Roanoke Electric Steel Corporation

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Roanoke Electric Steel Corporation

102 Westside Boulevard, N.W.
Roanoke, Virginia 24017
U.S.A.
Telephone: (540) 342-1831
Toll Free: (800) 765-6567
Fax: (540) 342-9437
Web site: http://www.roanokesteel.com

Public Company
Incorporated: 1955
Employees: 1,811
Sales: $372.7 million (2000)
Stock Exchanges: NASDAQ
Ticker Symbol: RESC
NAIC: 331111 Iron and Steel Mills

Roanoke Electric Steel Corporation, operating out of Roanoke, Virginia, converts scrap metal into a variety of merchant steel products, which are then sold to steel service centers, fabricators, and original equipment manufacturers located in 21 states. Because of its Mid-Atlantic location, Roanoke Electric Steel is within a day’s trucking distance to almost 70 percent of the U.S. population. Even during lean periods for the steel industry, the minimill has consistently posted a profit.

Post-World War II Founding

Roanoke Electric Steel’s founder, John W. Hancock, Jr., was born in Roanoke in 1904. After studying mining engineering at Virginia Tech, primarily a military school at the time, he attended the University of Pennsylvania’s Wharton School of Finance. He then went to work at a New York investment banking firm, where he sold securities for the next 15 years. World War II interrupted a successful career, as he joined the Air Force and became a lieutenant colonel. He was intrigued by the military’s vast number of Quonset huts, temporary metal buildings that served as sheds or barracks. Aware that construction in the United States had been severely curtailed by the war effort, he became convinced that there would be a tremendous domestic need for Quonset huts following the war, when it would be impossible to quickly meet the pent-up demand for office and storage space.

After being discharged from the service, Hancock returned home to Roanoke in 1945 and began to sell Quonset huts. In March 1946 he established John W. Hancock, Jr., Inc., to operate his dealership and expand into other products. The company served as a broker for open-web steel joists, in great need during the building boom of the late 1940s. Because of difficulty in establishing a reliable source of the product, Hancock in 1950 began to manufacture his own steel joists. The new business did well, but now he was frustrated by the difficulty of obtaining consistent shipments of steel from Pittsburgh mills. After resorting to foreign steel shipments, which also proved erratic, he began to consider building his own steel mill using scrap metal instead of iron ore. After much research, which included a trip to Germany, Hancock opted to use an electric furnace rather than the standard coke oven. The resulting “minimill” would require less space and fewer employees than a traditional steel mill, meaning less start-up capital as well.

Incorporation in 1955

In 1955 Hancock founded the Roanoke Electric Steel Corporation, financed by personal borrowing and the sale of a $300 stock-and-bond package to individual investors. Each share of stock and both second mortgage bonds were worth $100 apiece. A year later Hancock opened the first minimill in the Southeast, employing less than 100 people. The business got off to an inauspicious start: within weeks a secondhand motor failed and Hancock lacked the resources to pay for the repairs. He concluded that he had no choice but to shut down the plant. He relayed his decision to a Cincinnati scrap dealer, Irvin Bettman of the David J. Joseph Company, explaining that he was unable to pay for the scrap metal he had previously ordered. Bettman offered more time, relieving Hancock’s immediate financial pressure. He then received further help from Louis Zinn, president of Port Everglades Steel Corporation, who helped ease cash flow by placing an immediate order for 1,000 tons of steel, as well as providing blanket orders to produce steel for his customers that Hancock could use at his discretion. In this way Roanoke Electric Steel was able to gain its balance and grow into a successful business.

Hancock was eternally grateful to the two men that saved his mill. He would continue to do business with the David J. Joseph Company and Port Everglades Steel Corporation for the rest of his life. In fact, he kept a medallion bearing the name of Louis Zinn on his desk and requested that succeeding presidents of the company maintain the tradition. Hancock was a man of rare quality, known to be loyal and generous, revered by his workers and community. He was an influential force in Roanoke, contributing millions of dollars and countless hours to many civic causes, as well as Virginia Tech and other educational funds. A community leader who preferred to work in the background, he was instrumental in Roanoke peacefully achieving desegregation during the civil rights movement, while other Southern cities experienced riots and violence. He helped to form a group of local black and white leaders who quietly worked with businesses to eliminate longtime “separate but equal” practices.

After its first full year in operation in 1957, Roanoke Electric Steel turned a profit of $94,000 on revenues of $2.66 million. By the end of the 1950s, the company earned $377,000 on annual sales that approached $5 million. In 1960 Roanoke Electric Steel, operating at full capacity, added a ten ton-per-hour electric furnace to supplement the original four ton-per-hour unit. With two furnaces running, the company realized tremendous growth in 1961, with revenues topping $9.6 million and earnings reaching $895,000. Nevertheless, Hancock continued to look for ways to streamline the steelmaking process and increase profitability. Instead of casting steel ingots in molds, he envisioned a continuous casting machine, and entered into a joint venture with Babcock & Wilcox to create it. In 1962 his company became the first commercial continuous steel casting plant in the country. Eventually, continuous casting would be used by a majority of steel mills in the United States and 90 percent of mills in Japan.

To create diversity and add another customer for the mill, Roanoke Electric Steel established the Bowie Steel Division, a reinforcing bar fabricating plant in Bowie, Maryland. The company added a second rolling mill, creating the Salem Division after purchasing the operations of the Donalson Steel Corporation in Salem, Virginia. To keep up with demand, Roanoke Electric Steel purchased another ten ton-per-hour electric furnace, which went into operation in 1966. Within two years, revenues passed the $15 million level. The company continued to upgrade its facilities, adding an automated cooling bed, gauging table, and cold shear in 1969. A second continuous casting machine was then installed in 1970 to keep pace with the amount of steel the mill’s three furnaces could now melt.

To procure a steady stream of raw material, as well as provide additional diversity, in 1974 Roanoke Electric Steel acquired Shredded Products Corporation, located in Montvale, Virginia. Relying primarily on junked automobiles, Shredded Products would eventually supply one-third of the mill’s need for scrap metal. In 1975 Roanoke Electric Steel gained another subsidiary when John W. Hancock, Jr., Inc. was merged into the operation. With subsidiaries acting as both suppliers and buyers, Roanoke Electric Steel continued its steady growth. The mill’s original four ton-per-hour electric furnace was replaced by a modern 20 ton-per-hour unit. In 1977 sales surpassed the $50 million mark and profits stood at $2.85 million. More upgrades followed, including a second finishing mill and a new storage building. By 1979 sales jumped to $72.5 million and profits exceeded $6.3 million.

Death of Hancock: 1994

The 1980s were difficult years for the steel industry, yet Roanoke Electric Steel remained profitable and continued to expand. In 1985 the company acquired Socar, Incorporated, which manufactured steel joists in plants located in South Carolina and Ohio. A year later the Salem operations began fabricating steel reinforcing bars, establishing the RESCO Steel Products unit. The business would be expanded in 1988 when a nearby facility was also purchased. Also in 1985, at the age of 81, Hancock would step down as the chief executive of Roanoke Steel, although he would remain as chairman of the board. He was succeeded by Donald G. Smith, a longtime executive of the company and secretary of the corporation since 1967. Smith became president in 1985, then chief executive officer in 1986. Finally, he was named chairman of the board in 1989, as Hancock retired completely. The company’s founder lived five more years, passing away in 1994 at the age of 89.

The late 1980s were strong years for the company. Although a number of other minimills had started up around the country, they generally competed with the larger mills in plate steel products, rather than the merchant bar steel produced by Roanoke Electric Steel. As the economy soured in the beginning of the 1990s and the influx of foreign steel had a softening effect on steel prices, the company was forced to retrench. It closed down the Salem rolling mill and consolidated the two rebar facilities into a single operation. Despite poor business conditions, Roanoke Electric Steel remained profitable, although earnings fell to just $200,000 in 1991 on revenues of $127 million. As the nation’s economy improved, construction picked up, steel prices rebounded, the demand for steel products increased, and the company’s results quickly improved. Revenues steadily grew, to $146 million in 1992, $167.3 million in 1993, and $215.8 million in 1994, before topping out at $260 million in 1995. Likewise, net income soared, from $2.7 million in 1992, to $4.8 million in 1993, $11.9 million in 1994, and $20.2 million in 1995.

Company Perspectives:

Building on the practice of fundamental principles, Roanoke Electric Steel has become a company as strong as its products. With our commitment to these principles, proven in a record of growth and service, we believe that Roanoke Electric Steel will continue to grow and increase its strength in the future.

Although results reached a plateau in the mid-1990s, resulting from depressed steel prices caused by increased competition, Roanoke Electric Steel remained quite profitable. In order to retain a competitive edge in an industry with tight margins, the company invested $18 million in 1996 to purchase a state-of-the-industry ladle furnace, as well as other upgrades. As the American economy enjoyed an unprecedented growth spurt in the late 1990s, Roanoke Electric Steel shared in the benefits, while much of the steel industry felt the impact of cheap imports. Revenues reached $295.2 million in 1998, as the company posted $19.9 million in net profit. The following year revenues soared to a record $373 million and profits to a record $22.6 million, and Roanoke Electric Steel made the Forbes list of the 200 Best Small Companies, ranking number 171.

Taking advantage of its robust health, Roanoke Electric Steel looked to expand through acquisition in 1998. Late in the year it acquired Steel of West Virginia in a $117.1 million tender offer that included the assumption of $52.3 million in debt. A year earlier Steel of West Virginia had fended off a takeover bid from competitor JPT. The operation appeared to be a good fit for Roanoke Electric Steel, adding capacity as well as broadening its product line and customer base. Steel of West Virginia maintained a minimill in Huntington, West Virginia, and steel fabrication plants in Huntington and Memphis, Tennessee. The company designed and manufactured steel products used in the construction of mobile homes, truck trailers, industrial lift trucks, off-highway construction equipment, guard rail posts, manufactured housing, and mining equipment. Although it had produced spotty results, it still posted a $5 million profit on sales of $113 million in 1997.

Roanoke Electric Steel faced some labor problems with its new subsidiary when, six months after acquiring Steel of West Virginia, the United Steelworkers called for a strike over seniority rights and the use of nonunion workers. A year later, nonunion John W. Hancock, Jr., Inc. came in conflict with the United Steelworkers, which was attempting to organize the plants. Far more troubling for Roanoke Electric Steel was the sudden influx of cheap imported steel that flooded the market. Although the glut was short-lived, it drove down prices, from $380 per ton to $280, and they failed to rebound. Moreover, the price for scrap metal increased. Combined with a downturn in the economy in late 2000, the low prices had a debilitating effect on the steel industry, driving a number of mills into Chapter 11, and forcing Roanoke Electric Steel to initiate job cuts.

The company reported flat results for 2000, generating $372.7 million in revenues, while posting a $14.1 million net profit. Although the milling operation suffered, the downstream products companies remained strong enough to keep the company profitable. As the economy verged on recession in 2001 and construction fell off, even those subsidiaries began to feel the pinch. Nevertheless, Roanoke Electric Steel with its diversified operations was better positioned than most of its competitors. The company had every reason to believe that, when the economy eventually recovered and construction activity picked up, it would renew its long-term pattern of growth and profitability.

Principal Subsidiaries

John W. Hancock, Jr., Inc.; Marshall Steel, Inc.; RESCO Steel Products Corporation; Roanoke Technical Treatment and Services, Inc.; Shredded Products Corporation; Socar, Incorporated; Steel of West Virginia, Inc.

Principal Competitors

AmeriSteel; Bethlehem Steel Corporation; Birmingham Steel Corporation; Kawasaki Steel Corporation; Kentucky Electric Steel, Inc.; National Steel Corporation; Nippon Steel Corporation.

Key Dates:

1946:: John W. Hancock, Jr., Inc. is formed.
1955:: Roanoke Electric Steel begins operations as a steel supplier to John W. Hancock, Jr., Inc.
1962:: Company opens first commercial continuous steel casting plant in the United States.
1974:: Shredded Products Corporation is acquired.
1975:: John W. Hancock, Jr., Inc. is absorbed as subsidiary.
1985:: Socar, Incorporated is acquired.
1998:: Steel of West Virginia is acquired.