—			—			—
Amortization of prior service cost		(32,074	)		(32,074	)		(96,222	)		(96,222	)
Amortization of net loss		(2,920	)		(5,873	)		(8,760	)		(17,619	)
Net periodic benefit cost	$	(12,889	)	$	(11,894	)	$	(38,669	)	$	(35,682	)

Employer Contributions:

Total cash benefit payments (net of retiree contributions) for the nine-month periods ended July 31, 2005 and 2004 were $112,413 and $78,954, respectively, and for the three-month periods ended July 31, 2005 and 2004 were $37,471 and $26,318, respectively.

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Note 11.	In November 2004, the FASB issued SFAS No. 151, “Inventory Costs - an amendment of ARB No. 43, Chapter 4”. SFAS No. 151 amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage) and requires these costs be treated as current period charges. In addition, SFAS No. 151 requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The provisions of SFAS No. 151 are effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company is currently evaluating the impact of SFAS No. 151 on its financial position, results of operations and liquidity.
Note 12.	In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29”. SFAS No. 153 replaces the exception from fair value measurement included in APB Opinion No. 29 for nonmonetary exchanges of similar productive assets with a general exception from fair value measurement for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. This Statement will be applied prospectively and is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The Company does not believe adoption of this statement will have a material impact on the Company’s results of operations or financial condition.
Note 13.	In March 2005, FIN 47, “Accounting for Conditional Asset Retirement Obligations - an Interpretation of SFAS No. 143”, was issued. This Interpretation clarifies that the term “conditional asset retirement obligation”, as used in SFAS No. 143, “Accounting for Asset Retirement Obligations”, refers to a legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. This Interpretation is effective no later than the end of fiscal years ending after December 15, 2005. Retrospective application for interim financial information is permitted but is not required. The Company is still evaluating the impact that adoption of this Interpretation will have on the Company’s results of operations or financial condition.
Note 14.	In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections—a replacement of APB Opinion No. 20 and FASB Statement No. 3”. This Statement replaces APB Opinion No. 20, “Accounting Changes”, and FASB Statement No. 3, “Reporting Accounting Changes in Interim Financial Statements”, and changes the requirements for the accounting for and reporting of a change in accounting principle. SFAS No. 154 applies to all voluntary changes in accounting principle. This Statement requires retrospective application to prior periods’ financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. It also requires that retrospective application of a change in accounting principle be limited to the direct effects of the change. Indirect effects of a change in accounting principle should be recognized in the period of the accounting change. This Statement is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company is currently evaluating the impact of SFAS No. 154 on its results of operations and financial condition.
Note 15.	At July 31, 2005, the Company was committed for $3,955,749 for purchases of equipment and production facilities.
	The Company is not involved in any legal proceedings or environmental matters outside the ordinary course of business. In the opinion of management, amounts accrued for potential awards or assessments in connection with these matters at this time are adequate, and the outcome of such environmental and legal concerns currently pending will not have a material effect on the Company’s consolidated financial position, results of operations, or cash flows. The Company reassesses these matters as new facts and cases are brought to management’s attention.
Note 16.	In October 2004, the Company entered into a new five-year loan agreement with its banking syndicate. The new facility provides for a long-term revolving loan of up to $55,000,000 and a term loan of $30,000,000.

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The loans bear interest at the Company’s option at (i) one, two, three, six or, if available, nine or twelve month LIBOR as
selected by the Company, or (ii) the greater of (A) the prime rate publicly announced from time to time by the loans
administrative agent, or (B) the effective federal funds rate quoted by the Federal Reserve Bank of New York plus 1/2 of 1%.
The term loan requires quarterly payments of principal in the amount of $1,500,000 plus interest, and the revolving loan
requires quarterly payments of interest until the fifth anniversary of the credit facility at which time the outstanding principal
balance of the revolving loan must be paid in full.

The loans are secured by a pledge of the outstanding stock in each of the Company’s direct and indirect subsidiaries and by a lien on the tangible and intangible property of the Company and each of its subsidiaries. The Company may prepay the loans at any time at its option, and is required to make mandatory prepayments based on certain circumstances. The loans are subject to various representations and warranties and affirmative and negative covenants, including the obligation to maintain a leverage ratio of less than or equal to 3:1, to maintain fixed charge coverage ratio greater than or equal to 1.10:1, and to limit capital expenditures on a consolidated basis to no more than $75,000,000 over the term of the credit facility.

The Company was in compliance with the covenants of its loan agreement as of July 31, 2005.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 utilities, supplies and raw materials, prices of steel products, foreign and domestic competition, foreign trade policies affecting imports and exports, governmental regulations, interest rates, inflation, labor relations, environmental concerns and compliance issues, and others.

OVERVIEW

During our 2004 fiscal year and for the nine months ended July 31, 2005, the Company reported net earnings of $30,446,248 and $23,079,335, respectively. The steel industry as a whole has experienced a very robust period in terms of earnings. The Company was able to increase its profit margins in a period of rapidly rising costs and pricing environment, as discussed more fully below.

The Company is a domestic steel manufacturing company. The Company, directly and through its subsidiaries, is engaged in the manufacturing, fabricating and marketing of merchant steel products, specialty steel sections, billets and open-web steel joists. Each subsidiary is either a supplier to the parent company or a purchaser of its finished product and billets. The Company sells its products through its sales force to our customers, which include service centers, original equipment manufacturers, and fabricators.

Roanoke Electric Steel Corporation, the parent company, 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 and channels of various lengths and sizes. Excess steel billet production is sold to mills without sufficient melting capacities or facilities. Roanoke Electric Steel Corporation markets its products to steel service centers and fabricators. Steel of West Virginia, Inc., through its subsidiary, SWVA, Inc., is a steel mini-mill and steel fabricating facility operating in Huntington, West Virginia. A steel fabricating subsidiary, Marshall Steel, Inc., is located in Memphis, Tennessee. These locations produce or fabricate specialty steel sections and custom-finished products and serve niche markets. Shredded Products Corp., 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 parent company with a substantial amount of its raw materials. Nonferrous metals generated in the process are sold to unrelated customers. John W. Hancock, Jr., Incorporated and

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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 parent company to fabricate steel joists and joist girders. These joists and joist girders are used as horizontal supports for floors and roofs in commercial and industrial buildings. The Hancock facility also manufactures structural pallet rack and structural cantilever rack. This rack is used for heavy storage in retail, warehouses and distribution centers. RESCO Steel Products Corporation, a Salem, Virginia based subsidiary, fabricated concrete reinforcing steel by cutting and bending it to contractor specifications, until its sale on January 27, 2005 (see Note 1 - Discontinued Operations).

ECONOMIC FACTORS AND STEEL INDUSTRY TRENDS AFFECTING OPERATING RESULTS

The Company’s sales are predominantly affected by the volume of products shipped to customers, the corresponding mix of products shipped and the associated sales prices of each product. These factors can be significantly impacted by general economic conditions, industry trends and competitive pressures. The Company has limited pricing power and in general prices will rise or fall based on market forces. The cost of the Company’s main raw material, scrap steel, is also based on market forces.

All direct and indirect manufacturing costs relating to production are included in cost of sales. The principle elements of cost of sales are raw materials, labor and benefits (including profit sharing), and energy. The primary components of raw materials include scrap and other additives, the costs of which are demand driven, and can be affected by available supply and inflationary pressures. The steel industry initiated a number of scrap surcharges and base-price increases during the past year due to the increased cost of scrap steel. Labor and benefit costs are influenced mainly by production and shipment levels. Profit sharing expenses are related to the Company’s various plans’ contributions which represent a percentage of earnings or IRS limitations. Energy costs are associated with the Company’s utilization of both electricity and natural gas as its power sources, with electric arc furnaces using electricity and with reheat furnaces using natural gas. The arc furnaces are used in the actual melting of scrap steel (to produce billets), while the reheat furnaces are used to reheat the billets which are then rolled into a finished product. The availability of this power supply and the peak demands by the Company determine energy pricing.

INCOME STATEMENT CLASSIFICATIONS

Sales

The Company’s sales are a factor of net tons shipped, product mix and related pricing. Sales are determined by subtracting product returns, sales discounts, return allowances and claims from total sales.

Cost of Sales

The Company’s cost of sales represent all production related direct and indirect costs associated with the manufacture of our products. The principal elements of these costs are steel scrap, alloys, electrodes, labor and benefits (including profit sharing), energy, depreciation, and freight.

Other Operating Expenses (Income)

The Company’s other operating expenses are composed of four main areas. Administrative expenses consist of costs associated with our sales, finance and accounting, and administrative departments. These costs include labor and benefits, professional services, certain insurance expenses and various property taxes. Interest expense consists of interest and financing cost amortization associated with our credit facilities. Profit sharing expenses are related to the Company’s various plans’ contributions which represent a percentage of earnings or IRS limitations. Other income includes interest income and the 2004 antitrust litigation settlement, which is due to partial settlements received in conjunction with a class action suit for antitrust violations against the Company’s graphite electrode suppliers.

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The following table sets forth amounts from the consolidated statements of earnings along with the dollar and percentage change for the nine-month period ended July 31, 2005 compared with July 31, 2004:

	(Unaudited) Nine Months Ended July 31,
	2005			2004			$ Inc (Dec)			% Inc (Dec)
Sales	$	405,577,363		$	326,448,737		$	79,128,626		24.2	%
Costs:
Cost of sales		333,163,800			273,368,830			59,794,970		21.9	%
Profit sharing		7,196,819			6,352,920			843,899		13.3	%
Total costs		340,360,619			279,721,750			60,638,869		21.7	%
Gross earnings		65,216,744			46,726,987			18,489,757		39.6	%
Other operating expenses (income):
Administrative expenses		22,278,915			21,435,609			843,306		3.9	%
Interest expense		2,689,072			2,747,865			(58,793	)	-2.1	%
Profit sharing		1,667,727			1,490,191			177,536		11.9	%
Interest income		(87,782	)		(176,873	)		89,091		50.4	%
Antitrust settlement income		—			(3,061,820	)		3,061,820		100.0	%
Total other operating expenses		26,547,932			22,434,972			4,112,960		18.3	%
Earnings from continuing operations before income taxes		38,668,812			24,292,015			14,376,797		59.2	%
Income tax expense		14,663,516			9,708,994			4,954,522		51.0	%
Earnings from continuing operations		24,005,296			14,583,021			9,422,275		64.6	%
Discontinued operations:
Loss from operations before income taxes		(1,518,263	)		(116,239	)		(1,402,024	)	-1206.2	%
Income tax benefit		(592,302	)		(46,495	)		(545,807	)	-1173.9	%
Loss on discontinued operations		(925,961	)		(69,744	)		(856,217	)	-1227.7	%
Net earnings	$	23,079,335		$	14,513,277		$	8,566,058		59.0	%

The following table sets forth amounts from the consolidated statements of earnings along with the dollar and percentage change for the three-month period ended July 31, 2005 compared with July 31, 2004:

	(Unaudited) Three Months Ended July 31,
	2005			2004			$ Inc (Dec)			% Inc (Dec)
Sales	$	136,398,926		$	125,262,181		$	11,136,745		8.9	%
Costs:
Cost of sales		115,033,325			99,822,282			15,211,043		15.2	%
Profit sharing		2,245,714			3,319,828			(1,074,114	)	-32.4	%
Total costs		117,279,039			103,142,110			14,136,929		13.7	%
Gross earnings		19,119,887			22,120,071			(3,000,184	)	-13.6	%
Other operating expenses (income):
Administrative expenses		6,652,325			7,725,940			(1,073,615	)	-13.9	%
Interest expense		895,802			815,257			80,545		9.9	%
Profit sharing		482,182			778,724			(296,542	)	-38.1	%
Interest income		(40,538	)		(44,163	)		3,625		8.2	%
Total other operating expenses		7,989,771			9,275,758			(1,285,987	)	-13.9	%
Earnings from continuing operations before income taxes		11,130,116			12,844,313			(1,714,197	)	-13.3	%
Income tax expense		3,818,836			5,135,762			(1,316,926	)	-25.6	%
Earnings from continuing operations		7,311,280			7,708,551			(397,271	)	-5.2	%
Discontinued operations:
Earnings from operations before income taxes		—			81,657			(81,657	)	100.0	%
Income tax expense		—			32,663			(32,663	)	100.0	%
Earnings on discontinued operations		—			48,994			(48,994	)	100.0	%
Net earnings	$	7,311,280		$	7,757,545		$	(446,265	)	-5.8	%

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RESULTS OF OPERATIONS

Sales

Sales for the nine months increased by 24.2%, mainly, as a result of improvements in product mix and higher average selling prices per ton for merchant bar products of 18.9%, specialty steel sections of 23.8%, fabricated products of 36.4% and billets of 22.0%. Sales for the three months increased by 8.9%, primarily, due to better product mix and higher average selling prices per ton for merchant bar products of 2.1%, specialty steel sections of 11.6%, fabricated products of 18.9% and billets of 1.1%. Increased tons shipped for billets and specialty steel sections also contributed to the sales improvement for both periods. For the nine month and three month periods, tons shipped of bar and fabricated products dropped, negatively impacting sales. Improved product mix and favorable competitive conditions, within several market segments, brought higher average selling prices for specialty steel sections during both periods. An improvement in demand within several market segments offset a softening in demand within another single segment, resulting in increased shipment levels of specialty steel products of 1.2% and 6.7% for the nine month and three month periods, respectively. Fabricated product selling prices increased for both periods, influenced mainly by higher raw material costs. Fabricated product shipment levels dropped by 9.6% and 25.9% for the nine month and three month periods, respectively, primarily due to reduced activity and increased competitive conditions within the nonresidential construction segment. The nine month improvement in merchant bar product selling prices was due mainly to a 15.4% rise in the cost of scrap steel, our main raw material, which prompted several industry-wide price increases. A 1.5% drop in the three month cost of scrap steel caused bar prices to trend lower, even though mill prices remained higher in the 2005 quarter. More cautious buying patterns and excess inventory levels at steel service centers caused temporary reductions of 6.5% and 9.3% in tons shipped of bar products during the nine months and three months, respectively, although market conditions continued to be strong. Billet selling prices increased for the nine months, as sharp rises in scrap prices triggered changes in billet prices. Billet prices, even though higher in the 2005 quarter, began to trend downward with a decline in scrap prices. Improved demand and lower excess billet availability in the market resulted in the 57.6% and 115.8% increased billet shipments for the nine month and three month periods, respectively.

Cost of Sales and Gross Margins

Cost of sales increased by 21.7% during the first nine months, mainly, as a result of the increased billet and specialty product tons shipped, together with the higher costs of scrap steel and other raw materials and a 13.3% increase in profit sharing costs (see the discussion on profit sharing plans below), even though bar and fabricated product shipments declined. Cost of sales increased by 13.7% for the quarter, primarily, due to increased billet and specialty product shipments, together with higher raw material costs, in spite of lower scrap steel cost, a 32.4% decline in profit sharing costs, and reduced shipment levels for bar and fabricated products. Repairs and maintenance expense increased from $18,637,099 to $23,462,731 for the first nine months of 2004 and 2005, respectively, and from $6,885,432 to $8,127,807 for the third quarter of 2004 and 2005, respectively, due to required equipment repair needs. The Company has no significant deferred maintenance and believes its facilities are operating within reasonable productive capacities. Gross earnings as a percentage of sales increased from 14.3% to 16.1% for the nine months compared, primarily, as a result of the higher selling prices for all product classes, which more than offset higher scrap costs and lower margins for billets. Gross profit as a percentage of sales decreased from 17.7% to 14.0% for the three months compared, mainly, due to lower margins for billets and the effects of reduced raw steel and mill production levels on fixed costs, which offset the higher selling prices for all product classes and lower scrap steel costs.

Administrative Expenses

Administrative expenses increased 3.9% for the nine month period mainly due to increases in executive and other management compensation of $2,595,340, directors’ retirement costs of $870,803, directors’ fees of $83,750, travel costs of $119,772, and charitable contributions of $211,278, which more than offset declines in professional fees of $153,109 (most in relation to the timing of work associated with the Sarbanes-Oxley Act), insurance expense of $934,638 and bad debt expense of $2,046,607 (as write-offs spiked in 2004 compared to a slight drop in 2005). Administrative expenses decreased 13.9% for the three month period, primarily, as a result of reductions in executive and other management compensation of $196,943, and lower expenses for insurance of $311,426 and bad debts of $1,384,229, offsetting increases in professional fees of $326,733, charitable contributions of $69,641 and travel costs of $53,085. The above mentioned retirement costs related to a directors’ retirement plan which was amended and restated near the beginning of the second quarter of 2005. Administrative expenses, as a percentage of sales, dropped from 6.6% to 5.5% for the nine month period, as a result of the improvement in sales, and decreased from 6.2% to 4.9% for the three month period, as a result of the improvement in sales and the reduction in expenses.

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Interest Expense

Interest expense decreased 2.1% for the nine months, primarily, due to reduced average borrowings offsetting slightly higher average interest rates. Interest expense increased 9.9% for the three months, mainly, as a result of higher average interest rates offsetting lower average borrowings. In October 2004, the Company entered into a new five-year loan agreement with its banking syndicate. The new facility provides for a long-term revolving loan of up to $55,000,000 and a term loan of $30,000,000.

The loans bear interest at the Company’s option at (i) one, two, three, six or, if available, nine or twelve month LIBOR as selected by the Company, or (ii) the greater of (A) the prime rate publicly announced from time to time by the loans administrative agent, or (B) the effective federal funds rate quoted by the Federal Reserve Bank of New York plus 1/2 of 1%. The term loan requires quarterly payments of principal in the amount of $1,500,000 plus interest, and the revolving loan requires quarterly payments of interest until the fifth anniversary of the credit facility at which time the outstanding principal balance of the revolving loan must be paid in full.

Profit Sharing Expense

Contributions to various profit sharing plans are determined as a proportion of earnings before income taxes and should normally increase or decrease with earnings. During the 2005 nine months, each of the sponsoring companies accrued benefits under their respective plans as a result of current earnings, producing an increase of 11.9% from the 2004 levels as a result of improved profitability. Profit sharing expense decreased 38.1% for the quarter compared, mainly, due to lower profitability, resulting in reduced accrued benefits under each plan, as compared to the 2004 levels. Profit sharing expense included in cost of sales is applicable to plan participants who work within the production areas of the various plants.

Interest Income

Interest income decreased during both periods as a result of both reduced interest rates and level of investments.

Antitrust Litigation Settlement

Other income in the 2004 first quarter includes $3,061,820 received as a result of partial settlements received in conjunction with a class action suit for antitrust litigation against the Company’s graphite electrode suppliers.

Discontinued Operations

The January 27, 2005 sale and liquidation of RESCO Steel Products Corporation, a wholly-owned rebar subsidiary, resulted in the discontinued operations for the comparable periods. The nine month periods ended July 31, 2005 and 2004 reflect a loss, before tax benefit, from discontinued operations of $177,578 and $116,239, respectively. The three month periods ended July 31, 2005 and 2004 reflect earnings from discontinued operations of $0 and $81,657, respectively. The 2005 nine month period also includes a loss of $1,340,685, representing the loss on the disposition of the subsidiary.

Income Taxes

The effective income tax rate was reduced from 39.97% to 37.92% and from 39.98% to 34.31% for the nine month period and the three month period, respectively. The lower 2005 levels are the result of the anticipated impact to state income taxes in the annual tax provision.

15

FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES

Working capital as of July 31, 2005 was $127,244,235, an increase of $11,743,481 from October 31, 2004, as working capital provided from operations exceeded capital expenditures, dividends and changes to long-term debt. At July 31, 2005, the current ratio was 3.1 to 1 and the quick ratio was 1.3 to 1.

Net cash provided by operations was $30,738,708 for the nine month period ended July 31, 2005 as compared to $149,162 for the nine month period ended July 31, 2004. Net cash flows related to operating assets and liabilities increased $22,034,383, which was primarily attributable to decreases in accounts receivable and inventories more than offsetting decreases in accounts payable, profit sharing contributions and income taxes. Net earnings improved $8,566,058. Earnings for the nine month period ended July 31, 2004 included a $3,061,820 payment received from graphite electrode plaintiffs in conjunction with a class action suit for antitrust violations. No amounts were received in 2005 related to this matter. The Company incurred a loss of $1,340,685 on the sale of a subsidiary, reflected in the 2005 year.

Net cash provided by (used in) investing activities was ($520,723) for the nine month period ended July 31, 2005 as compared to $1,040,450 for the nine month period ended July 31, 2004. Expenditures for property, plant and equipment amounted to $4,854,164 and $2,675,051 for the nine month periods ended July 31, 2005 and 2004, respectively. For the nine month periods ended July 31, 2005 and 2004, net cash provided by (used in) investing activities included net proceeds of $4,206,829 and $3,686,141, respectively, from the sale of a subsidiary and other investments, respectively.

Net cash used in financing activities was ($22,067,724) for the nine month period ended July 31, 2005 as compared to ($6,084,179) for the nine month period ended July 31, 2004. Cash dividends of $3,678,118 were paid in 2005 as compared to $2,739,103 paid in 2004, as the Company increased its dividend rate. For the nine month periods ended July 31, 2005 and 2004, net cash used in financing activities included payments on long-term debt of $44,208,868 and $3,788,295, respectively, with borrowings of $29,000,000 providing cash in 2005. Most of the 2005 debt activity related to the Company’s revolving credit facility. With this new credit facility, the loans are secured by a pledge of the outstanding stock in each of the Company’s direct and indirect subsidiaries and by a lien on the tangible and intangible property of the Company and each of its subsidiaries. The Company may prepay the loans at any time at its option, and is required to make mandatory prepayments based on certain circumstances. The loans are subject to various representations and warranties and affirmative and negative covenants, including the obligation to maintain a leverage ratio of less than or equal to 3:1, to maintain fixed charge coverage ratio greater than or equal to 1.10:1, and to limit capital expenditures on a consolidated basis to no more than $75,000,000 over the term of the credit facility. The revolving loan requires quarterly payments of interest until the fifth anniversary date of the credit facility at which time the outstanding principle balance must be paid in full.

The Company’s ability to meet its debt service obligations and reduce its total debt will depend upon its future performance, which in turn, will depend upon general economic, financial and business conditions, along with competition, legislation and regulations that are largely beyond its control. The Company believes that cash flow from operations (improving with better market conditions and corporate earnings), together with availability on the new revolving credit facility, should provide the liquidity and capital resources necessary to remain competitive, fund operations, and meet required debt retirement for at least the next twelve months.

The Company was in compliance with the covenants of its loan agreement as of July 31, 2005.

At July 31, 2005, there were commitments for the purchase of property, plant and equipment of $3,955,749. These commitments, together with current debt maturities, will affect future working capital and liquidity, and will be financed from available cash reserves, internally generated funds and the revolving credit facility.

During the period, the ratio of debt to equity dropped to 0.8 to 1, and the percentage of long-term debt to total capitalization declined to 19.8%, as long-term debt and capital lease obligation decreased to $43,717,114. Stockholders’ equity increased to $176,900,478, mainly as a result of net earnings of $23,079,335 exceeding dividends of $3,678,118.

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. Applicable additional future capital expenditures are presently estimated to be less than $17,000,000 and will be completed and funded, as the Company’s financial resources permit.

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The following table sets forth the Company’s contractual obligations, excluding interest charges, at July 31, 2005, and the effect such obligations are expected to have on liquidity and cash flow in future periods:

	Payments Due by Period
Contractual Obligations	Total		Less than 1 year		1 -3 years		3 -5 years		More than 5 years
Long-Term Debt	$	49,543,144	$	6,000,000	$	12,000,000	$	31,543,144		—
Capital Lease Obligations		194,345		20,375		44,063		48,882	$	81,025
Operating Leases		6,402,976		1,695,969		2,994,507		1,712,500		—
Purchase Obligations		3,955,749		3,955,749		—		—		—
Other Long-Term Liabilities		4,071,860		410,000		775,000		795,000		2,091,860
Total	$	64,168,074	$	12,082,093	$	15,813,570	$	34,099,526	$	2,172,885

OFF-BALANCE SHEET FINANCING ARRANGEMENTS

The Company has no material off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company’s discussion and analysis of its financial condition and results of operations is based upon its consolidated financial statements, which have been prepared in accordance with U. S. generally accepted accounting principles. Estimates and assumptions are made, during the preparation of these financial statements that affect the amounts reported. Periodically, the Company evaluates its estimates, including those related to contracts, warranties (if any), taxes, insurance and environment. Under different assumptions and conditions, actual costs may vary from these estimates.

The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements:

Allowance for Doubtful Accounts - Allowances for doubtful accounts are maintained to provide for estimated losses resulting from the inability of the Company’s customers to make required payments. Such allowances are estimated based on historical loss experience (relative to aging of accounts receivable) and current market economic conditions affecting our customers (i.e., bankruptcy filing). If the amount of allowances exceeds our estimates, or if the financial condition of the Company’s customers were to deteriorate resulting in an impairment of their ability to make payments, additional allowances may be required.

Impairments of Long-Lived Assets - In accordance SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable. Impairment losses are recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated during the life of those assets are less than the assets’ carrying amounts. The impairment loss is measured by comparing the fair value of the asset to its carrying amount.

Self-Retained Insurance Risks - The Company has self-retained insurance risks associated with coverage for workers’ compensation and insurance plans. Accrued liabilities have been recorded based on estimates of the ultimate costs to settle incurred and incurred but not reported claims. The Company’s estimates are based on judgments and actuarial assumptions regarding the frequency and severity of claims, historical claims loss data, economic conditions and claim management and settlement practices. If actual claims loss experience exceed our estimates, additional accruals may be required.

Contingencies - Compliance with environmental laws and regulations established by federal, state and local authorities may subject the Company to additional costs. The Company believes it is in compliance with such laws and regulations based on currently available facts and present laws and regulations.

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Recently Adopted and Recently Issued Accounting Pronouncements

In May 2004, the FASB issued FASB Staff Position (“FSP”) No. 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003.” When adopted, FSP No. 106-2 will supersede FSP No. 106-1, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003,” which was issued in January 2004 and permitted a sponsor of a postretirement health care plan that provides a prescription drug benefit to make a one-time election to defer accounting for the effects of the Act until more authoritative guidance on the accounting for the federal subsidy was issued, which the Company elected. FSP No. 106-2 requires the Company to assess the impact of the federal subsidy on the accumulated postretirement benefit obligation and net periodic postretirement benefit cost. The Company adopted FSP No. 106-2, and based on its evaluating the effects of this Position, has determined there to be no material impact on the Company’s financial position or results of operations.

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs - an amendment of ARB No. 43, Chapter 4”. SFAS No. 151 amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage) and requires these costs be treated as current period charges. In addition, SFAS No. 151 requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The provisions of SFAS No. 151 are effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company is currently evaluating the impact of SFAS No. 151 on its financial position, results of operations and liquidity.

In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29”. SFAS No. 153 replaces the exception from fair value measurement included in APB Opinion No. 29 for nonmonetary exchanges of similar productive assets with a general exception from fair value measurement for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. This statement will be applied prospectively and is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The Company does not believe adoption of this statement will have a material impact on the Company’s results of operations or financial condition.

In March 2005, FIN 47, “Accounting for Conditional Asset Retirement Obligations - an Interpretation of SFAS No. 143”, was issued. This Interpretation clarifies that the term “conditional asset retirement obligation”, as used in SFAS No. 143, “Accounting for Asset Retirement Obligations”, refers to a legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. This Interpretation is effective no later than the end of fiscal years ending after December 15, 2005. Retrospective application for interim financial information is permitted but is not required. The Company does not believe adoption of this Interpretation will have a material impact on the Company’s results of operations or financial condition.

On November 1, 2004, the Company early adopted Statement of Financial Accounting Standards No. 123 (Revised 2004), “Share-Based Payment” (“SFAS No. 123 R”). SFAS No. 123R requires all share-based payments to employees, including grants of employee stock options and purchases under employee stock purchase plans, to be recognized as an operating expense in the income statement. The cost of such share-based payments is to be recognized over the requisite service period based on fair values measured on the grant date of the award. The Company adopted SFAS No. 123R using the modified prospective method. Under this method, SFAS No. 123R applies to new awards and to awards modified, repurchased, or cancelled after October 31, 2004. Additionally, compensation cost for the portion of awards for which the requisite service has not been rendered that are outstanding as of October 31, 2004 is recognized as the requisite service is rendered. The adoption of SFAS No. 123R had no effect on the Company’s financial statements for the first quarter of 2005 since the requisite service had been rendered for all awards outstanding as of October 31, 2004. During the 2005 second quarter, the Company began to recognize compensation cost, reflected in the 2005 statements of earnings, related to its stock plans in accordance with the provisions of SFAS No. 123R.

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections—a replacement of APB Opinion No. 20 and FASB Statement No. 3”. This Statement replaces APB Opinion No. 20, “Accounting Changes”, and FASB Statement No. 3, “Reporting Accounting Changes in Interim Financial Statements”, and changes the requirements

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for the accounting for and reporting of a change in accounting principle. SFAS No. 154 applies to all voluntary changes in accounting principle. This Statement requires retrospective application to prior periods’ financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. It also requires that retrospective application of a change in accounting principle be limited to the direct effects of the change. Indirect effects of a change in accounting principle should be recognized in the period of the accounting change. This Statement shall be effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company is currently evaluating the impact of SFAS No. 154 on its results of operations and financial condition.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company engages in transactions involving derivative instruments from time to time as appropriate. During the quarter ended July 31, 2005, the Company entered into a short-term derivative commodity instrument to minimize the Company’s exposure to natural gas purchases used in the manufacturing process at the Huntington, West Virginia facility, for the period November 2005 through March 2006. As of July 31, 2005, the Company’s financial instruments were not exposed to significant market risk due to foreign currency exchange risk, commodity price risk, equity price risk, or interest rate risk. However, interest rates and various commodity prices could pose future risks in certain market conditions. As to interest rate risk, the Company has no current interest rate derivatives in place. As to commodity price risk, a hypothetical 10% change in the market price of natural gas would not have a materially adverse effect on the Company’s consolidated results of operations or on the fair value of its natural gas derivative contract at July 31, 2005. A further discussion of the Company’s use of derivative instruments is described in Note 7 to the Notes to Condensed Consolidated Financial Statements included in this filing.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures.

An evaluation was performed under the supervision and with the participation of the Company’s management, including its Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, of the effectiveness of the Company’s disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of July 31, 2005. Based on that evaluation, the Company’s management, including the CEO and CFO, concluded that the design and operation of the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act, is accumulated and communicated to the Company’s management and is recorded, processed, summarized, and reported as specified in Securities and Exchange Commission rules and forms.

Changes in Internal Controls Over Financial Reporting.

There were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation of such controls that occurred during the Company’s most recent fiscal quarter that has materially affected, or that is reasonably likely to materially affect the Company’s internal control over financial reporting.

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PART II

OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

a. Exhibits.

The exhibits, listed on the accompanying Exhibit Index, following the signature page are filed as part of, and incorporated by reference into, this report.

b. Reports on Form 8-K.

Form 8-K dated May 11, 2005 and filed May 17, 2005, filing under Items 4.01 and 9.01 an announcement of the May 11, 2005 dismissal of Deloitte & Touche LLP, and the engagement of KPMG LLP, as the Company’s independent registered public accounting firm for the fiscal year ending on October 31, 2005, together with Deloitte’s letter regarding the change in certifying accountant.

Form 8-K dated June 7, 2005 and filed June 9, 2004, furnishing under Items 2.02 and 9.01 a news release announcing financial results for the quarter ended April 30, 2005.

Form 8-K dated June 21, 2005 and filed June 27, 2005, filing under Items 5.03 and 9.01 Amended and Restated Bylaws of the Company.

Items 1, 2, 3, 4 and 5 are omitted because the information required by these items is not applicable.

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.

Date: September 7, 2005	ROANOKE ELECTRIC STEEL CORPORATION
	By:	/s/ Donald G. Smith
		Donald G. Smith, Chairman, Treasurer and
		Chief Executive Officer
		(Principal Executive Officer)
	By:	/s/ Mark G. Meikle
		Mark G. Meikle, Vice President – Finance and
		Chief Financial Officer
		(Principal Financial Officer)

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EXHIBIT INDEX

Exhibit No.	Description
3.1	Articles of Incorporation, as amended, of Roanoke Electric Steel Corporation (incorporated by reference to Exhibit 3(a) to the Annual Report on Form 10-K for the fiscal year ended October 31, 2002 (file number 0-2389))
3.2	Amended and Restated Bylaws of Roanoke Electric Steel Corporation (incorporated by reference to Exhibit 3(ii).1 to the Current Report on Form 8-K filed June 27, 2005 (file number 0-2389))
4.1	Form of certificate representing common stock of Roanoke Electric Steel Corporation (incorporated by reference to Exhibit 4(a) to Registration Statement No. 333-25299, on Form S-8, filed with the Commission on April 16, 1997)
4.2	Credit Agreement dated October 4, 2004 among Roanoke Electric Steel Corporation, the lender parties thereto, and Wachovia Bank, National Association (incorporated by reference to Exhibit 4.2 to the Annual Report on Form 10-K for the fiscal year ended October 31, 2004 (file number 0-2389))
10.1	Roanoke Electric Steel Corporation Employees’ Stock Option Plan (incorporated by reference to Exhibit 10(b) to the Annual Report on Form 10-K for the fiscal year ended October 31, 1998 (file number 0-2389))
10.2	Amendment No. 4 to the Roanoke Electric Steel Corporation Employees’ Stock Option Plan (incorporated by reference to Exhibit 10(c) to the Annual Report on Form 10-K for the fiscal year ended October 31, 2003 (file number 0-2389))
10.3	Roanoke Electric Steel Corporation 2005 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed February 3, 2005 (file number 0-2389))
10.4	Form of Performance Grant Agreement for one, two, and three-year performance grants under the Roanoke Electric Steel Corporation 2005 Stock Incentive Plan and dated January 28, 2005 (incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q for the quarter ended January 31, 2005 (file number 0-2389))
10.5	Form of Restricted Stock Agreement for outside directors under the Roanoke Electric Steel Corporation 2005 Stock Incentive Plan dated January 28, 2005 (incorporated by reference to Exhibit 10.5 to the Quarterly Report on Form 10-Q for the quarter ended January 31, 2005 (file number 0-2389))
10.6	Roanoke Electric Steel Corporation Non-Employee Directors’ Stock Option Plan (incorporated by reference to Exhibit 10(d) to the Annual Report on Form 10-K for the fiscal year ended October 31, 2003 (file number 0-2389))
10.7	Roanoke Electric Steel Corporation Amended and Restated Directors’ Retirement Plan (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed February 3, 2005 (file number 0-2389))
10.8	Form of Executive Officer Incentive Arrangement (incorporated by reference to Exhibit 10(a) to the Annual Report on Form 10-K for the fiscal year ended October 31, 1999 (file number 0-2389))
10.9	Roanoke Electric Steel Corporation Management Incentive Plan (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed February 3, 2005 (file number 0-2389))

10.10	Executive Employment Continuity Agreement dated February 18, 2005 with Donald G. Smith (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed February 18, 2005 (file number 0-2389))
10.11	Executive Employment Continuity Agreement dated February 18, 2005 with T. Joe Crawford (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed February 18, 2005 (file number 0-2389))
10.12	Executive Employment Continuity Agreement dated February 18, 2005 with Timothy R. Duke (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed February 18, 2005 (file number 0-2389))
10.13	Executive Employment Continuity Agreement dated February 18, 2005 with Donald R. Higgins (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed February 18, 2005 (file number 0-2389))
10.14	Executive Employment Continuity Agreement dated February 18, 2005 with Mark G. Meikle (incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K filed February 18, 2005 (file number 0-2389))
10.15	Executive Employment Continuity Agreement dated February 18, 2005 with William M. Watson, Jr. (incorporated by reference to Exhibit 10.6 to the Current Report on Form 8-K filed February 18, 2005 (file number 0-2389))
10.16	Collective Bargaining Agreement dated June 10, 2002 by and between SWVA, Inc. and the United Steelworkers of America, AFL-CIO (incorporated by reference to Exhibit 10 to the Quarterly Report on Form 10-Q for the quarter ended July 31, 2002 (file number 0-2389))
31.1	Certification of the principal executive officer of Roanoke Electric Steel Corporation pursuant to Section 302 of Sarbanes-Oxley Act of 2002 (FILED HEREWITH)
31.2	Certification of the principal financial officer of Roanoke Electric Steel Corporation pursuant to Section 302 of Sarbanes-Oxley Act of 2002 (FILED HEREWITH)
32.1	Certification of the principal executive officer of Roanoke Electric Steel Corporation pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002 (FILED HEREWITH)
32.2	Certification of the principal financial officer of Roanoke Electric Steel Corporation pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002 (FILED HEREWITH)