ROANOKE ELECTRIC STEEL CORPORATION / ANNUAL REPORT 1995


<PAGE>

                                CELEBRATING OUR

                                 [ROANOKE LOGO]

                                40TH ANNIVERSARY

                          40 YEARS OF QUALITY PRODUCTS
                               FOR OUR CUSTOMERS

                         40 YEARS OF QUALITY EMPLOYMENT
                                 FOR OUR PEOPLE

                          40 YEARS OF VALUABLE SERVICE
                                TO OUR COMMUNITY

                            $142 MILLION IN PROFITS
                                FOR OUR COMPANY

                            $55 MILLION IN DIVIDENDS
                              FOR OUR STOCKHOLDERS


<PAGE>


ROANOKE ELECTRIC STEEL CORPORATION

          Roanoke Electric Steel  Corporation and its wholly-owned  subsidiaries
are engaged in the  manufacturing,  fabricating  and marketing of merchant steel
products,  billets,  open-web steel joists and reinforcing bars. Each subsidiary
is either a  supplier  to the  parent  company or a  purchaser  of its  finished
product.

          The  main  plant  of  Roanoke   Electric   Steel   Corporation   is  a
state-of-the-art  steel mini-mill  located in Roanoke,  Virginia.  This facility
melts scrap steel in electric  furnaces and continuously  casts the molten steel
into billets.  These billets are rolled into merchant steel products  consisting
of angles, plain rounds, flats, channels and reinforcing bars of various lengths
and sizes.  Excess  steel billet  production  is sold to mills  without  melting
facilities.  Roanoke  Electric Steel  Corporation  markets its products to steel
service centers and fabricators in 21 states east of the Mississippi River.

          Shredded Products  Corporation,  a subsidiary with operations in Rocky
Mount and Montvale,  Virginia, extracts scrap steel and other metals from junked
automobiles and other waste materials.  These  facilities  supply the main plant
with a substantial amount of its raw materials.  Non-ferrous metals generated in
the process are sold to unrelated customers.

     John  W.  Hancock,   Jr.,  Inc.  and  Socar,  Inc.  are  steel  fabrication
subsidiaries  located  in  Salem,   Virginia,   Florence,   South  Carolina  and
Continental, Ohio. All three operations purchase rounds and angles from the main
plant to fabricate long- and short-span open-web steel joists.  These joists are
used as horizontal  supports for floors and roofs in commercial  and  industrial
buildings.

     RESCO Steel Products Corporation, a Salem, Virginia based subsidiary,
fabricates  concrete  reinforcing  steel by cutting and bending it to contractor
specifications.

                                       1
<PAGE>


SELECTED FINANCIAL DATA


<TABLE>
<CAPTION>
Year Ended October 31,                               1995               1994             1993              1992             1991
------------------------------------------------------------------------------------------------------------------------------------
<S>                                               <C>               <C>               <C>              <C>              <C>
OPERATIONS
  Sales                                           $259,968,524      $215,809,228      $167,294,378     $146,036,301     $126,977,104
  Gross earnings                                    56,097,685        33,732,184        22,565,662       17,562,115       12,835,197
  Interest expense-net                               2,053,643         1,891,263         1,730,822        2,031,154        2,490,129
  Income taxes                                      13,035,243         5,684,150         2,785,168        1,491,474           74,384
  Earnings before cumulative
   effect of change in
   accounting principle                             20,228,902         8,766,435         4,750,106        2,655,006          227,230
  Net earnings                                      20,228,902        11,860,375         4,750,106        2,655,006          227,230
------------------------------------------------------------------------------------------------------------------------------------

FINANCIAL POSITION
  Working capital                                  $45,483,760       $34,504,420       $36,406,901      $26,188,178      $28,942,912
  Total assets                                     157,774,658       140,473,510       130,620,435      125,558,910      124,648,573
  Long-term debt                                    16,979,166        20,729,166        25,521,000       20,486,500       25,452,000
  Stockholders' equity                              90,062,598        72,417,669        63,203,577       60,990,935       60,859,300
------------------------------------------------------------------------------------------------------------------------------------

SELECTED RATIOS
  Gross profit margin                                    21.6%             15.6%             13.5%            12.0%            10.1%
  Operating income margin                                 7.8%              5.5%              2.8%             1.8%             0.2%
  Effective tax rate                                     39.2%             39.3%             37.0%            36.0%           24.7%
  Current ratio                                            2.2               2.0               2.4              1.9              2.2
  Quick ratio                                              1.3               1.2               1.4              1.1              1.2
  Funded debt as a percentage
    of total capital                                     26.1%             30.7%             36.6%            38.0%            39.0%
  Pretax return on average total
    assets                                               22.3%             10.7%              5.9%             3.3%             0.2%
  Return on average stockholders'
    equity                                               24.9%             12.9%*             7.6%             4.4%             0.4%
------------------------------------------------------------------------------------------------------------------------------------

PER SHARE DATA
  Earnings before cumulative
    effect of change
    in accounting principle                              $2.51             $1.09             $0.60            $0.33            $0.03
  Net earnings                                            2.51              1.48              0.60             0.33             0.03
  Cash dividends                                          0.37              0.41              0.32             0.32             0.32
  Stockholders' equity                                   11.19              9.06              7.94             7.67             7.65
------------------------------------------------------------------------------------------------------------------------------------

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING           8,045,644         7,988,985         7,956,339        7,952,539        7,950,912
</TABLE>

Per share information has been adjusted for three-for-two stock split effective
May 1, 1995

                [insert graphs here]


                                            1995    1994    1993    1992    1991

Sales (in millions)                         260     216     167     146     127
Net Earnings (in millions)*                20.2     8.8     4.8     2.7      .2
Earnings Per Share (in dollars)*           2.51    1.09     .60     .33     .03
Return on Average Equity (in percent)*     24.9    12.9     7.6     4.4      .4
Total Assets (in million)                   158     140     131     126     125

*1994 accounting changes of $3.1 million excluded.


4
<PAGE>


TO OUR SHAREHOLDERS

        Our  40th  year  in  business,   fiscal  1995,   exceeded  all  previous
performance records and was the fourth consecutive year of significant  earnings
and sales growth.  Earnings  reached a record  $20,228,902 - up 130.8% from 1994
earnings from  operations of  $8,766,435  and 58.8% higher than previous  record
earnings of $12,738,520 achieved in 1989. Earnings per share were $2.51 compared
to 1994  earnings  per  share  from  operations  of  $1.09.  Sales for 1995 were
$259,968,524, a 20.5% increase over 1994 record sales of $215,809,228.

          Strong demand  continued  throughout  most of 1995, as steady economic
growth positively  affected the steel and construction  industries.  The healthy
demand and economic  conditions  favorably  impacted selling prices and shipment
levels for steel bar products,  fabricated products and billets. In addition, as
expected,  our relocated and modern automobile  shredding  facility  experienced
considerable  savings in waste disposal costs and 50% better metals  recoveries,
contributing to the improved earnings.

          Other notable highlights of 1995 were:

            -- a 2.8% increase in raw steel production to a record level.
            -- an 8.6% increase in rolling mill production over last year's
               record total.
            -- a 6.4% increase in steel bar shipments to the highest level on
               record.
            -- a $10,979,340 increase in working capital to a record
               $45,483,760.
            -- a $17,644,929 increase in stockholders' equity to a record
               $90,062,598 at year end.
            -- an increase in total assets to a record $157,774,658.
            -- a return on average equity of 24.9%.
            -- a pretax return on average total assets of 22.3%.
            -- an increase in gross profit percentage to 21.6% - up from 15.6%
               in 1994.

          The  year  also  produced  substantial  improvements  to  our  overall
financial  condition.  In  addition  to the  increases  in working  capital  and
stockholders'  equity mentioned above,  curtailments of short-term and long-term
debt  were  $291,834  during  the  year,  in spite of  capital  expenditures  of
$11,654,366.  The  reduction  in  long-term  debt,  coupled with the increase in
stockholders'  equity,  caused the percentage of long-term debt to total capital
to decline from 22.2% in 1994 to a very respectable 15.9% at year end. The ratio
of debt to equity  improved to .75 to 1, the current  ratio was 2.2 to 1 and the
quick ratio was 1.3 to 1. Our sound  financial  condition  has  provided us with
liquidity,  capital  resources  and an  investment  grade rating  essential  for
continued growth and prosperity.

          In  recognition  of the  record  performance,  our Board of  Directors
increased the regular  dividend 37.5% during the year. Their actions brought the
annual dividend rate to 44 cents per share, as compared to the regular  dividend
of 32 cents per share paid in 1994, after adjusting for

                                       5
<PAGE>

the  three-for-two  stock split in May of 1995. The 148th  consecutive
quarterly  cash  dividend  was  declared by the Board on October 17, 1995 in the
amount of 11 cents per share, payable November 22, 1995.

          During the year, orders were placed for the upgrade of an electric arc
furnace and the addition of a ladle furnace to melt shop operations. The upgrade
and ladle furnace will increase raw steel production,  improve quality, decrease
production costs and improve operating efficiencies.  The anticipated completion
and  start-up  in the  spring  of 1996  should  enhance  future  earnings.  This
$14,000,000  project  is  another  step in our  efforts  to  maintain  a modern,
state-of-the-art  manufacturing  facility  and  remain a  competitive,  low cost
producer.  From 1985 to 1995, capital expenditures were in excess of $97,000,000
and acquisitions  exceeded  $21,000,000.  The record results this year could not
have been  attained  without these  outlays.  Likewise,  future  results will be
maximized  by the ladle  furnace,  the arc furnace  upgrade,  and the pursuit of
similar opportunities in the future.

          As we begin 1996,  backlogs of fabricated  products and billets remain
excellent,  while the backlog for steel bar products is at a comfortable  level.
Although selling prices for bar products are slightly lower, the reductions have
been  partially  offset by falling scrap  prices.  Economic  forecasts  call for
continued, although somewhat slower, growth, and 1996 should benefit from normal
election year prosperity.  Inflation and interest rates are low and appear to be
under  control.  Consequently,  we are  optimistic  fiscal 1996 will be a strong
year, and present  indications point to improved results in the first quarter of
1996, compared to last year.

          We have managed to be profitable every year since 1956, an exceptional
accomplishment  in a cyclical  industry.  We shall  endeavor to make the next 40
years as successful and prosperous as the past 40 years.

          It is most  gratifying  to report the record  results for fiscal 1995.
 The achievements of the past year would not have been possible without the
dedication of our employees and the support of our valued customers.  We
deeply thank them and our shareholders for their confidence and investment in
Roanoke Electric Steel Corporation.

                               /s/ DONALD G. SMITH
                               Donald G. Smith
                               Chairman of the Board and Chief Executive Officer

                                       6
<PAGE>

CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF EARNINGS

<TABLE>
<CAPTION>
                                                                                   Year Ended October 31,
                                                                      1995                  1994                  1993
                                                                  -------------          -------------        -------------
<S>                                                               <C>                    <C>                   <C>
SALES                                                             $259,968,524           $215,809,228          $167,294,378
COST OF SALES                                                      203,870,839            182,077,044           144,728,716
                                                                 -------------          -------------         -------------
GROSS EARNINGS                                                      56,097,685             33,732,184            22,565,662
                                                                 -------------          -------------         -------------
OTHER OPERATING EXPENSES
  Administrative                                                    16,194,810             14,047,008            11,619,320
  Interest, net                                                      2,053,643              1,891,263             1,730,822
  Profit sharing                                                     4,585,087              3,343,328             1,680,246
                                                                 -------------          -------------         -------------
                                                                    22,833,540             19,281,599            15,030,388
                                                                 -------------          -------------         -------------
EARNINGS BEFORE INCOME TAXES AND CUMULATIVE
  EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE                          33,264,145             14,450,585             7,535,274
INCOME TAX EXPENSE                                                  13,035,243              5,684,150             2,785,168
                                                                 -------------          -------------         -------------
EARNINGS BEFORE CUMULATIVE EFFECT OF
  CHANGE IN ACCOUNTING PRINCIPLE                                    20,228,902              8,766,435             4,750,106
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
  PRINCIPLE FOR INCOME TAXES                                           --                   3,093,940               --
                                                                 -------------          -------------         -------------
NET EARNINGS                                                      $ 20,228,902          $  11,860,375         $   4,750,106
                                                                 =============          =============         =============
EARNINGS PER SHARE OF COMMON STOCK
   EARNINGS BEFORE CUMULATIVE EFFECT
    OF ACCOUNTING CHANGE                                          $       2.51      $           1 .09     $            0.60
  CUMULATIVE EFFECT OF ACCOUNTING
    CHANGE FOR INCOME TAXES                                            --                        0.39               --
                                                                 -------------          -------------         -------------
NET EARNINGS PER SHARE OF
  COMMON STOCK                                                    $       2.51                 $ 1.48                $ 0.60
                                                                 =============          =============         =============
CASH DIVIDENDS PER SHARE OF
  COMMON STOCK                                                    $       0.37                 $ 0.41                $ 0.32
                                                                 =============          =============         =============
</TABLE>



CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                      Capital in                       Treasury Stock
                                              Common Stock             Excess of                          (At Cost)
                                        -------------------------       Stated        Retained      ----------------------
                                         Shares          Amount         Value         Earnings       Shares       Amount
                                        ----------    -----------     -----------   ------------    --------    -----------
<S>                                      <C>          <C>             <C>            <C>              <C>        <C>
BALANCE,
  NOVEMBER 1, 1992                       5,901,538    $   713,451     $9,349,429     $52,122,923      597,829    $1,194,868
    Stock options exercised                  1,200          8,700           --             --           --            --
    Net earnings                             --              --             --         4,750,106        --            --
    Cash dividends                           --              --             --        (2,546,164)       --            --
                                        ----------    -----------    -----------    ------------     --------   -----------
BALANCE,
  OCTOBER 31, 1993                       5,902,738        722,151      9,349,429      54,326,865      597,829     1,194,868
    Stock options exercised                 44,000        608,499           --             --           --            --
    Net earnings                             --              --             --        11,860,375        --            --
    Cash dividends                           --              --             --        (3,254,782)       --            --
                                        ----------    -----------    -----------    ------------     --------   -----------
BALANCE,
  OCTOBER 31, 1994                       5,946,738      1,330,650      9,349,429      62,932,458      597,829     1,194,868
    Three-for-two stock split            2,984,619           --             --             --         298,914         --
    Cash paid in lieu of fractional
          shares on stock split               (152)          --             --            (1,776)       --            --
    Stock options exercised                 39,185        398,853           --               --         --            --
    Net earnings                             --              --             --        20,228,902        --            --
    Cash dividends                           --              --             --        (2,981,050)       --            --
                                        ----------    -----------    -----------    ------------     --------   -----------
BALANCE, OCTOBER 31, 1995                8,970,390     $1,729,503     $9,349,429     $80,178,534      896,743    $1,194,868
                                        ==========    ===========    ===========    ============     ========   ===========
</TABLE>

See notes to consolidated financial statements.
                                       7
<PAGE>

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                            October 31,
                                                                        1995           1994
                                                                   -------------  -------------
<S>                                                                <C>            <C>
ASSETS
CURRENT ASSETS
  Cash and cash equivalents ....................................   $  6,999,644   $    150,036
  Investments ..................................................      4,179,418      5,333,895
  Accounts receivable ..........................................     40,159,523     34,840,838
  Inventories ..................................................     30,866,238     26,969,662
  Prepaid expenses .............................................        722,729      1,159,074
  Deferred income taxes ........................................      1,125,441      1,215,551
                                                                   ------------   ------------
        Total current assets ...................................     84,052,993     69,669,056
                                                                   ------------   ------------

PROPERTY, PLANT AND EQUIPMENT
  Land .........................................................      4,312,689      3,243,426
  Buildings ....................................................     17,195,735     15,712,110
  Other property and equipment .................................    104,825,380     94,942,955
  Assets under construction ....................................      5,741,611      9,664,843
                                                                   ------------   ------------
        Sub-total ..............................................    132,075,415    123,563,334
  Less-accumulated depreciation ................................     58,569,617     53,088,234
                                                                   ------------   ------------
                                                                     73,505,798     70,475,100
                                                                   ------------   ------------
OTHER ASSETS
  Unamortized excess of cost of investment in subsidiary
   over net assets acquired ....................................           --          108,777
  Other ........................................................        215,867        220,577
                                                                   ------------   ------------
                                                                        215,867        329,354
                                                                   ------------   ------------
                                                                   $157,774,658   $140,473,510
                                                                   ============   ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
  Current portion of long-term debt ............................   $  3,750,000   $  4,791,834
  Notes payable ................................................     11,000,000      6,500,000
  Accounts payable .............................................     14,483,781     16,560,157
  Dividends payable ............................................        888,101      1,337,227
  Employees' taxes withheld ....................................        226,677        254,965
  Accrued profit sharing contribution ..........................      4,403,031      3,269,640
  Accrued wages and expenses ...................................      2,396,913      1,764,863
  Accrued income taxes .........................................      1,420,730        685,950
                                                                   ------------   ------------
        Total current liabilities ..............................     38,569,233     35,164,636
                                                                   ------------   ------------
LONG-TERM DEBT
  Notes payable ................................................     20,729,166     25,521,000
  Less-current portion .........................................      3,750,000      4,791,834
                                                                   ------------   ------------
                                                                     16,979,166     20,729,166
                                                                   ------------   ------------
POSTRETIREMENT LIABILITIES .....................................        494,591        242,000
                                                                   ------------   ------------
DEFERRED INCOME TAXES ..........................................     11,669,070     11,920,039
                                                                   ------------   ------------
COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 7)
STOCKHOLDERS' EQUITY
  Common stock-no par value-authorized 10,000,000 shares, issued
    8,970,390 shares in 1995 and 8,919,955 in 1994 .............      1,729,503      1,330,650
  Capital in excess of stated value ............................      9,349,429      9,349,429
  Retained earnings ............................................     80,178,534     62,932,458
                                                                   ------------   ------------
                                                                     91,257,466     73,612,537
  Less-treasury stock, 896,743 shares-at cost ..................      1,194,868      1,194,868
                                                                   ------------   ------------
     Total stockholders' equity ................................     90,062,598     72,417,669
                                                                   ------------   ------------
                                                                   $157,774,658   $140,473,510
                                                                   ============   ============
</TABLE>

See notes to consolidated financial statements.

                                       8
<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                           Year Ended October 31,
                                                                     1995           1994            1993
                                                                ------------    ------------    -----------
<S>                                                             <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings ................................................   $ 20,228,902    $ 11,860,375    $  4,750,106
Adjustments to reconcile net earnings to net cash provided
  by operating activities:
   Cumulative effect of change in accounting for
    income taxes ............................................           --        (3,093,940)           --
   Postretirement liabilities ...............................        252,591         242,000            --
   Depreciation and amortization ............................      7,989,663       7,559,118       7,492,567
   Gain on sale of investments and property,
    plant and equipment .....................................       (193,926)        (12,017)       (124,088)
   Deferred income taxes ....................................       (160,859)        (88,605)         37,082
   Changes in assets and liabilities which provided (used)
    cash, exclusive of changes shown separately .............     (8,383,359)     (2,054,358)     (2,513,772)
                                                                ------------    ------------    ------------
Net cash provided by operating activities ...................     19,733,012      14,412,573       9,641,895
                                                                ------------    ------------    ------------
CASH FLOWS FROM INVESTING ACTIVITIES
   Expenditures for property, plant and equipment ...........    (11,654,366)    (11,744,913)     (5,767,423)
   Proceeds from sale of property, plant and equipment ......        952,635         189,849          53,900
   Purchase of investments ..................................     (1,879,186)     (3,489,816)     (2,159,645)
   Proceeds from sale of investments ........................      3,022,446       3,342,493       3,150,546
   Other ....................................................           --           783,577        (115,169)
                                                                ------------    ------------    ------------
Net cash used in investing activities .......................     (9,558,471)    (10,918,810)     (4,837,791)
                                                                ------------    ------------    ------------
CASH FLOWS FROM FINANCING ACTIVITIES
   Increase (decrease) in notes payable .....................      4,500,000         500,000      (6,000,000)
   Cash dividends ...........................................     (2,981,050)     (3,254,782)     (2,546,164)
   Cash paid for fractional shares on stock split ...........         (1,776)           --              --
   Increase (decrease) in dividends payable .................       (449,126)        700,638             144
   Proceeds from exercise of common stock options ...........        398,853         608,499           8,700
   Payment of long-term debt ................................     (4,791,834)     (4,965,500)     (4,965,500)
   Proceeds from long-term debt .............................           --              --        10,000,000
                                                                ------------    ------------    ------------
Net cash used in financing activities .......................     (3,324,933)     (6,411,145)     (3,502,820)
                                                                ------------    ------------    ------------
NET INCREASE (DECREASE) IN CASH AND CASH
   EQUIVALENTS ..............................................      6,849,608      (2,917,382)      1,301,284
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ................        150,036       3,067,418       1,766,134
                                                                ------------    ------------    ------------
CASH AND CASH EQUIVALENTS, END OF YEAR ......................   $  6,999,644    $    150,036    $  3,067,418
                                                                ============    ============    ============
CHANGES IN ASSETS AND LIABILITIES WHICH
  PROVIDED (USED) CASH, EXCLUSIVE OF CHANGES
  SHOWN SEPARATELY
   (Increase) decrease in accounts receivable ...............   $ (5,318,685)   $ (6,765,960)   $ (4,001,379)
   (Increase) decrease in inventories .......................     (3,896,576)     (2,900,482)       (338,492)
   (Increase) decrease in prepaid expenses ..................        436,345         165,049        (632,862)
   Increase (decrease) in accounts payable ..................     (2,076,376)      4,965,055       1,911,486
   Increase (decrease) in employees' taxes withheld .........        (28,288)         47,896          59,132
   Increase (decrease) in accrued profit sharing contribution      1,133,391       1,589,394         782,408
   Increase (decrease) in accrued wages and expenses ........        632,050         228,278          38,806
   Increase (decrease) in accrued income taxes ..............        734,780         616,412        (332,871)
                                                                ------------    ------------    ------------
Total .......................................................   $ (8,383,359)   $ (2,054,358)   $ (2,513,772)
                                                                ============    ============    ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
  INFORMATION
Cash paid during the period for:
   Interest (net of amount capitalized) .....................   $  2,484,598    $  2,343,960    $  2,219,291
                                                                ------------    ------------    ------------
   Income taxes .............................................   $ 12,461,322    $  5,156,266    $  3,080,957
                                                                ------------    ------------    ------------
</TABLE>

See notes to consolidated financial statements.

                                       9
<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(NOTE 1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      Principles of Consolidation
      The  consolidated  financial  statements  include the  accounts of Roanoke
   Electric  Steel  Corporation  and  its  wholly-owned  subsidiaries,  Shredded
   Products  Corporation,  John W. Hancock,  Jr., Inc., Socar, Inc., RESCO Steel
   Products  Corporation and Roanoke Technical  Treatment & Services,  Inc. (the
   "Company").  All significant intercompany accounts and transactions have been
   eliminated.

      Inventories
      Inventories of the Company, with the exception of John W. Hancock, Jr.,
   Inc., are generally valued at cost on a first-in, first-out (FIFO) method
   or market, if lower.  A major portion of the inventories of John W.
   Hancock, Jr., Inc. is valued on a last-in, first-out (LIFO) method.  LIFO
   cost is not in excess of replacement or current cost.

      Property, Plant and Equipment
      These  assets are stated at cost.  Depreciation  expense  is  computed  by
   straight-line  and  declining-balance  methods.  Maintenance  and repairs are
   charged  against  operations  as  incurred.   Major  items  of  renewals  and
   betterments  are capitalized  and  depreciated  over their  estimated  useful
   lives. Upon retirement or other disposition of plant and equipment,  the cost
   and related  accumulated  depreciation  are  removed  from the  property  and
   allowance accounts, and the resulting gain or loss is reflected in earnings.

      Income Taxes
      Prior to November 1, 1993, the Company provided deferred income taxes when
   timing  differences  occurred in reporting  income and expenses for financial
   reporting and income tax reporting.  Effective  November 1, 1993, the Company
   adopted the  provisions  of Statement of Financial  Accounting  Standards No.
   109,  "Accounting  for Income  Taxes"  (SFAS 109).  Under SFAS 109,  deferred
   income taxes are provided by the asset and liability  method,  which requires
   the  recognition  of deferred tax assets and  liabilities  for the future tax
   consequences  of  temporary  differences  between  tax  bases  and  financial
   reporting bases of other assets and liabilities.

      Goodwill
      The excess of cost over fair value of net  assets of  acquired  subsidiary
   has been amortized using the straight-line  method over the estimated benefit
   period of ten years.  At October 31, 1995,  goodwill of  $1,864,703  has been
   fully amortized.

      Cash and Cash Equivalents
      The Company considers all highly liquid debt instruments purchased with an
   original maturity of three months or less to be cash equivalents.

      Investments
      Investments consist primarily of debt securities which mature between 1996
   and 2024. On November 1, 1994,  the Company  adopted  Statement of Accounting
   Standards No. 115,  "Accounting  for Certain  Investments  in Debt and Equity
   Securities"  (SFAS  115).  In  accordance  with the  provisions  of SFAS 115,
   management has classified its entire debt securities  portfolio as "available
   for sale".  Under SFAS 115,  "available for sale"  securities are reported at
   fair value with unrealized gains and losses reported as a separate  component
   of equity.  These  investments  are carried on the  October 31, 1995  balance
   sheet at fair value, which approximates  amortized cost.  Accordingly,  there
   was no adjustment to equity at October 31, 1995.
    Prior to the  adoption  of SFAS  115,  these  investments  were  carried  at
   amortized cost, which approximated market value.

      Revenue Recognition
      Revenues from sales are recognized when products are shipped to customers,
   except   for    fabrication    products   which   are   recognized   by   the
   percentage-of-completion  method in accordance with industry practice.  Sales
   to an unaffiliated customer amounted to 15% and 13% of consolidated sales for
   1995 and 1994, respectively.

      Concentration of Credit Risk
      The Company  sells to a large  customer base of steel  fabricators,  steel
   service  centers  and  construction  contractors,  most  all  of  which  deal
   primarily on 30-day credit terms. The Company  believes its  concentration of
   credit risk to be minimal in any one geographic area or market segment.
    The Company performs periodic credit evaluations of its customers' financial
   condition and generally does not require  collateral.  Credit losses have not
   been  significant  in  the  past,  and  are  generally  within   management's
   expectations.

      Fair Value of Financial Instruments
      At  October  31,  1995,  the  fair  value of the  Company's  cash and cash
   equivalents, accounts receivable, investments and long-term debt approximated
   amounts recorded in the accompanying  consolidated  financial statements (see
   notes 1 and 6).

(NOTE 2) INVENTORIES
      If the  FIFO  method  of  valuing  inventories  had  been  used by John W.
   Hancock,  Jr.,  Inc.,  consolidated  inventories  would have been  $1,549,596
   greater in 1995 and $1,611,460 greater in 1994.

<TABLE>
<CAPTION>

      Inventories include the following major classifications:
                                                                                      October 31,
                                                                  -------------------------------------------------
                                                                      1995              1994               1993
                                                                  ------------      ------------       ------------
<S>                                                                <C>             <C>               <C>
Scrap steel . . . .  . . . . . . . . . . . . . . . . . .           $3,728,612      $ 4,737,074       $  2,651,005

Melt supplies . . . . . . . . . . . . . . . . . . . . .             2,443,827        1,888,830          2,034,790
Billets . . . . . . . . . . . . . . . . . . . . . . . .             1,748,778        3,209,030          2,400,164
Mill supplies . . . . . . . . . . . . . . . . . . . . .             3,210,946        2,867,779          2,745,971
Finished steel . . . . . . . . . . . . . . . . . . . .             19,734,075       14,266,949         14,237,250
                                                                  ------------      ------------       ------------
     Total inventories . . . . . . . . . . . . . . . .            $30,866,238      $26,969,662        $24,069,180
                                                                  ============      ============       ============

</TABLE>


                                       10
<PAGE>

(NOTE 3) PROPERTIES AND DEPRECIATION
      Depreciation  expense for the years ended October 31, 1995,  1994 and 1993
   amounted to $7,863,154, $7,332,833 and $7,295,885,  respectively.  Generally,
   the  rates  of  depreciation  range  from  3.3%  to  20%  for  buildings  and
   improvements and 5% to 33% for machinery and equipment. Property additions in
   1995,  1994 and 1993  included  $10,146,  $19,341  and  $42,418  of  interest
   capitalized, respectively.

(NOTE 4) SHORT-TERM DEBT
      The following information relates to aggregate short-term borrowings:
<TABLE>
<CAPTION>

                                                                                               October 31,
                                                                                    -----------------------------
                                                                                       1995             1994
                                                                                   ------------    -----------
<S>                                                                               <C>              <C>
      Notes payable to banks with interest ranging from 6.08% to 6.20% for 1995.  $ 11,000,000     $ 6,500,000
                                                                                  ============     ===========
      Maximum borrowings outstanding at any month end                             $ 14,000,000     $ 6,500,000
                                                                                  ============     ===========
      Weighted average loans outstanding to banks                                 $ 11,364,384     $ 6,112,329
                                                                                  ============     ===========
      Weighted average interest rates for the year                                        6.33%           4.31%
                                                                                  ============     ===========
      Weighted average interest rates at October 31                                       6.17%           5.45%
                                                                                  ============     ===========
</TABLE>

      At October 31, 1995, the Company had lines of credit with various domestic
   banks aggregating $39,500,000 with $28,500,000 unused. These arrangements are
   reviewed  periodically  by the lending  banks for  renewal,  and although not
   legally binding,  commitments have been traditionally honored. These lines of
   credit do not require compensating balances.
(NOTE 5) INCOME TAXES
      The Company files a consolidated  federal  income tax return.  The federal
   income  tax  returns  through  October  31,  1990 have been  examined  by the
   Internal Revenue Service with all issues settled.

      The following is a  reconciliation  of income tax expense per consolidated
   statements  of earnings to that  computed by using the federal  statutory tax
   rate of 35% for 1995, 34.33% for 1994 and 34% for 1993.

<TABLE>
<CAPTION>

                                                                                                Year Ended October 31,
                                                                               ----------------------------------------------------
         <S>                                                                   <C>               <C>                 <C>
                                                                                  1995              1994                 1993
                                                                               -----------       ----------          ------------
         Federal tax at the statutory rate . . . . . . . . . . . . . . .       $11,642,451       $4,960,886          $ 2,561,993
         Increase (decrease) in taxes resulting from:
           State income taxes, net of federal tax benefit . . . .                1,297,302          560,240              298,397
           Other items, net . . . . . . . . . . . . . . . . . . . . . . . . . . .   95,490          163,024              (75,222)
                                                                               ------------      -----------         -----------
         Income taxes per consolidated statements of earnings                  $13,035,243      $ 5,684,150          $ 2,785,168
                                                                               ===========       ===========         ===========
         The components of income tax expense are as follows:

         Year Ended October 31,


                                                                                                Year Ended October 31,
                                                                               ----------------------------------------------------
                                                                                  1995              1994                 1993
                                                                               -----------       ----------          ------------
         Current income taxes:
           Federal . . . . . . . . . . . . . . . . . . . . . . . . .           $11,463,015      $ 4,859,095        $   2,377,778
           State . . . . . . . . . . . . . . . . . . . . . . . . . . .           1,733,087          913,660              370,308
                                                                               ------------      -----------         -----------
         Total current income taxes . . . . . . . .                             13,196,102        5,772,755            2,748,086
                                                                               ------------      -----------         -----------
         Deferred income taxes:

           Federal . . . . . . . . . . . . . . . . . . . . . . . . .              (122,692)         (28,059)              65,971
           State . . . . . . . . . . . . . . . . . . . . . . . . . . .             (38,167)         (60,546)             (28,889)
                                                                              ------------       -----------         -----------
         Total deferred income taxes. . . . . . .                                 (160,859)         (88,605)              37,082
                                                                              ------------       -----------         -----------

         Total income taxes . . . . . . . . . . . . . . . .                    $13,035,243       $5,684,150          $ 2,785,168
                                                                              ============       ==========         ============
</TABLE>


      The Company adopted SFAS 109,  effective  November 1, 1993. The cumulative
   effect of  adopting  SFAS 109 on the  Company's  consolidated  statements  of
   earnings was to increase income by $3,093,940 ($.39 per share) for 1994.

      Deferred income taxes reflect the net tax effects of temporary differences
   between  the  carrying  amounts  of  assets  and  liabilities  for  financial
   reporting purposes and the amounts used for tax purposes,  and operating loss
   and tax credit  carryforwards.  As of October 31, 1995 and 1994,  the Company
   had  total  deferred  tax   liabilities  of  $11,669,070   and   $11,920,039,
   respectively,   and  deferred  tax  assets  of  $1,125,441  and   $1,215,551,
   respectively.  Deferred tax liabilities  result  exclusively  from excess tax
   depreciation,  and deferred tax assets result,  primarily,  from reserves not
   currently deductible of $988,429 for 1995 and $1,001,280 for 1994. There were
   no valuation allowances.

                                       11
<PAGE>

      Under the previous income tax accounting rules, deferred income taxes were
   provided for significant timing differences in the recognition of revenue and
   expense for tax and financial statement purposes.  The source of these timing
   differences and the tax effect of each are as follows:

                                                 Year Ended
                                              October 31, 1993
                                              ----------------
Attributable to depreciation . . . . . . . . .$   155,345
Other, net . . . . . . . . . . . . . . . . . .   (118,263)
                                               -----------
Total deferred income taxes . . . . . . . . . $    37,082
                                              ============
(NOTE 6) LONG-TERM DEBT
      Long-term debt at October 31 consisted of the following:

<TABLE>
<CAPTION>
                                                                                         October 31,
                                                                             ------------------------------
                                                                                  1995            1994
                                                                              ------------    -------------
<S>                                                                              <C>             <C>
Term loan  collateralized  by land,  buildings and equipment at Roanoke
 plant, payable in quarterly installments of $312,500, plus
 interest at the LIBOR rate of 5.91% plus 5/8%.  Due September 1, 1999. . . .    $  4,687,500    $  5,937,500

Term loan collateralized by equipment at Roanoke plant,
 payable in monthly installments of $104,167 beginning
 September 1, 1995. Interest payable monthly at 6.87%.  Due September
 1, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      9,791,666     10,000,000
Term loan collateralized by equipment at Roanoke plant,
 payable in annual installments of $1,250,000.
 Interest payable at the LIBOR rate of 5.94% plus 1/2%.  Due November 1, 1999 . .   6,250,000      7,500,000
Other                                                                                      --      2,083,500
                                                                                 ------------   ------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   20,729,166     25,521,000
Less-current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    3,750,000      4,791,834
                                                                                 ------------      ------------
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $16,979,166    $20,729,166
                                                                                 ============    ============
</TABLE>

      To offset the variable rate  characteristic  of the long-term  borrowings,
   the Company  entered  into  interest  rate swap  agreements  with major banks
   resulting  in  fixed  rates of 8.78% on the  notional  amount  of  $4,687,500
   through  June 1996 and 8.92% on the  notional  amount of  $6,250,000  through
   April 1996.
      Under the loan  agreements,  the Company must maintain total  liabilities,
   exclusive of deferred  income taxes,  of not greater than 1.55 times tangible
   net  worth and  maintain  consolidated  current  assets of not less than 1.25
   times consolidated  current  liabilities.  The consolidated current assets or
   the property of Socar, Inc. cannot be mortgaged,  pledged, used as a security
   interest or lien, or encumbered.  Currently,  consolidated tangible net worth
   cannot be less than  $64,626,784 and  consolidated  working capital cannot be
   less than $15,000,000.  Cash flow from net income,  depreciation and deferred
   income  taxes for the prior four  quarters  must be equal to or greater  than
   $2,500,000.  In addition, the ratio of earnings to debt service must equal at
   least 1.0.
      Statement of Financial  Accounting  Standards No. 107,  "Disclosures About
   Fair Value of Financial  Instruments",  requires  disclosure  of the year-end
   fair value of significant financial instruments, including long-term debt.
   The  Company's   carrying  value  of  long-term,   funded   fixed-rate  debt
   approximates fair value, with near-term swap agreements in place.
      Annual  aggregate  long-term debt  maturities are $3,750,000 in 1996, 1997
   and 1998, $3,437,500 in 1999 and $2,500,000 in 2000.



(NOTE 7) COMMITMENTS AND CONTINGENT LIABILITIES
      At October  31,  1995,  the  Company  was  committed  for  $9,432,331  for
   purchases of equipment and production facilities.
      The Company  and the County of Roanoke,  Va.  have  entered  into  consent
   agreements with the United States  Environmental  Protection Agency (EPA) for
   the clean-up of specific  portions of a landfill  site and  adjacent  streams
   near Salem,  Va. One  agreement  is a  "remedial  action" for the removal and
   off-site  treatment and disposal of an emission  control dust pile located on
   the site.  This action was completed  during 1995 with all costs reflected in
   the  accompanying   consolidated  financial  statements.   Another  agreement
   pertains to a "removal  action" for the  removal  and  treatment  of emission
   dust, sediment and contaminated soil associated with the streams. The EPA has
   approved on-site stabilization and disposal with the work estimated to be 30%
   completed.  The Company has entered  into a cost sharing  agreement  with the
   County of Roanoke for both response actions at the landfill.  It is not known
   whether other potentially responsible parties will pay some of the costs. The
   Company  estimates its share of the remaining costs to be $1,100,000 which is
   included  in  liabilities.  The  material  components  of these costs are the
   stream sediment  removal,  chemicals for treatment of the sediment,  landfill
   operation  for  on-site  storage  and  EPA  oversite   charges.   Significant
   assumptions  underlying  the  estimates  are  cubic  yards  or tons of  dust,
   sediment and contaminated  soil to be removed from the stream.  Completion is
   expected  within a year. The Company  received a settlement  from its primary
   insurance  carrier in 1995 and is  presently in  discussions  with its excess
   carriers concerning possible recoveries.  Any additional recoveries,  if any,
   are uncertain.
                                       12
<PAGE>

(NOTE 8) COMMON STOCK AND EARNINGS PER SHARE
      Outstanding  common  stock  consists of 560,000  shares,  issued  prior to
   October 31, 1967, at no stated  value;  750,656  shares issued  subsequent to
   October  31,  1967,  at a stated  value of $.50 per share;  1,310,656  shares
   issued in 1981 at no stated value;  1,310,656 shares,  less the equivalent of
   42 fractional  shares,  issued in 1986 at no stated value;  1,965,963 shares,
   less the  equivalent of 151  fractional  shares,  issued in 1988 at no stated
   value;  800 shares issued in 1989 at no stated value;  3,000 shares issued in
   1992 at no stated  value;  1,200  shares  issued in 1993 at no stated  value;
   44,000 shares issued in 1994 at no stated value and  3,023,804  shares,  less
   the equivalent of 152 fractional  shares,  issued in 1995 at no stated value.
   During the year ended  October 31,  1986,  the Company  increased  authorized
   common stock from 4,000,000 shares to 10,000,000 shares.
      Earnings per share have been computed based on the weighted average number
   of shares outstanding of 8,045,644 for 1995, 7,988,985 for 1994 and 7,956,339
   for 1993. The average number of shares outstanding were weighted after giving
   effect both to stock options  exercised  during 1995,  1994 and 1993 and to a
   three-for-two  stock  split  effective  May 1, 1995.  Stock  options  are not
   included in the  computation  of earnings per share since  inclusion has less
   than a 3% effect.
(NOTE 9) PROFIT SHARING PLANS
      The Company, including Shredded Products Corporation, RESCO Steel Products
   Corporation and Socar,  Inc., has qualified  profit sharing plans which cover
   substantially  all employees.  John W. Hancock,  Jr., Inc. has an unqualified
   plan.  Socar,  Inc.'s annual  contribution is  discretionary  while the other
   plans'  annual  contribution  cannot  exceed 20% of their  combined  earnings
   before income taxes.  Total  contributions  of all Companies shall not exceed
   the maximum amount  deductible for such year under the Internal  Revenue Code
   and amounted to $4,585,087  for 1995,  $3,343,328 for 1994 and $1,680,246 for
   1993.
(NOTE 10) INTEREST EXPENSE
      Interest  expense is stated net of  interest  income of  $400,692 in 1995,
   $438,466 in 1994 and $525,784 in 1993.
(NOTE 11) STOCK OPTIONS
      Under a  nonqualified  stock option plan approved by the  stockholders  in
   1989,  the  Company  may issue  75,000  shares of  unissued  common  stock to
   employees  of the  Company  each plan year.  Options  for 41,500  shares were
   granted for 1995,  for 36,000  shares for 1992 and for 32,500 shares for both
   1990 and 1989. A three-for-two  stock split in 1995 increased these grants an
   additional  32,300 shares.  These options are  exercisable for a term of five
   years from the date of grant, and a summary follows:

                                               Option Price
                                       Per Share              Shares
                                    ---------------     ----------------
Balance, November 1, 1992. . . . .   $6.16 - $13.60          94,500
Granted. . . . . . . . . . . . . .         -                   -
Exercised. . . . . . . . . . . . .       6.16                (1,200)
Expired or terminated. . . . . . .         -                   -
                                                             -------
Balance, October 31, 1993. . . . .    6.16 - 13.60           93,300
Granted. . . . . . . . . . . . . .         -                   -
Exercised. . . . . . . . . . . . .    6.16 - 13.60          (44,000)
Expired or terminated. . . . . . .   11.05 - 13.60           (1,200)
                                                             -------
Balance, October 31, 1994. . . . .    6.16 - 11.05           48,100
Granted. . . . . . . . . . . . . .       13.60               41,500
Stock Split. . . . . . . . . . . .    4.11 - 9.07            32,300
Exercised. . . . . . . . . . . . .    4.11 - 9.07           (39,185)
Expired or terminated. . . . . . .    4.11 - 7.37            (7,565)
                                                             -------
Balance, October 31, 1995. . . . .    4.11 - 9.07            75,150
                                                             =======

Shares available for grant at year end                         -
                                                             =======

(NOTE 12) HEALTH BENEFITS AND POSTRETIREMENT COSTS
      Effective  November 1, 1993,  the Company  adopted  Statement of Financial
   Accounting  Standards  No. 106,  "Employers'  Accounting  for  Postretirement
   Benefits Other Than  Pensions"  (SFAS 106).  The Company  currently  provides
   certain health care benefits for  terminated  employees who have completed 10
   years of  continuous  service after age 45, and SFAS 106 requires the Company
   to accrue the estimated  cost of such benefit  payments  during the years the
   employee provides services. The Company previously expensed the cost of these
   benefits as claims were incurred. SFAS 106
                                       13
 <PAGE>
      allows  recognition of the cumulative  effect of the liability in the year
   of  adoption or the  amortization  of the  obligation  over a period of up to
   twenty  years.  The Company  has  elected to  recognize  this  obligation  of
   approximately  $1,381,000  over a period of twenty years.  Cash flows are not
   affected by  implementation  of SFAS 106, but  implementation  decreased  net
   earnings  from  continuing  operations  for 1995  and  1994 by  approximately
   $154,200 ($.02 per share) and $152,000 ($.02 per share), respectively.
      The  Company's  postretirement  benefit  plan is not  funded.  The accrued
   postretirement  benefit cost recognized in the balance sheet at October 31 is
   as follows:

<TABLE>
<CAPTION>
                                                                          1995         1994
                                                                        ---------   ----------

          Accumulated postretirement benefit obligation:
                   <S>                                                <C>           <C>
                   Retirees . . . . . . . . . . . . . . . . . . . . . $  347,019    $  312,000
                   Fully eligible plan participants   . . . . . . . .    723,491       637,000
                   Other active plan participants . . . . . . . . . .    661,479       605,000
                                                                       ----------   ----------
                   Accumulated postretirement benefit obligation  . .  1,731,989     1,554,000
                   Unrecognized net actuarial gains (losses)  . . . .      5,602         --
                   Unrecognized transition obligation . . . . . . . . (1,243,000)   (1,312,000)
                                                                       ----------   ----------
                   Accrued postretirement benefit cost. . . . . . . .   $494,591    $  242,000
                                                                       ==========   ==========

          Net postretirement benefit cost consisted of the
             following components:
                   Service cost . . . . . . . . . . . . . . . . . . .  $  143,279  $  127,000
                   Interest cost on accumulated postretirement
                     benefit obligation. . . . . . . . . . . . . . . .    120,658     118,000
                   Amortization of transition obligation. . . . . .  .     69,000      69,000
                                                                        ----------  ----------
                   Net postretirement benefit cost . . . . . . . . . . $  332,937  $  314,000
                                                                        ==========  ==========
</TABLE>

      The assumed health care cost trend rate used in measuring the  accumulated
   postretirement  benefit obligation was 12% for 1994, decreasing linearly each
   successive  year  until it  reached  6.5% in  2004,  after  which it  remains
   constant.  A  one-percentage-point  increase in the assumed  health care cost
   trend  rate for each  year  would  increase  the  accumulated  postretirement
   benefit  obligation  by  approximately  $115,000  and the net  postretirement
   benefit cost by  approximately  $28,000.  The assumed  discount  rate used in
   determining the accumulated  postretirement benefit obligation was 8% for the
   years ended October 31, 1995 and 1994.
(NOTE 13) UNAUDITED QUARTERLY FINANCIAL DATA
      Summarized unaudited quarterly financial data for 1995 follows:



<TABLE>
<CAPTION>
                                                                                 Three Months Ended
                                                            -------------------------------------------------------------------
                                                              January 31         April 30          July 31          October 31
<S>                                                          <C>               <C>              <C>               <C>
                                                             ------------      ------------      ------------      ------------
    Sales . . . . . . . . . . . . . . . . . . .              $ 57,520,532      $ 62,202,152     $ 68,570,080      $ 71,675,760
                                                             ============      ============     ============       ============
    Gross earnings . . .. . . . . . . . . . . .              $ 11,949,177      $ 13,380,437     $ 15,326,922      $ 15,441,149
                                                             ============      ============     ============       ============
    Net earnings . . . . . . . . . . . . . . .               $  3,825,716      $  4,246,649     $  5,181,764      $  6,974,773
                                                             ============      ============     ============       ============
    Earnings per share . . . . . . . . . . . .               $        .48      $        .52     $        .65      $        .86
                                                             ============      ============     ============       ============
</TABLE>
    Summarized unaudited quarterly financial data for 1994 follows:

<TABLE>
<CAPTION>
                                                                                 Three Months Ended
                                                            -------------------------------------------------------------------
                                                             January 31           April 30        July 31            October 31
                                                           ------------         ------------    ------------        ------------
<S>                                                        <C>                  <C>             <C>                <C>
    Sales . . . . . . . .  . . . . . . . . . . .           $ 47,052,752         $51,626,556     $ 55,914,438       $ 61,215,482
                                                           ============         ===========     ============       ============
    Gross earnings . . . .  . . . . . . . . . . .          $  6,054,117         $ 6,602,165     $  7,658,343       $ 13,417,559
                                                           ============         ===========     ============       ============
    Net earnings . . . . .  . . . . . . . . . . .          $  4,125,536         $ 1,441,627     $  1,776,602       $  4,516,610
                                                           ============         ===========     ============       ============
    Earnings per share . . . . . . . . . . . . . .         $        .52         $       .18     $             .22    $      .56
                                                           ============         ===========     ============       ============

</TABLE>

14

INDEPENDENT AUDITORS' REPORT

TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF
   ROANOKE ELECTRIC STEEL CORPORATION:

  We have  audited  the  accompanying  consolidated  balance  sheets of  Roanoke
Electric Steel  Corporation and its wholly-owned  subsidiaries as of October 31,
1995  and  1994,   and  the  related   consolidated   statements   of  earnings,
stockholders'  equity,  and cash flows for each of the three years in the period
ended October 31, 1995. These financial statements are the responsibility of the
Corporation's  management.  Our responsibility is to express an opinion on these
financial statements based on our audits.
  We  conducted  our  audits in  accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
  In our opinion, such consolidated  financial statements present fairly, in all
material respects,  the financial position of Roanoke Electric Steel Corporation
and its wholly-owned  subsidiaries at October 31, 1995 and 1994, and the results
of their  operations  and their  cash  flows for each of the three  years in the
period ended October 31, 1995 in conformity with generally  accepted  accounting
principles.
  As  discussed  in  Notes 5 and 12 to the  consolidated  financial  statements,
effective November 1, 1993, the Corporation changed its method of accounting for
income taxes and its method of accounting for postretirement benefits other than
pensions.


/S/ DELOITTE & TOUCHE LLP

Winston-Salem, North Carolina
November 17, 1995


STOCK ACTIVITY

The Common Stock of Roanoke Electric Steel Corporation is traded nationally over
the counter on Nasdaq  National Market using the symbol RESC. At year end, there
were  approximately 780 shareholders of record.  The following has been adjusted
for the three-for-two stock split effective May 1, 1995.

                                         1995                   1994
                                     Stock Prices           Stock Prices
                                    High      Low           High     Low

First Quarter . . . . . . . . .      11 3\8    10          10 5\8   8 1\8

Second Quarter . . . . . . . .       11 7\8    10 1\2      12 1\8  10

Third Quarter . . . . . . . . .      14 1\2    11          11 7\8   9 5\8

Fourth Quarter . . . . . . . .       16 7\8    13 3\4      11       9 3\8


                                    Cash Dividends

                                   1995      1994

First Quarter. . . . . .           $.08      $.08

Second Quarter. . . . .             .09       .08

Third Quarter. . . . . .            .09       .08

Fourth Quarter. . . . .             .11       .08

Extra. . . . . . . . .                        .09

15


<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations

Sales

        Sales  increased  for the  period  1993  through  1995.  In 1993,  sales
increased 14.5% due mainly to much improved billet shipments,  increased bar and
fabricated products (bar joist and rebar) tons shipped and higher selling prices
for  all  products.  Improved  market  conditions  and  demand  resulted  in the
increased bar products shipments,  while the higher billet shipments were due to
both increased export business and improved domestic demand.  The improvement in
bar and billet  selling  prices  resulted,  primarily,  from higher  scrap steel
costs, our main raw material,  prompting  industry-wide  price  increases.  Even
though the  construction  industry  remained  depressed and highly  competitive,
shipments  of  fabricated  products  increased  slightly due to  successful  job
bidding.  Selling prices for fabricated products rose due to higher raw material
costs. The 29% increase in sales in 1994 was the result of significant increases
in shipments of bar and fabricated products and increased selling prices for all
product  classes,  while  shipments  of  billets  declined  slightly.  Continued
improvement  in  business  conditions  and  economic  growth  fueled  demand and
resulted in the increased  shipments of bar products.  An easing of  competitive
conditions  within the  construction  industry led to the  increased  fabricated
products  shipments.  Billet tonnage shipped declined  slightly due to a lack of
export shipments, although domestic shipments improved significantly.  While the
export   markets  were  much  more   competitive,   domestic   demand   improved
substantially. Selling prices for bar and fabricated products increased, mainly,
as a result of higher raw  material  costs,  but some of the  increased  selling
prices were demand  driven.  The higher billet prices were also driven by higher
raw material costs, but the increased  domestic billet shipments,  which bring a
higher  price,  also  contributed.  In 1995,  sales  were  20.5%  higher  due to
substantial increases in shipments of fabricated products and billets,  together
with much improved  selling prices for all product  classes,  while bar products
shipments  were flat.  Reduced  competition  and increased  activity  within the
construction  industry led to the higher shipment levels of fabricated products.
Improved  market  conditions  and  increased  domestic  demand  resulted  in the
improved  billet  tons  shipped,  as export  markets  were  highly  competitive.
Inventory reductions by bar products customers accounted for the flat shipments,
even though market conditions and backlogs remained strong for much of the year.
Selling  prices for  fabricated  products  increased  due to higher raw material
costs and demand.  The  improved  selling  prices for bar  products  were mostly
attributable  to increased  scrap prices and rising  demand in the early part of
the year, as prices fell  slightly near  year-end.  Billet  selling  prices were
higher due again to the increased scrap costs and improved  product mix.

Cost of Sales and Gross Margins

        In 1993, the increase in cost of sales was attributable to the increased
tons shipped of all product  classes,  together  with  increased  costs of scrap
steel. Cost of sales increased in 1994 as a result of the increased tons shipped
of bar and  fabricated  products in addition to a continued  rise in scrap steel
costs.  The  increase in cost of sales in 1995 was due  primarily  to the higher
shipments of fabricated products and billets,  together with an increase in both
scrap and other raw material costs.
        Gross  earnings as a percentage of sales improved 1.5% to 13.5% for 1993
due to the increased  selling prices for all products which more than offset the
increased scrap costs. The gross profit percentage continued to increase in 1994
and finished up 2.1% to 15.6%. Higher selling prices for all product classes and
the efficiencies of much improved production accounted for the higher margins in
spite of the significant  increase in scrap costs. In 1995,  gross earnings as a
percentage of sales climbed an additional 6.0% to 21.6%. 16
        The  improvement  was mainly the result of the higher selling prices for
all product classes and increased production levels which reduced unit costs for
fixed expenses, in spite of the higher scrap costs.
        For all years in the 1993-1995 period, the increased shipment levels
at the higher gross profit margins provided the improvements in gross and net
earnings.

Administrative Expenses

        In 1993,  administrative  expenses increased due mainly to executive and
management compensation which increased with production,  shipments and earnings
in  accordance  with various  incentive  arrangements.  However,  administrative
expenses were 6.9% of sales - down from 7.2% in 1992.  The  percentage  declined
further in 1994 to 6.5%,  even though  administrative  expenses  increased  as a
result of higher executive and management  compensation,  taxes, insurance,  bad
debts and  professional  fees.  The majority of the  increase in  administrative
expenses in 1995 was  attributable  to executive and management  compensation as
production,  shipments and earnings  improved  significantly.  The percentage of
administrative expenses to sales improved to 6.2%.

Interest Expense

        In 1993,  interest  expense  declined  due to lower  interest  rates and
average  borrowings,  in spite of a decline in interest  income to $525,784  and
less capitalized  interest of $42,418.  Interest expense  increased in 1994 as a
result of higher interest rates, lower interest income of $438,466 and decreased
capitalized  interest of $19,341,  even though average borrowings were lower. In
1995, interest expense increased due to higher interest rates, increased average
borrowings and declines in interest income and capitalized  interest to $400,692
and $10,146, respectively.

Profit Sharing Expense and Income Taxes

        Contributions  to  various  profit  sharing  plans are  determined  as a
proportion  of earnings  before  income taxes and should  normally  increase and
decrease with  earnings.  In 1993,  income tax expense as a percentage of pretax
income was  relatively  constant with 1992.  Income tax expense in 1994 and 1995
was affected by higher tax rates and the  adjustment of deferred  taxes required
by SFAS 109.

Financial Condition, Liquidity and Capital Resources

        At October 31, 1995, working capital was $45,483,760,  the current ratio
was 2.2 to 1 and the quick  ratio was 1.3 to 1 - all  improved  and very  sound.
Cash, investments and accounts receivable of $51,338,585 were more than adequate
to  pay  current  liabilities  of  $38,569,233  which  is a good  indication  of
liquidity and a healthy  financial  condition.  Commitments  for the purchase of
property,  plant and equipment at year end were $9,432,331 and 1996 curtailments
of long-term  debt will be  $3,750,000.  These  obligations  will affect  future
liquidity and working capital;  however, profits and depreciation should provide
adequate  working  capital  to fund  these  items.  Cash  and  cash  equivalents
increased  $6,849,608  during  the  year  to  $6,999,644,  providing  additional
liquidity.
        Total long-term and short-term  borrowings  declined $291,834 during the
year,  in spite of capital  expenditures  of  $11,654,366.  The ratio of debt to
equity  improved  to .75 to 1, and the  percentage  of  long-term  debt to total
capital decreased from 22.2% to 15.9%. This low percentage provided  significant
additional  debt  capacity,  and the strong  financial  condition and results of
operations  assured an investment  grade rating.  Various lenders have found the
Company  attractive,  and several  proposals were being reviewed at year end for
term debt and  revolving  credit  facilities.  In  addition,  there were capital
resources  available  in the  amount of  $28,500,000,  representing  the  unused
portion of $39,500,000  in lines of credit made available by various banks.  The
Company believes its capital resources more than adequately meet its needs.
        Management  is of the  opinion  that  adoption  of  the  Clean  Air  Act
Amendments  or any  other  environmental  concerns  will not  have a  materially
adverse effect on the Company's operations,  capital resources or liquidity (see
note 7).  Additional future capital  expenditures are presently  estimated to be
less than  $1,000,000.

17

<PAGE>

OFFICERS

Donald G. Smith,  60
Chairman,  President, Treasurer
and Chief Executive Officer
38 years of service

Frank S. Key, Jr., 71
President, Socar, Inc.
29 years of service

William L. Neal, 68
President, John W. Hancock, Jr., Inc.
40 years of service

H. James Akers, Jr., 56
Vice President, Melt Operations
39 years of service

Donald R. Higgins, 50
Vice President - Sales
30 years of service

Watson B. King, 56
Vice President, Mill Operations
34 years of service

John E. Morris, 54
Vice President - Finance
and Assistant Treasurer
24 years of service

Thomas J. Crawford, 40
Assistant Vice President and Secretary
18 years of service

Daniel L. Board, 58
Assistant Vice President, Purchasing
35 years of service

William O. Warwick, 63
Assistant Vice President, Human
Resources and Environmental Affairs
28 years of service


BOARD OF DIRECTORS


Frank A. Boxley
President,
Southwest Construction, Inc.

T. A. Carter
Architect

George B. Cartledge, Jr.
President,
Grand Piano & Furniture Co., Inc.

Charles I. Lunsford, II
Chairman,
Charles Lunsford Sons & Associates

William L. Neal
President,
John W. Hancock, Jr., Inc.

Thomas L. Robertson
President and Chief Executive Officer,
Carilion Health System


Donald G. Smith
Chairman, President, Treasurer
  and Chief Executive Officer,
Roanoke Electric Steel Corporation

Paul E. Torgersen
President,
Virginia Polytechnic Institute
  and State University

Gordon C. Willis
Chairman of the Board,
Rockydale Quarries Corporation

John D. Wilson
Retired President,
Washington & Lee University


COMMITTEES OF THE BOARD


Executive:
D. G. Smith, Chairman; T. L. Robertson,
P. E. Torgersen, G. C. Willis

Audit:
G. C. Willis, Chairman; T. A.
Carter,
T. L. Robertson, P. E. Torgersen


Compensation and Stock Option:
G. B. Cartledge, Jr., Chairman;
F. A. Boxley, C. I. Lunsford, II, J. D. Wilson

Profit Sharing:
C. I. Lunsford, II, Chairman; D. G. Smith


CORPORATE INFORMATION


Corporate Office
102 Westside Boulevard,
P.O. Box 13948, Roanoke, Virginia 24038
540-342-1831


Annual Meeting
The 1996 annual meeting of shareholders
will be held at 10:00 a.m. on
Tuesday, February 20, 1996 at the Appalachian
Power Company Building, 40 Franklin
Road, S. W., Roanoke, Virginia.


General Counsel
Woods, Rogers & Hazlegrove P.L.C.
Roanoke, Virginia


Independent Auditors
Deloitte & Touche LLP
Winston-Salem, North Carolina

Transfer Agent and Registrar
Wachovia Bank of North Carolina, N.A.
Corporate Trust Department,
P.O. Box 3001, Winston-Salem, NC 27102
800-633-4236


Stock Listing
Nasdaq National Market; Symbol: RESC

Dividend Reinvestment Plan
Roanoke Electric Steel offers its
shareholders a dividend reinvestment
plan through its transfer agent.
For more information, please contact
the transfer agent or
Thomas J. Crawford, Secretary.

Financial Information
Analysts, investors and others seeking
financial information are requested to
contact: John E. Morris, Vice President-
Finance or Thomas J. Crawford, Assistant
Vice President and Secretary.

Copies of the Corporation's Annual Report or Form 10-K may be obtained
without charge by writing to Mr. Crawford at the above address.
18


<PAGE>


ROANOKE ELECTRIC STEEL CORPORATION
P.O. BOX 13948, ROANOKE, VIRGINIA 24038  540-342-1831