[RES LOGO]

                         ROANOKE ELECTRIC STEEL

                           ANNUAL REPORT 1998

<PAGE>

1998 HIGHLIGHTS

o Record earnings per share

o Near record net earnings

o Sales highest in history, approach $300 million

o Continued strong earnings by our fabricating subsidiaries

o Record shipments of billets

o Record production of raw steel

o Record working capital of $74,917,878

o Record cash flows from operations of $34,571,627

o Record total assets of $189,210,889

o Record stockholders' equity of $119,447,888

o 17.6% return on average equity

o 17.2% pretax return on average total assets

o Cash dividend increased 9.6%

o $7,372,739 returned to shareholders in dividends
  and repurchases of stock

o Three-for-two common stock split declared

o ISO 9002 certification achieved

<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>

TO OUR SHAREHOLDERS

  1998 PERFORMANCE AND ACHIEVEMENTS

        The year ended  October  31,  1998,  was another  record-breaking  year.
    Sales, earnings per share, billet shipments and raw steel production reached
    new  highs.   Earnings   increased  for  the  second   consecutive  year  to
    $19,875,409, an increase of 17.7% over 1997 earnings of $16,883,068 and were
    exceeded  only by 1995  earnings of  $20,228,902.  Earnings per share were a
    record  $1.79  ($1.77  diluted)  - up 19.3% over the $1.50  ($1.49  diluted)
    earned in 1997 and 6.5% higher than 1995  earnings per share of $1.68 ($1.67
    diluted).  These results were achieved on record sales of  $295,203,974,  an
    11.4% increase over last year's sales of $265,108,639.

        Market conditions  remained strong for all business segments  throughout
    1998. Our fabricating  subsidiaries  recorded strong earnings for the fourth
    consecutive year, as the construction  industry  continued to flourish,  and
    shipments of fabricated products increased 5.2%. Our billet business surged,
    as  shipments  increased  a robust  58.5%,  and strong  demand for steel bar
    products  pushed  selling  prices up 6.2%.  Margins as a percentage of sales
    were fractionally improved,  which is particularly  gratifying,  considering
    the increased shipments of lower-margin billets.

        Other achievements in 1998 were:
          o a $6,889,085 increase in working capital to a record $74,917,878.
          o a $12,350,670 increase in total assets to a record  $189,210,889.
          o a $5,910,624 increase in cash flows from operations to a record
            $34,571,627.
          o a $13,011,619  increase in  stockholders'  equity to a
            record  $119,447,888.
          o a pretax  return on average  total  assets of 17.2%.
          o a return on average equity of 17.6%.

         STRONGER FINANCIAL POSITION
          Our financial condition strengthened  throughout the year. In addition
      to the  improvements  in cash flows from  operations,  working capital and
      stockholders'  equity,  the quick ratio  increased  to 2.3 to 1, while the
      current ratio remained the same at 3.5 to 1. Cash,  cash  equivalents  and
      investments increased $11,234,442 to $27,894,661. Our capital structure


[Forbes
THE 200
BEST SMALL COMPANIES
PICTURE]

In its November 2, 1998 issue, Forbes magazine named Roanoke Electric Steel
one of the 200 Best Small Companies in America.

                                   2

<PAGE>

                      EARNINGS PER SHARE (DOLLARS)

                          1991              .02
                          1992              .22
                          1993              .40
                          1994              .73
                          1995             1.68
                          1996             1.30
                          1997             1.50
                          1998             1.79

<PAGE>

      was  comprised  of less  debt  than in 1997,  as  long-term  debt as a
      percentage of total capitalization declined to 16.9% from 21.1% last year.
      We are positioned well for future growth with our low leverage,  free cash
      flow and available  capital  resources.  Our $30,000,000  revolving credit
      facility was unused at year end.

  MORE SHAREHOLDER VALUE
        We continued to create value for our shareholders during the year as our
    share price  increased  11.5%  during the year.  In  addition,  the Board of
    Directors  declared a 3-for-2 common stock split, the second in three years,
    effective in March 1998,  and increased the regular  quarterly cash dividend
    rate by 9.6%. The stock split was intended to further broaden the market for
    our  common  stock,   while  the  dividend  increase  reflected  the  strong
    conditions in the steel industry and the Board's confidence in the Company's
    ability to sustain excellent earnings. Since May 1997, the regular quarterly
    dividend has increased  18.8%,  and in October 1998,  the Board declared the
    160th  consecutive  quarterly  cash  dividend in the amount of 9.5 cents per
    share,  payable  November 25, 1998.  Our dividend yield at October 31, 1998,
    was 2.6%, and annual cash dividends paid to shareholders in 1998 amounted to
    $4,137,899.  We returned an additional $3,234,840 to our shareholders during
    the year with the repurchase of 148,000  shares of our common stock.  In the
    past three years,  we have returned  $12,543,567  to  shareholders  with the
    repurchase of 807,200 company shares.  These  repurchases  helped to achieve
    the record earnings per share for 1998. The Board-approved  plans authorized
    the repurchase of up to 1,500,000 shares.

        In other Board  matters,  T. A.  Carter and  William L. Neal  retired as
    members of our Board of Directors  during the year. We express our gratitude
    to them for their years of service and their  contribution  to our  success.
    Mr. Neal retired in January  1996, as President of our  subsidiary,  John W.
    Hancock,  Jr.,  Inc.,  after  40  years of  service.  We  thank  him for his
    dedication, leadership and role in the growth and development of the Hancock
    subsidiary.

                               PROSPECTS FOR GROWTH

     As we went to press with this report, our Company had entered into
a definitive agreement to acquire Steel of West Virginia, Inc. ("SWVA").
The acquisition was pending shareholder approval.  SWVA operates a steel
mini-mill in Huntington, West

[JACOBSON & ASSOCIATES
Steel Customer
Satisfaction Report
1996-1998
picture]

Jacobson & Associates, a steel industry consultant, in their steel customer
satisfaction report, ranked Roanoke Electric Steel #1 in overall customer
satisfaction. The June 1998 report was based on a 3-year survey of 5,000
steel customers factoring quality, service, price and on-time delivery.

                                   4
<PAGE>

                           SALES ($MILLIONS)

                      1991            126,977,104
                      1992            146,036,301
                      1993            167,294,378
                      1994            215,809,228
                      1995            259,968,524
                      1996            246,286,652
                      1997            265,108,639
                      1998            295,203,974

<PAGE>

    Virginia  and  has   fabricating   facilities  in  Huntington  and  Memphis,
    Tennessee.  SWVA custom designs and manufactures  special steel products for
    use  in  the  construction  of  truck  trailers,   industrial  lift  trucks,
    off-highway  construction equipment,  manufactured housing, guard rail posts
    and mining  equipment.  The  acquisition  provides a captive  outlet for our
    excess billet capacity,  and SWVA's excess rolling mill capacity will enable
    them to manufacture  products that complement our present range of products,
    allowing  us to better  serve our  customers.  SWVA's  excess  rolling  mill
    capacity,  made possible by the  completion  of a  $35,000,000  expansion in
    early  1998,  will also allow them to  penetrate  new  markets.  We see this
    acquisition as a significant growth opportunity for our Company.

        In our continuing  efforts to remain  competitive and improve production
    methods and quality,  we received  certification  on August 21, 1998, to ISO
    9002, the system of international quality standards.  Our certification will
    continue  to assure  both our present  and  prospective  customers  that our
    products are produced to highest quality standards.

  LOOKING FORWARD

        We begin fiscal year 1999 with good backlogs and margins,  and prospects
    for the first quarter are favorable.  Due to a continued strong construction
    industry,  our  fabricating  subsidiaries  should  perform well. We hope the
    general economy and conditions within the steel construction industries will
    allow us to continue our growth in sales and  earnings.  We are confident we
    will continue to perform well in  comparison to the industry.  We expect the
    acquisition  of Steel of West  Virginia,  Inc.  to  contribute  to  earnings
    immediately  and are hopeful the  incremental  earnings will bring  improved
    1999 results and shareholder value.

        The  record-breaking  year  would not have  been  possible  without  the
    efforts  of our loyal  employees  and valued  customers  to whom we are most
    grateful. We hope our shareholders are pleased with the 1998 performance. We
    look forward to bringing you even stronger results in the years to
    come.

                      Sincerely,

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

[Quarterly, The Wachovia Magazine For Business Picture]
Quarterly, The Wachovia Magazine For Business, featured Roanoke Electric
Steel in its Spring, 1998 issue.

                                   6
<PAGE>

                        TOTAL ASSETS ($MILLIONS)

                      1991            124,648,573
                      1992            125,558,910
                      1993            130,620,435
                      1994            140,473,510
                      1995            157,774,658
                      1996            167,015,901
                      1997            176,860,219
                      1998            189,210,889

<PAGE>




SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
Year Ended October 31,                       1998              1997             1996              1995             1994
--------------------------------------------------------------------------------------------------------------------------
<S>   <C>
Operations
  Sales                                  $295,203,974      $265,108,639     $246,286,652      $259,968,524    $215,809,228
  Gross earnings                           57,720,265        51,728,996       47,914,269        56,097,685      33,732,184
  Interest expense-net                        830,743         1,627,380        1,538,191         2,053,643       1,891,263
  Income taxes                             11,568,066        10,206,340        9,305,808        13,035,243       5,684,150
  Earnings before cumulative effect
    of change in accounting principle      19,875,409        16,883,068       15,414,834        20,228,902       8,766,435
  Net earnings                             19,875,409        16,883,068       15,414,834        20,228,902      11,860,375
--------------------------------------------------------------------------------------------------------------------------

Financial  Position
  Working capital                       $  74,917,878     $  68,028,793    $  59,630,189     $  45,483,760   $  34,504,420
  Total assets                            189,210,889       176,860,219      167,015,901       157,774,658     140,473,510
  Long-term debt                           24,291,667        28,541,667       35,291,666        16,979,166      20,729,166
  Stockholders' equity                    119,447,888       106,436,269       94,433,091        90,062,598      72,417,669
--------------------------------------------------------------------------------------------------------------------------

Selected Ratios
  Gross profit margin                           19.6%             19.5%            19.5%             21.6%           15.6%
  Operating income margin                        6.7%              6.4%             6.3%              7.8%            5.5%
  Effective tax rate                            36.8%             37.7%            37.6%             39.2%           39.3%
  Current ratio                                   3.5               3.5              3.5               2.2             2.0
  Quick ratio                                     2.3               2.0              2.0               1.3             1.2
  Funded debt as a percentage of total capital  19.3%             23.6%            29.5%             26.1%           30.7%
  Pretax return on average total assets         17.2%             15.8%            15.2%             22.3%           10.7%
  Return on average stockholders' equity        17.6%             16.8%            16.7%             24.9%           12.9%
--------------------------------------------------------------------------------------------------------------------------

Per Share Data
  Earnings before cumulative effect
     of change in accounting principle          $1.79             $1.50            $1.30             $1.68           $0.73
  Net earnings:
     Basic                                       1.79              1.50             1.30              1.68            0.99
     Diluted                                     1.77              1.49             1.30              1.67            0.98
  Cash dividends                                 0.37              0.33             0.30              0.25            0.27
  Stockholders' equity                          10.78              9.49             8.35              7.44            6.02
--------------------------------------------------------------------------------------------------------------------------

Weighted average common
   shares outstanding                      11,132,910        11,230,794       11,815,323        12,068,308      11,983,320
</TABLE>

Per share information has been adjusted for three-for-two stock splits
effective March  25,  1998  and May 1,  1995.

*1994  accounting  change  of $3.1  million excluded.


                       CAPITALIZATION ($MILLIONS)

                          STOCKHOLDERS' EQUITY

                      1994             72,417,669
                      1995             90,062,598
                      1996             94,433,091
                      1997            106,436,269
                      1998            119,447,888

                              LONG-TERM DEBT

                       1994            20,729,166
                       1995            16,979,166
                       1996            35,291,666
                       1997            28,541,667
                       1998            24,291,667


                          CAPITAL EXPENDITURES
                      AND DEPRECIATION ($MILLIONS)

                          CAPITAL EXPENDITURES

                       1994            11,744,913
                       1995            11,654,366
                       1996            18,194,216
                       1997             7,532,580
                       1998            12,339,553

                              DEPRECIATION

                       1994             7,332,833
                       1995             7,863,154
                       1996             8,366,012
                       1997             9,456,201
                       1998             9,216,133



                            WORKING CAPITAL
                              ($MILLIONS)

                       1994            34,504,420
                       1995            45,483,760
                       1996            59,630,189
                       1997            68,028,793
                       1998            74,917,878



                          EARNINGS ($MILLIONS)

                       1994             8,766,435
                       1995            20,228,902
                       1996            15,414,834
                       1997            16,883,068
                       1998            19,875,409



                          STOCKHOLDERS' EQUITY
                              ($MILLIONS)

                       1994            72,417,669
                       1995            90,062,598
                       1996            94,433,091
                       1997           106,436,269
                       1998           119,447,888

                                   8

<PAGE>
                      CASH PROVIDED BY OPERATIONS
                              ($MILLIONS)

                       1991             8,964,504
                       1992             5,871,368
                       1993             9,641,895
                       1994            14,412,573
                       1995            19,733,012
                       1996            17,166,064
                       1997            28,661,003
                       1998            34,571,627
<PAGE>

CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF EARNINGS

<TABLE>
<CAPTION>
                                                            Year Ended October 31,
                                               ----------------------------------------------
                                                   1998             1997              1996
                                               -----------      -----------       -----------
<S>                                       <C>              <C>               <C>
SALES ........................................ $295,203,974     $265,108,639      $246,286,652
COST OF SALES ................................  237,483,709      213,379,643       198,372,383
                                                -----------      -----------       -----------
GROSS EARNINGS ...............................   57,720,265       51,728,996        47,914,269
                                                -----------      -----------       -----------
OTHER OPERATING EXPENSES
  Administrative .............................   19,771,970       17,873,967        17,315,039
  Interest, net ..............................      830,743        1,627,380         1,538,191
  Profit sharing .............................    5,674,077        5,138,241         4,340,397
                                                -----------      -----------       -----------
     Total ...................................   26,276,790       24,639,588        23,193,627
                                                -----------      -----------       -----------
EARNINGS BEFORE INCOME TAXES .................   31,443,475       27,089,408        24,720,642
INCOME TAX EXPENSE ...........................   11,568,066       10,206,340         9,305,808
                                                -----------      -----------       -----------
NET EARNINGS ................................. $ 19,875,409     $ 16,883,068      $ 15,414,834
                                                ===========      ===========       ===========
NET EARNINGS PER SHARE OF COMMON STOCK
  Basic ...................................... $       1.79     $       1.50      $       1.30
                                                ===========      ===========       ===========
  Diluted .................................... $       1.77     $       1.49      $       1.30
                                                ===========      ===========       ===========
CASH DIVIDENDS PER SHARE OF COMMON STOCK...... $      0.372     $      0.333      $      0.300
                                                ===========      ===========       ===========
</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, 1995 ..............  8,970,390     $1,729,503     $9,349,429   $ 80,178,534     896,743  $  1,194,868
  Repurchase of common stock ...........     -               -             -             -           556,200     7,735,949
  Stock options exercised ..............     23,750        187,293         -             -             -            -
  Net earnings .........................     -               -             -          15,414,834       -            -
  Cash dividends .......................     -               -             -          (3,495,685)      -            -
                                         ----------     ----------     ----------   ------------   ---------  ------------
BALANCE, OCTOBER 31, 1996 ..............  8,994,140      1,916,796      9,349,429     92,097,683   1,452,943     8,930,817
  Repurchase of common stock ...........     -               -             -             -           103,000     1,572,778
  Stock options exercised ..............     35,950        432,383         -             -             -            -
  Net earnings .........................     -               -             -          16,883,068       -            -
  Cash dividends .......................     -               -             -          (3,739,495)      -            -
                                         ----------     ----------     ----------   ------------   ---------  ------------
BALANCE, OCTOBER 31, 1997 ..............  9,030,090      2,349,179      9,349,429    105,241,256   1,555,943    10,503,595
  Repurchase of common stock ...........     -               -             -             -            90,000     2,387,703
  Stock options exercised ..............     56,750        508,949         -             -             -            -
  Three-for-two stock split ............  4,516,120          -             -             -           822,971        -
  Cash paid in lieu of fractional
    shares on stock split ..............       (158)         -             -              (2,976)      -            -
  Retirement of treasury stock ......... (1,195,800)         -         (9,349,429)    (2,724,001) (1,195,800)  (12,073,430)
  Repurchase and retirement of
    common stock .......................    (58,000)         -             -            (847,137)      -            -
  Net earnings .........................     -               -             -          19,875,409       -            -
  Cash dividends .......................     -               -             -          (4,134,923)      -            -
                                         ----------     ----------     ----------   ------------   ---------  ------------
BALANCE, OCTOBER 31, 1998 .............. 12,349,002     $2,858,128     $   -        $117,407,628   1,273,114   $   817,868
                                         ==========     ==========     ==========   ============   =========  ============
</TABLE>

See notes to consolidated financial statements.

                                   10
<PAGE>

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                October 31,
                                                                       -----------------------------
                                                                          1998               1997
                                                                       -----------       -----------
<S>                                                                     <C>              <C>
ASSETS
CURRENT ASSETS
  Cash and cash equivalents ......................................... $ 16,167,025      $  8,844,537
  Investments .......................................................   11,727,636         7,815,682
  Accounts receivable ...............................................   42,415,061        38,786,302
  Inventories .......................................................   31,902,900        36,814,417
  Prepaid expenses ..................................................    1,586,357         1,900,338
  Deferred income taxes .............................................    1,608,938         1,211,881
                                                                       -----------       -----------
    Total current assets ............................................  105,407,917        95,373,157
                                                                       -----------       -----------
PROPERTY, PLANT AND EQUIPMENT
  Land ..............................................................    4,264,165         4,313,060
  Buildings .........................................................   19,621,407        18,874,555
  Other property and equipment ......................................  123,615,952       119,266,483
  Assets under construction .........................................    4,656,746           921,581
                                                                       -----------       -----------
    Total ...........................................................  152,158,270       143,375,679
  Less-accumulated depreciation .....................................   68,522,086        62,077,810
                                                                       -----------       -----------
    Property, plant and equipment, net ..............................   83,636,184        81,297,869
                                                                       -----------       -----------
OTHER ASSETS ........................................................      166,788           189,193
                                                                       -----------       -----------
TOTAL ............................................................... $189,210,889      $176,860,219
                                                                       ===========       ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
  Current portion of long-term debt ................................. $  4,250,000      $  4,250,000
  Accounts payable ..................................................   15,273,850        13,050,874
  Dividends payable .................................................    1,052,210           971,639
  Employees' taxes withheld .........................................      358,851           151,085
  Accrued profit sharing contribution ...............................    5,335,822         4,910,443
  Accrued wages and expenses ........................................    2,959,367         2,938,065
  Accrued income taxes ..............................................    1,259,939         1,072,258
                                                                       -----------       -----------
    Total current liabilities .......................................   30,490,039        27,344,364
                                                                       -----------       -----------
LONG-TERM DEBT
  Notes payable .....................................................   28,541,667        32,791,667
  Less-current portion ..............................................    4,250,000         4,250,000
                                                                       -----------       -----------
    Long-term debt ..................................................   24,291,667        28,541,667
                                                                       -----------       -----------
POSTRETIREMENT LIABILITIES ..........................................    1,293,788           990,809
                                                                       -----------       -----------
DEFERRED INCOME TAXES ...............................................   13,687,507        13,547,110
                                                                       -----------       -----------
COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 7)
STOCKHOLDERS' EQUITY
  Common stock-no par value-authorized 20,000,000 shares,
       issued 12,349,002 shares in 1998 and 13,544,977 in 1997.......    2,858,128         2,349,179
  Capital in excess of stated value .................................      -               9,349,429
  Retained earnings .................................................  117,407,628       105,241,256
                                                                       -----------       -----------
    Total ...........................................................  120,265,756       116,939,864
  Less-treasury stock, 1,273,114 shares in 1998
       and 2,333,914 in 1997 - at cost ..............................      817,868        10,503,595
                                                                       -----------       -----------
    Total stockholders' equity ......................................  119,447,888       106,436,269
                                                                       -----------       -----------
TOTAL ............................................................... $189,210,889      $176,860,219
                                                                       ===========       ===========
</TABLE>

See notes to consolidated financial statements.

                                   11
<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                         Year Ended October 31,
                                                                              --------------------------------------------
                                                                                 1998             1997            1996
                                                                              ----------       ----------       ----------
<S>                                                                          <C>              <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings ................................................................$ 19,875,409      $16,883,068      $15,414,834
Adjustments to reconcile net earnings to net
  cash provided by operating activities:
  Postretirement liabilities ................................................     302,979          247,970          248,248
  Depreciation and amortization .............................................   9,266,547        9,482,836        8,380,456
  (Gain) loss on sale of investments and property, plant and equipment ......     721,509           (1,659)         (59,312)
  Deferred income taxes .....................................................    (256,660)         780,071        1,011,529
  Changes in assets and liabilities which provided
    (used) cash, exclusive of changes shown separately ......................   4,661,843        1,268,717       (7,829,691)
                                                                               ----------       ----------       ----------
Net cash provided by operating activities ...................................  34,571,627       28,661,003       17,166,064
                                                                               ----------       ----------       ----------
CASH FLOWS FROM INVESTING ACTIVITIES
  Expenditures for property, plant and equipment ............................ (12,339,553)      (7,532,580)     (18,194,216)
  Proceeds from sale of property, plant and equipment .......................      55,395           17,299          200,666
  Purchases of investments .................................................. (18,427,761)      (6,085,692)      (3,840,892)
  Proceeds from sales of investments ........................................  14,495,999        4,309,012        1,910,093
  Other .....................................................................      -                -                12,328
                                                                               ----------       ----------       ----------
Net cash used in investing activities ....................................... (16,215,920)      (9,291,961)     (19,912,021)
                                                                               ----------       ----------       ----------
CASH FLOWS FROM FINANCING ACTIVITIES
  Decrease in notes payable .................................................      -                -           (11,000,000)
  Cash dividends ............................................................  (4,134,923)      (3,739,495)      (3,495,685)
  Cash paid for fractional shares on stock split ............................      (2,976)          -                -
  Increase in dividends payable .............................................      80,571           66,695           16,843
  Proceeds from exercise of common stock options ............................     508,949          432,383          187,293
  Payment of long-term debt .................................................  (4,250,000)      (6,749,999)     (15,687,500)
  Proceeds from long-term debt ..............................................      -                -            34,500,000
  Repurchase of common stock ................................................  (3,234,840)      (1,572,778)      (7,735,949)
                                                                               ----------       ----------       ----------
Net cash used in financing activities ....................................... (11,033,219)     (11,563,194)      (3,214,998)
                                                                               ----------       ----------       ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ........................   7,322,488        7,805,848       (5,960,955)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ................................   8,844,537        1,038,689        6,999,644
                                                                               ----------       ----------       ----------
CASH AND CASH EQUIVALENTS, END OF YEAR ......................................$ 16,167,025     $  8,844,537     $  1,038,689
                                                                               ==========       ==========       ==========
CHANGES IN ASSETS AND LIABILITIES WHICH PROVIDED
  (USED) CASH, EXCLUSIVE OF CHANGES SHOWN SEPARATELY
  (Increase) decrease in accounts receivable ................................$ (3,628,759)    $  1,693,496     $   (320,275)
  (Increase) decrease in inventories ........................................   4,911,517       (2,499,518)      (3,448,661)
  (Increase) decrease in prepaid expenses ...................................     313,981       (1,249,325)          71,716
  Increase (decrease) in accounts payable ...................................   2,222,976        2,073,364       (3,506,271)
  Increase (decrease) in employees' taxes withheld ..........................     207,766         (133,381)          57,789
  Increase (decrease) in accrued profit sharing contribution ................     425,379          998,486         (491,074)
  Increase (decrease) in accrued wages and expenses .........................      21,302          192,906          348,246
  Increase (decrease) in accrued income taxes ...............................     187,681          192,689         (541,161)
                                                                               ----------       ----------      ----------
Total .......................................................................$  4,661,843     $  1,268,717     $ (7,829,691)
                                                                               ==========       ==========       ==========

SUPPLEMENTAL  DISCLOSURES OF CASH FLOW  INFORMATION
Cash paid during the period for:
  Interest  (net of amount capitalized) .....................................$  2,088,508     $  2,368,369     $  1,979,832
                                                                               ==========       ==========       ==========
  Income taxes ..............................................................$ 11,637,045     $  9,233,580     $  8,835,440
                                                                               ==========       ==========       ==========
</TABLE>

See notes to consolidated financial statements.

                                   12
<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 - The Company  applies 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.

  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 1998 and 2027. The Company complies with Statement of
  Financial  Accounting  Standards No. 115, "Accounting for Certain
  Investments in Debt and Equity  Securities" (SFAS 115). In accordance
  with the provisions of SFAS 115,  management has classified its entire
  debt  securities portfolio  as  "available  for  sale".  Under SFAS
  115,  "available  for sale" securities  are  reported  at fair  value
  with  unrealized  gains and  losses reported as a separate  component
  of equity.  These investments are carried on the  balance  sheets  at
  fair  value,  which  approximates   amortized  cost. Accordingly,
  there were no adjustments to equity at October 31, 1998, 1997 and
  1996.

  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 13%, 12% and 11% of consolidated sales for 1998, 1997 and
  1996,  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, 1998,  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).

  Stock Options - In October 1995, the Financial Accounting  Standards
  Board issued Statement of Financial Accounting Standards No. 123,
  "Accounting  for Stock-Based  Compensation"  (SFAS 123). SFAS 123 is
  effective  for  transactions  entered  into in fiscal  years that
  begin  after December  15,  1995.  This  statement  adopts a "fair
  value  based  method" of accounting for employee stock option plans or
  similar stock-based compensation plans. Under the fair value based
  method, compensation cost is measured at the grant  date based on the
  fair  value of the award and is  recognized  over the service or
  vesting  period.  The statement  does allow entities to continue to
  measure  compensation  using the "intrinsic  value based method" of
  Accounting Principles  Board Opinion No. 25,  "Accounting  for Stock
  Issued to Employees" (APB 25)  provided  that they make pro forma
  disclosures  on net earnings and earnings per common share as if the
  fair value based method of accounting  had been  applied.  The Company
  has elected to continue to follow APB 25.

  Use of Estimates in the  Preparation  of Financial  Statements - The
  preparation  of financial   statements  in  conformity  with generally
  accepted   accounting principles  requires  management to make
  estimates and assumptions that affect the reported  amounts of assets
  and  liabilities  and disclosure of contingent assets  and liabilities
  at the  date  of the  financial  statements  and the reported amounts
  of revenues and expenses during the reporting period.  Actual results
  could  differ from those  estimates.

  Comprehensive  Income - In June 1997,  Statement of Financial
  Accounting  Standards  No. 130,  "Comprehensive Income"  (SFAS 130)
  was  issued,  establishing  standards  for  reporting  and display  of
  comprehensive  income  and  its  components  in  a  full  set  of
  general-purpose  financial  statements.  The Company will be required
  to adopt SFAS 130 in the first  quarter  of fiscal  year  1999  and,
  based on  current circumstances,  does not believe the  required
  disclosures,  if any,  will be material.

  Segment  Information  -  In  June  1997,  Statement  of  Financial
  Accounting Standards No. 131, "Disclosures about Segments of an
  Enterprise and Related Information" (SFAS 131) was issued,
  establishing standards for the way public  enterprises  report
  information  about  operating  segments in annual financial
  statements.  This  statement  also requires that those  enterprises
  report  selected  information  about operating  segments in interim
  financial reports issued to shareholders. The Company will be required
  to adopt SFAS 131 in the first quarter of fiscal year 1999 and, based
  on current  circumstances, does not  believe  the  effect of  adoption
  will be  significant.

  Derivative Instruments - In June 1998,  Statement of Financial
  Accounting  Standards No. 133, "Accounting for Derivative Instruments
  and Hedging Activities" (SFAS 133) was issued,  establishing standards
  for accounting  and reporting  derivative instruments,  including
  certain  derivative  instruments  embedded  in  other contracts,
  (collectively   referred  to  as  derivatives)  and  for  hedging
  activities.  The  Company  will be  required  to adopt  SFAS 133 in
  the  first quarter of fiscal  year 2000 and is in the process of
  evaluating  what impact SFAS 133 will have on its consolidated
  financial statements.

                                   13
<PAGE>

(NOTE 2) INVENTORIES

  If the FIFO method of valuing  inventories  had been used by John W.  Hancock,
  Jr., Inc., consolidated inventories would have been $1,699,417 greater in 1998
  and $1,440,168 greater in 1997.

  Inventories include the following major classifications:


                                           October 31,
                          --------------------------------------------
                             1998             1997             1996
                          ----------        ----------      ----------
    Scrap steel .........$ 4,876,856       $ 7,579,552     $ 5,313,335
    Melt supplies .......  2,408,961         2,212,939       2,416,879
    Billets .............  3,499,907         5,960,432       7,103,342
    Mill supplies .......  3,176,619         3,484,688       3,085,749
    Finished steel ...... 17,940,557        17,576,806      16,395,594

                          ----------        ----------      ----------
    Total inventories    $31,902,900       $36,814,417     $34,314,899
                          ==========        ==========      ==========

(NOTE 3) PROPERTIES AND DEPRECIATION

  Depreciation  expense for the years  ended  October  31,  1998,  1997
  and 1996 amounted to $9,216,133,  $9,456,201 and $8,366,012,
  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 1998,  1997 and 1996
  included  $53,722,  $54,668  and  $438,346  of  interest capitalized,
  respectively.

  During the year ended October 31, 1998, the Company recorded a
  $733,067  loss on assets  abandoned at its Salem,  Virginia  plant.
  This  loss  was  included  in the  statement  of  earnings  in
  administrative expenses.

(NOTE 4) SHORT-TERM DEBT

  On February 15, 1996,  the Company  replaced all of its domestic bank
  lines of credit with a syndicated  loan  facility,  part of which
  provides a five-year $30,000,000  revolver,  as explained  in note 6.
  Also  provided by this credit facility is a $5,000,000  line of credit
  to be used to cover  overdrafts  in a demand deposit account. This
  line of credit was unused at October 31, 1998 and 1997.


(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 1998, 1997 and 1996:

<TABLE>
<CAPTION>
                                                                      Year Ended October 31,
                                                          --------------------------------------------
                                                             1998             1997             1996
                                                          ----------        ----------      ----------
    <S>                                                  <C>               <C>            <C>
    Federal tax at the statutory rate .....................$11,005,216       $ 9,481,293    $  8,652,225
    Increase (decrease) in taxes resulting from:
      State income taxes, net of federal tax benefit ......    776,339           874,960         785,077
      Other items, net ....................................   (213,489)         (149,913)       (131,494)

                                                            ----------        ----------      ----------
    Income taxes per consolidated statements of earnings ..$11,568,066       $10,206,340    $  9,305,808
                                                            ==========        ==========      ==========

    The components of income tax expense are as follows:
<CAPTION>
                                                                     Year Ended October 31,
                                                          --------------------------------------------
                                                             1998             1997             1996
                                                          ----------        ----------      ----------
    <S>                                                  <C>              <C>             <C>
    Current income taxes:
      Federal ...........................................$10,589,161      $  8,156,471    $  7,192,428
      State .............................................  1,235,565         1,269,798       1,101,851
                                                          ----------        ----------      ----------
    Total current income taxes .......................... 11,824,726         9,426,269       8,294,279
                                                          ----------        ----------      ----------
    Deferred income taxes (benefit):
      Federal ...........................................   (215,462)          703,776         905,569
      State .............................................    (41,198)           76,295         105,960
                                                          ----------        ----------      ----------
    Total deferred income taxes (benefit) ...............   (256,660)          780,071       1,011,529
                                                          ----------        ----------      ----------
    Total income taxes ..................................$11,568,066       $10,206,340    $  9,305,808
                                                          ==========        ==========      ==========
</TABLE>

  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 tax credit  carryforwards.
  As of October 31,  1998,  1997 and 1996,  the Company had total  deferred  tax
  liabilities of $13,687,507,  $13,547,110 and  $12,594,700,  respectively,  and
  deferred tax assets of $1,608,938,  $1,211,881 and  $1,039,542,  respectively.
  Deferred tax liabilities result exclusively from excess tax depreciation,  and
  deferred tax assets result,  primarily, from reserves not currently deductible
  of $792,089 for 1998,  $736,340 for 1997 and $675,026 for 1996.  There were no
  valuation allowances.

                                   14
<PAGE>

(NOTE 6) LONG-TERM DEBT
  Long-term debt consisted of the following:

<TABLE>
<CAPTION>
                                                                                                      October 31,
                                                                                              ----------------------------
                                                                                                1998               1997
                                                                                              ----------        ----------
    <S>                                                                                      <C>               <C>
    Syndicated term loan, unsecured, payable in quarterly installments of
       $750,000. Interest payable quarterly at the LIBOR
       rate of 5.69% plus .60%. Due February 21, 2006 .......................................$22,500,000       $25,500,000
    Term loan, unsecured, payable in monthly installments of $104,167,
       plus interest at 6.44%. Due September 1, 2003. .......................................  6,041,667         7,291,667
    Revolving credit agreement ..............................................................     -                  -
                                                                                              ----------        ----------
    Total ................................................................................... 28,541,667        32,791,667
    Less - current portion ..................................................................  4,250,000         4,250,000
                                                                                              ----------        ----------
    Long-term debt ..........................................................................$24,291,667       $28,541,667
                                                                                              ==========        ==========
</TABLE>

  In February  1996,  the Company  entered into a $30,000,000  revolving  credit
  agreement with a group of banks that extends through  February 21, 2001. Under
  the revolving  credit  agreement,  interest is payable at October 31, 1998 and
  1997, at the LIBOR rates of 5.69% plus .30% and 5.72% plus .30%, respectively.
  The agreement  requires the Company to pay a facility fee at an annual rate of
  .125% for 1998 and 1997.

  The Company  does not use  derivatives  for trading  purposes.  Interest  rate
  swaps, a form of derivative, are used to manage interest costs. Currently, the
  Company maintains an interest rate swap agreement resulting in a fixed rate of
  6.68% on the  notional  amount  of  $22,500,000  through  February  2006.  The
  difference  between  fixed rate and floating rate interest is recognized as an
  adjustment to interest expense in the period  incurred.  The fair value of the
  current  swap  is  estimated  based  on  current  settlement  prices  and  was
  approximately $893,000, in favor of the lender, at October 31, 1998.

  Under the loan  agreements,  the Company must  maintain  consolidated  current
  assets  of not less  than  1.5  times  consolidated  current  liabilities  and
  maintain  consolidated  funded debt of not greater than .5 times  consolidated
  total  capitalization.  Currently,  consolidated  tangible net worth cannot be
  less than $80,651,993.  In addition, the ratio of EBITDA to the sum of current
  maturities of long-term debt and  consolidated  interest expense must equal at
  least 1.5.  The  Company  was in  compliance  with the loan  agreements  as of
  October 31, 1998 and 1997.

  Statement of Financial Accounting  Standards No. 107,  "Disclosures about Fair
  Value of  Financial  Instruments",  requires  disclosure  of the year end fair
  value of significant  financial  instruments,  including  long-term  debt. The
  Company's  carrying value of long-term debt  approximates fair value. The fair
  value of the 1998 swap agreement is mentioned above.

  Annual aggregate long-term debt maturities are $4,250,000 for each of the next
  four years and $4,041,667 in 2003.


(NOTE 7) COMMITMENTS AND CONTINGENT LIABILITIES

  At October 31, 1998, the Company was committed for $6,239,602 for purchases of
  equipment and production facilities.

  The Company and the County of Roanoke,  Va.,  in 1988,  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 was 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
  consolidated  financial  statements  through  that period.  Another  agreement
  pertained  to a "removal  action" for the removal  and  treatment  of emission
  dust,  sediment and  contaminated  soil associated  with the streams.  The EPA
  approved on-site stabilization and disposal, and certified completeness of all
  required work on September 14, 1997,  all costs for which are reflected in the
  accompanying  consolidated  financial  statements.  The Company 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 final  component of the  requirements  of the
  order was  reimbursement  of certain EPA  oversight  charges,  which were paid
  during the current year.


(NOTE 8) COMMON STOCK AND EARNINGS PER SHARE

  Outstanding  common stock consists of 560,000 shares,  issued prior to October
  31, 1967, at no stated value;  750,656 shares issued subsequent to October 31,
  1967, at a stated value of $.50 per share;  1,310,656 shares issued in 1981 at
  no stated  value;  1,310,656  shares,  less the  equivalent  of 42  fractional
  shares,  issued  in  1986 at no  stated  value;  1,965,963  shares,  less  the
  equivalent of 151 fractional  shares,  issued in 1988 at no stated value;  800
  shares  issued in 1989 at no stated  value;  3,000 shares issued in 1992 at no
  stated value;  1,200 shares  issued in 1993 at no stated value;  44,000 shares
  issued in 1994 at no stated value;  3,023,804  shares,  less the equivalent of
  152 fractional shares, issued in 1995 at no stated value; 23,750 shares issued
  in 1996 at no stated  value;  35,950  shares issued in 1997 at no stated value
  and 4,572,870 shares, less the equivalent of 158 fractional shares,  issued in
  1998 at no stated value, less 1,253,800 treasury  (repurchased) shares retired
  during 1998. During the years ended October 31, 1986 and October 31, 1996, the
  Company increased  authorized common stock from 4,000,000 shares to 10,000,000
  shares,  and from 10,000,000 shares to 20,000,000  shares,  respectively.  The
  Company  retired in 1998 all of its treasury  stock  applicable  to the shares
  acquired through its common stock repurchase plans.

  In February 1997, the Financial Accounting Standards Board issued Statement of
  Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128), which
  changes the method of  calculating  earnings per share.  SFAS 128 requires the
  presentation of "basic" earnings per share and "diluted" earnings per share on
  the face of the statement of earning. Basic earnings per share is


                                   15

<PAGE>
  computed by dividing the net income  available to common  stockholders  by the
  weighted  average  shares of  outstanding  common stock.  The  calculation  of
  diluted  earnings per share is similar to basic earnings per share except that
  the  denominator  includes  dilutive  common stock  equivalents  such as stock
  options and warrants. Basic earnings per share have been computed based on the
  weighted  average  number  of  shares  outstanding  of  11,132,910  for  1998,
  11,230,794  for 1997 and  11,815,323  for 1996.  The average  number of shares
  outstanding were weighted after giving effect to both stock options  exercised
  and repurchased common stock during 1998, 1997 and 1996 and to a three-for-two
  stock split  effective  March 25, 1998.  Diluted  earnings per share have been
  computed based on the weighted average number of shares outstanding (including
  outstanding and exercisable stock options) of 11,248,029 for 1998,  11,300,634
  for 1997 and 11,870,704 for 1996.


(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 $5,674,077 for 1998, $5,138,241 for 1997 and $4,340,397 for 1996.

(NOTE 10) INTEREST EXPENSE
  Interest  expense  is stated net of  interest  income of  $1,214,017
  in 1998, $702,333 in 1997 and $711,274 in 1996.

(NOTE 11) STOCK OPTIONS
  Under a nonqualified  stock option plan approved by the  stockholders in 1989,
  the Company may issue 112,500 shares of unissued  common stock to employees of
  the Company each plan year.  Under a non-statutory  stock option plan approved
  by the Board in 1997,  the Company may issue 25,000 shares of unissued  common
  stock to  directors  of the  Company  over the life of the plan.  Options  for
  84,000 shares were granted for 1998,  for 82,000  shares for 1997,  for 75,000
  shares for 1996,  for 41,500  shares for 1995,  for 36,000 shares for 1992 and
  for  32,500  shares  for  1990.  Three-for-two  stock  splits in 1998 and 1995
  increased these grants an additional 117,275 and 32,300 shares,  respectively.
  These options are  exercisable  for a term of five years for employees and ten
  years for directors from the date of grant, and a summary follows:

<TABLE>
<CAPTION>

                                                                                         Weighted Average
                                                                                          Exercise Price
                                                                                             Per Share              Shares
                                                                                          ---------------          ---------
<S>                                                                                         <C>                      <C>

    Balance, November 1, 1995 ...........................................................    $  5.18                75,150
    Granted .............................................................................       7.93                75,000
    Exercised ...........................................................................       4.47               (23,750)
    Expired or terminated ...............................................................       2.74                (3,000)
                                                                                                                   -------
    Balance, October 31, 1996 ...........................................................       7.05               123,400
    Granted .............................................................................       9.06                82,000
    Exercised ...........................................................................       7.41               (35,950)
    Expired or terminated ...............................................................       6.61               (16,750)
                                                                                                                   -------
    Balance, October 31, 1997 ...........................................................       8.23               152,700
    Granted .............................................................................      15.16                84,000
    Stock split .........................................................................      10.73               117,275
    Exercised ...........................................................................       7.52               (56,750)
    Expired or terminated ...............................................................        -                    -
                                                                                                                   -------
    Balance, October 31, 1998 ...........................................................      11.31               297,225
                                                                                                                   =======
    Shares available for grant at year end ..............................................                            None
                                                                                                                   =======

</TABLE>


  The Company applies APB 25 and related  Interpretations  in accounting for the
  nonqualified stock option plans.  Accordingly,  compensation cost of $295,313,
  $177,188  and $157,500  for the years ended  October 31, 1998,  1997 and 1996,
  respectively, was recognized for the difference between the exercise price and
  the fair value of the stock price at the grant  date.  Had  compensation  cost
  been determined based on the fair value at the grant dates consistent with the
  method of SFAS 123,  the  Company's  net earnings and earnings per share would
  have been reduced to the pro forma amounts indicated below:

<TABLE>
<CAPTION>

                                                                                      Year Ended October 31,
                                                                              --------------------------------------------
                                                                                 1998             1997             1996
                                                                              ----------        ----------      ----------
<S>                                                                          <C>                <C>           <C>

    Net earnings:
      As reported ........................................................   $19,875,409       $16,883,068     $15,414,834
                                                                              ==========        ==========      ==========
      Pro forma ..........................................................   $19,573,253       $16,761,234     $15,307,091
                                                                              ==========        ==========      ==========
    Basic net earnings per share:
      As reported ........................................................   $      1.79       $      1.50     $      1.30
                                                                              ==========        ==========      ==========
      Pro forma ..........................................................   $      1.76       $      1.49     $      1.30
                                                                              ==========        ==========      ==========
    Diluted net earnings per share:
      As reported ........................................................   $      1.77       $      1.49     $      1.30
                                                                              ==========        ==========      ==========
      Pro forma ..........................................................   $      1.74       $      1.48     $      1.29
                                                                              ==========        ==========      ==========

</TABLE>



                                                        16

<PAGE>



  The fair value per share of options granted during the years ended October 31,
  1998, 1997 and 1996 was $7.64,  $3.90 and $3.78,  respectively.  The following
  table summarizes  information about stock options  outstanding and exercisable
  at October 31, 1998:

<TABLE>
<CAPTION>

                                                         Number                              Remaining
                                                     Outstanding and                     Contractual Life
                     Exercise Prices                   Exercisable                           in Years
                     ---------------                 ---------------                     ----------------
<S>                      <C>                             <C>                                    <C>

                        $  6.04                           15,600                                1.25
                           7.93                           47,125                                2.33
                           8.93                           98,500                                3.33
                          10.50                           10,000                                8.33
                          14.88                          112,500                                4.25
                          17.50                           13,500                                9.25
                                                         -------
                                                         297,225
                                                         =======

</TABLE>

  The fair  value of each  option is  estimated  on the date of grant  using the
  Black-Scholes   option-pricing  model  with  the  following  weighted  average
  assumptions  used for grants in 1998,  1997 and 1996,  respectively:  dividend
  yield of 2.18%,  2.90% and 3.09%;  expected  volatility of 47.25%,  37.33% and
  43.66%;  risk-free  interest rates of 4.23%,  5.71% and 6.07%; and an expected
  life of 5 years.

(NOTE 12) HEALTH BENEFITS AND POSTRETIREMENT COSTS
  Effective  November  1, 1993,  the  Company  adopted  Statement  of  Financial
  Accounting  Standards  No.  106,  "Employers'  Accounting  for  Postretirement
  Benefits  Other Than  Pensions"  (SFAS 106).  The Company  currently  provides
  certain  health care benefits for  terminated  employees who have completed 10
  years of continuous service after age 45, and SFAS 106 requires the Company to
  accrue  the  estimated  cost of such  benefit  payments  during  the years the
  employee provides services.  The Company previously expensed the cost of these
  benefits  as  claims  were  incurred.  SFAS  106  allows  recognition  of  the
  cumulative effect of the liability in the year of adoption or the amortization
  of the obligation over a period of up to twenty years. The Company has elected
  to recognize  this  obligation of  approximately  $1,381,000  over a period of
  twenty years.  Cash flows are not affected by  implementation of SFAS 106, but
  implementation  decreased net earnings from  continuing  operations  for 1998,
  1997 and 1996 by approximately $188,695, $154,400 and $154,500,  respectively.

  The  Company's   postretirement  benefit  plan  is  not  funded.  The  accrued
  postretirement  benefit cost recognized in the balance sheets at October 31 is
  as follows:

<TABLE>
<CAPTION>

                                                                                 1998              1997            1996
                                                                              ----------        ----------      ----------
<S>                                                                          <C>                     <C>            <C>

    Accumulated postretirement benefit obligation:
      Retirees ..............................................................$   474,388       $   402,724    $    378,968

      Fully eligible plan participants ......................................    793,117           672,238         652,789
      Other active plan participants ........................................  1,018,324           727,720         688,737
                                                                              ----------        ----------      ----------
      Accumulated postretirement benefit obligation .........................  2,285,829         1,802,682       1,720,494
    Unrecognized net actuarial gains ........................................     43,959           293,127         196,345
    Unrecognized transition obligation ...................................... (1,036,000)       (1,105,000)     (1,174,000)
                                                                              ----------        ----------       ---------
      Accrued postretirement benefit cost ................................... $1,293,788       $   990,809    $    742,839
                                                                              ==========        ==========      ==========
    Net postretirement benefit cost consisted of the following components:
      Service cost .......................................................... $  194,393       $   164,689    $    141,393
      Interest cost on accumulated postretirement benefit obligation ........    144,940           124,877         130,705
      Net amortization ......................................................     69,000            54,108          64,185
                                                                              ----------        ----------      ----------
      Net postretirement benefit cost ....................................... $  408,333       $   343,674    $    336,283
                                                                              ==========        ==========      ==========

</TABLE>


  The assumed  health  care cost trend rate used in  measuring  the  accumulated
  postretirement  benefit obligation was 9.5% for 1997, decreasing linearly each
  successive  year  until  it  reaches  5.75% in 2005,  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  $153,000 and the net postretirement  benefit cost
  by  approximately  $30,000.  The assumed discount rate used in determining the
  accumulated  postretirement  benefit obligation was 7.25% and 8% for the years
  ended October 31, 1998 and 1997, respectively.


(NOTE 13) UNAUDITED QUARTERLY FINANCIAL DATA
  Summarized unaudited quarterly financial data for 1998 follows:

<TABLE>
<CAPTION>

                                                                                  Three Months Ended
                                                            --------------------------------------------------------------
                                                            January 31         April 30          July 31        October 31
                                                             ----------       ----------        ----------      ----------
<S>                                                           <C>           <C>                 <C>             <C>

    Sales ................................................  $71,603,735      $73,778,930       $73,119,315     $76,701,994
                                                             ==========       ==========        ==========      ==========
    Gross earnings .......................................  $12,907,751      $13,394,849       $14,182,084     $17,235,581
                                                             ==========       ==========        ==========      ==========
    Net earnings .........................................  $ 4,250,992      $ 4,038,995       $ 4,509,449     $ 7,075,973
                                                             ==========       ==========        ==========      ==========
    Net earnings per share:
       Basic .............................................  $       .38      $       .36       $       .41     $       .64
                                                             ==========       ==========        ==========      ==========
       Diluted ...........................................  $       .38      $       .36       $       .40     $       .63
                                                             ==========       ==========        ==========      ==========
</TABLE>


                                       17

<PAGE>



  Summarized unaudited quarterly financial data for 1997 follows:

<TABLE>
<CAPTION>

                                                                                   Three Months Ended
                                                             -------------------------------------------------------------
                                                            January 31         April 30          July 31        October 31
                                                             ----------       ----------        ----------      ----------
<S>                                                        <C>               <C>                <C>             <C>

    Sales ................................................  $58,351,734       $61,299,896       $68,768,769     $76,688,240
                                                             ==========       ===========        ==========      ==========
    Gross earnings .......................................  $ 9,330,810       $11,851,198       $13,581,218     $16,965,770
                                                             ==========       ===========        ==========      ==========
    Net earnings .........................................  $ 2,584,674       $ 3,459,070       $ 4,299,552     $ 6,539,772
                                                             ==========       ===========        ==========      ==========
    Net earnings per share:
       Basic .............................................  $       .23       $       .31       $       .38     $       .58
                                                             ==========       ===========        ==========      ==========
       Diluted ...........................................  $       .23       $       .31       $       .38     $       .58
                                                             ==========       ===========        ==========      ==========

</TABLE>


(NOTE 14) SUBSEQUENT EVENT

  On November  10,  1998,  the  Company  announced  that it had  entered  into a
  definitive  agreement to acquire Steel of West Virginia,  Inc.  ("SWVA").  The
  transaction,  to be accounted for under the purchase method, contemplates that
  the  Company  will pay cash of $10.75 per share for each of the  approximately
  6,000,000  outstanding  shares of  common  stock of SWVA,  on a  fully-diluted
  basis, including the assumption of all of SWVA's indebtedness. Under the terms
  of the agreement, which was unanimously approved by the Boards of Directors of
  both  companies,  the offer to  purchase is subject to  customary  conditions,
  including  the tender of a majority  of the  shares of SWVA  common  stock and
  termination of the  Hart-Scott-Rodino  waiting period.  Upon merger, SWVA will
  become a wholly-owned  subsidiary of Roanoke Electric Steel  Corporation.  The
  obligations  of the Company are not subject to any financing  condition,  as a
  bank  syndicate  has  been  arranged  for  financing  the  transaction.  SWVA,
  headquartered in Huntington, West Virginia, operates a mini-mill in Huntington
  as well as steel fabrication facilities in Huntington and Memphis,  Tennessee,
  custom designing and manufacturing  special steel products principally for use
  in the  construction  of truck trailers,  industrial lift trucks,  off-highway
  construction  equipment,  manufactured  housing,  guard rail posts, and mining
  equipment.

  For the year ended December 31, 1997, SWVA reported net sales,  net income and
  total  stockholders'  equity  of  $112,776,000,  $5,259,000  and  $54,302,000,
  respectively.


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, 1998 and
1997, and the related consolidated statements of earnings, stockholders' equity,
and cash flows for each of the three years in the period ended October 31, 1998.
These financial  statements are the responsibility of the Company'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, 1998 and 1997, and the results
of their  operations  and their  cash  flows for each of the three  years in the
period ended October 31, 1998 in conformity with generally  accepted  accounting
principles.



                                             /s/ Deloitte & Touche LLP

                                             Winston-Salem, North Carolina
                                             November 18, 1998

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 770 shareholders of record.

<TABLE>
<CAPTION>

                                    1998              1997
                                Stock Prices      Stock Prices                                               Cash Dividends
------------------------------------------------------------------------     ----------------------------------------------
                                High        Low        High       Low                                         1998    1997
------------------------------------------------------------------------     ----------------------------------------------
<S>                           <C>            <C>         <C>      <C>           <S>                           <C>      <C>

First Quarter ................ 17 53/64   12 53/64   11 37/64    9           First Quarter ................. $.087   $.080
Second Quarter ............... 21 11/64   15 53/64   11 1/4      9 27/64     Second Quarter ................  .095    .080
Third Quarter ................ 22 1/2     16 3/16    12 43/64    9 27/64     Third Quarter .................  .095    .087
Fourth Quarter ............... 17 3/4     10 1/8     15 21/64   12 11/64     Fourth Quarter ................  .095    .086


</TABLE>


                                       18
<PAGE>


MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

  SALES

       In 1996, sales declined 5.3% due, primarily,  to sharp reductions in both
  selling prices for bar products and billet shipments, while selling prices for
  billets  declined only slightly.  However,  sales were  favorably  impacted by
  increased bar  shipments and selling  prices for  fabricated  products,  while
  shipments of fabricated  products were flat.  Selling  prices for bar products
  declined as a result of increased competition,  prompting  industry-wide price
  reductions. The planned shutdown of the melt shop during the year to install a
  new ladle  furnace  and  upgrade an  electric  arc  furnace  was  unexpectedly
  prolonged due to problems with construction and installation,  resulting in an
  11% decline in billet  production  for the year and  causing  the  significant
  reduction in billet  shipments.  In addition,  the export  markets for billets
  remained  highly  competitive.  Billet selling prices declined with a downward
  trend in scrap prices,  which normally  trigger changes in billet prices.  Bar
  products shipments increased as demand and backlogs remained high, in spite of
  the increased competition.  Selling prices for fabricated products improved as
  a result  of  generally  strong  business  conditions  within  the  commercial
  construction industry.
       The  7.6%  increase  in  sales  in 1997  was  attributable  to  increased
  shipments of bar products and billets,  together with improved  selling prices
  for bar products.  Sales were negatively  affected by lower selling prices for
  fabricated  products and billets,  while shipments of fabricated products were
  flat. Bar products shipments and selling prices increased as competition eased
  and order levels,  backlogs and prices improved with demand.  Billet shipments
  increased as a result of increased  production,  which hampered shipments last
  year, and improved  domestic demand,  while billet selling prices declined due
  to lower scrap prices.  Competitive conditions in the commercial  construction
  industry caused the lower selling prices for fabricated products; even though,
  market conditions continued to be favorable.
       Sales  increased  11.4% in 1998 as a result  of  substantially  increased
  billet  shipments in addition to improved  fabricated  products  shipments and
  higher  selling  prices  for steel bar  products.  Shipments  of bar  products
  declined  during the year,  while billet and fabricated  products  prices were
  flat. Record raw steel production and unprecedented  demand contributed to the
  58.5% increase in billet shipments.  Continued  favorable market conditions in
  the  construction  industry led to the  increased  shipments and level selling
  prices for fabricated  products.  In spite of a 3.8% reduction in bar products
  shipments,  business  conditions  remained strong and bar prices moved up 6.2%
  for the year.  Billet  prices were flat because  scrap prices were  relatively
  unchanged.



  COST OF SALES AND GROSS MARGINS

       The decrease in cost of sales in 1996 was due,  mainly,  to the decreased
  tons of billets shipped, together with a reduction in the cost of scrap steel,
  in spite of the increased bar products  shipments.  Cost of sales increased in
  1997, primarily, as a result of the increased tons shipped of bar products and
  billets.  In 1998,  cost of sales  increased  due to the  improved  billet and
  fabricated products shipments, even though shipments of bar products declined.
       In 1996, the gross profit percentage declined to 19.5%. The decrease was,
  primarily,  the  result of the  lower  selling  prices  for bar  products  and
  billets,  and the negative effect of reduced billet production on fixed costs,
  which  more  than  offset  the  effects  of the  lower  scrap  costs  and  the
  improvement  in  fabricated  products  selling  prices.  Gross  earnings  as a
  percentage of sales were flat in 1997, in spite of higher  selling  prices for
  bar products, lower scrap costs and increased production. These were offset by
  lower  selling   prices  for   fabricated   products  and  billets  and,  more
  importantly, by a higher percentage of billet shipments in the total mix which
  carry lower margins. In 1998, gross earnings as a percentage of sales remained
  flat,  even though  selling  prices for bar products  increased  and raw steel
  production  improved by 12%. As in 1997,  the  increased  billet  shipments at
  lower margins negatively impacted margins.
       The decline in gross profit margins and the reduced billet shipments were
  the main causes for the lower  gross  profits  and net  earnings in 1996.  For
  1997,  the increased  shipments of bar products and billets  accounted for the
  improved  gross and net  earnings.  The  combination  of  increased  volume at
  comparable margins were, primarily, responsible for the improved gross and net
  earnings in 1998.

  ADMINISTRATIVE EXPENSES

       In 1996,  the  majority of the  increase in  administrative  expenses was
  attributable  to  bad  debts  and  insurance   expenses.   The  percentage  of
  administrative  expenses to sales  increased from 6.2% to 7.0%. The percentage
  declined  in 1997 to 6.7%;  even  though  administrative  expenses  increased,
  primarily,  as a result of higher executive and management  compensation which
  increased  with  substantially  higher  production,  shipments and earnings in
  accordance  with  various  incentive  arrangements.  Other  expenses  such  as
  insurance and professional  fees increased,  but were offset by a reduction in
  bad  debts.  In 1998,  the  percentage  of  administrative  expenses  to sales
  remained  the  same  at  6.7%;  however,   administrative  expenses  increased
  substantially.  Executive  and  management  compensation  increased  with  the
  improved  shipments and  earnings.  Other  expenses such as insurance,  office
  utilities and repairs, and selling expenses increased, while bad debts and


                                       19
<PAGE>


  professional expenses declined. Administrative expenses also included a charge
  of $733,067 for the abandonment of assets. Without this charge, administrative
  expenses as a percentage of sales would have been 6.4% of sales.

  INTEREST EXPENSE

       In 1996,  interest expense  declined due to lower interest rates,  higher
  interest income of $711,274 and increased capitalized interest of $438,346, in
  spite of higher average  borrowings.  Interest  expense  increased in 1997, as
  higher  interest  rates,   reduced  interest  income  of  $702,333  and  lower
  capitalized interest of $54,668 more than offset lower average borrowings.  In
  1998,  interest expense  declined 49% as a result of lower average  borrowings
  and  increased  interest  income of  $1,214,017,  while  capitalized  interest
  declined to $53,722 and interest rates were virtually unchanged.

  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 1996 and 1997, income tax expense as a percentage of pretax income was
  relatively  constant.  The effective rate declined in 1998 due, primarily,  to
  substantial Virginia recycling tax credits.

FINANCIAL CONDITION, LIQUIDITY
AND CAPITAL RESOURCES

       At October 31, 1998, working capital was $74,917,878.  Cash,  investments
  and accounts  receivable of $70,309,722 were more than adequate to pay current
  liabilities  of  $30,490,039.   Cash  flows  from  operating  activities  were
  $34,571,627 in 1998.  Repurchases of the Company's  common stock,  commitments
  for the purchase of property,  plant and  equipment  of  $6,239,602,  and 1999
  maturities of long-term  debt of $4,250,000  will affect future  liquidity and
  working capital;  however,  cash flows from operations should provide adequate
  working  capital to fund these  items.  The pending  merger with Steel of West
  Virginia,  if  approved,  will  affect  liquidity  and  capital  resources  as
  borrowings will increase substantially.
       Long-term debt decreased $4,250,000 during the year. Our revolving credit
  facility  of  $30,000,000  was  unused  at year  end and  provides  additional
  liquidity and capital resources. The ratio of debt to equity was only .58 to 1
  - down from .66 to 1 last year.  The  percentage  of  long-term  debt to total
  capital  decreased  from 21.1% to 16.9%.  The  revolver,  working  capital and
  conservative  debt levels have  provided  the capital  resources  necessary to
  maintain our competitive position and ensure future growth.

       Since 1997,  the Company has been  diligently  involved in converting our
  computer hardware and software to be Year 2000 compliant. It has been assigned
  the  highest  priority  within our  information  systems  area  utilizing  all
  internal personnel available.  External resources have been added to assist in
  the task and continue ongoing projects.  We have identified the systems in our
  manufacturing  facilities  and offices that may be affected and  established a
  completion  goal of December 31, 1998.  Conversion  of a number of systems has
  been  completed on schedule.  To ensure  compliance  by  third-party  software
  vendors,  we are requesting in writing from our vendors  confirmation of their
  Year 2000  compliance.  We have also purchased  analytical  tools to check not
  only our computers for compliance,  but also loaded software.  The Company has
  sent  compliance  questionnaires  to  its  major  suppliers  to  assess  their
  readiness  and our  needs to seek  alternate  suppliers.  We have not  totally
  assessed the risks of Year 2000 issues,  nor have we developed any contingency
  plans.  We plan to  utilize  all of 1999  for such  matters  and  testing  our
  conversions.  The  estimated  costs  of Year  2000  issues  are  approximately
  $300,000  and are not  expected  to  have a  material  effect  on  results  of
  operations, liquidity or capital resources.
       Management  is of  the  opinion  that  adoption  of  the  Clean  Air  Act
  Amendments  or any other  environmental  concerns  will not have a  materially
  adverse  effect on the Company's  operations,  capital  resources or liquidity
  (see note 7). Additional future capital  expenditures are presently  estimated
  to be less than $1,000,000.

FORWARD-LOOKING STATEMENTS

       From time to time,  the Company may  publish  forward-looking  statements
  relating  to such  matters  as  anticipated  financial  performance,  business
  prospects,  technological developments, new products, research and development
  activities and similar matters.  The Private Securities  Litigation Reform Act
  of 1995  provides a safe harbor for  forward-looking  statements.  In order to
  comply with the terms of the safe harbor,  the Company notes that a variety of
  factors  could cause the  Company's  actual  results and  experience to differ
  materially from the anticipated results or other expectations expressed in the
  Company's  forward-looking  statements.  The risks and uncertainties  that may
  affect the operations,  performance,  development and results of the Company's
  business include economic and industry conditions,  availability and prices of
  supplies,  prices of steel products,  competition,  governmental  regulations,
  interest rates, inflation, labor relations, environmental concerns and others.


                                       20

<PAGE>


<TABLE>
<CAPTION>


<S>                                     <C>                                     <C>


OFFICERS

Donald G. Smith, 63                     H. James Akers, Jr., 59                 Donald  R. Higgins, 53
Chairman, President, Treasurer          Vice President, Melt Operations         Vice President - Sales
 and Chief Executive Officer            42 years of service                     33 years of service
41 years of service


Frank S. Key, Jr., 74                   Daniel L. Board, 61                     Watson B. King, 59
President, Socar, Inc.                  Vice President, Purchasing              Vice President, Mill Operations
32 years of service                     38 years of service                     37 years of service


James F. Garlow, 62                     Thomas J. Crawford, 43                  John E. Morris, 57
President, John W. Hancock, Jr., Inc.   Vice President Administration           Vice President - Finance
37 years of service                      and Secretary                           and Assistant Treasurer
                                        21 years of service                     27 years of service



BOARD OF DIRECTORS

Frank A. Boxley                         Charles L. Lunsford, II                 Paul E. Torgersen
President,                              Retired Chairman,                       President,
Southwest Construction, Inc.            Charles Lunsford Sons & Associates      Virginia Polytechnic Institute
                                                                                 and State University
George B. Cartledge, Jr.                Thomas L. Robertson
President,                              President and Chief Executive Officer,  John D. Wilson
Grand Home Furnishings                  Carilion Health System                  Retired President,
                                                                                Washington & Lee University
George W. Logan                         Donald G. Smith
Chairman,                               Chairman, President, Treasurer
Valley Financial Corporation             and Chief Executive Officer,
                                        Roanoke Electric Steel Corporation



COMMITTEES OF THE BOARD

Executive:                              Audit:                                  Compensation and Stock Option:
D.G. Smith, Chairman;                   T.L. Robertson, Chairman;               G.B. Cartledge, Jr., Chairman;
T.L. Robertson, P.E. Torgersen,         G.W. Logan, P.E. Torgersen              F.A. Boxley, C.I. Lunsford, II,
G.B. Cartledge, Jr.                                                             J.D. Wilson

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



CORPORATE INFORMATION

Annual Meeting                          Transfer Agent                          Stock Listing
The 1999 annual meeting of              Wachovia Bank, N.A.                     Nasdaq National Market; Symbol; RESC
shareholders will be held at            Boston, Massachusetts
10:00 a.m. on Tuesday, February 16,     1-800-633-4236                          Financial Information
1999 at the American Electric                                                   Analysts, investors and others seeking
Power Company Building, 40 Franklin     Written shareholder correspondence      financial information are requested to
Road, S.W., Roanoke, Virginia.          and requests for transfer should be     contact; John E. Morris, Vice President-
                                        sent to:                                Finance or Thomas J. Crawford, Vice
General Counsel                         Wachovia Bank, N.A.                     President Administration and Secretary.
Woods, Rogers & Hazlegrove P.L.C.       c/o Boston EquiServe
Roanoke, Virginia                       P.O. Box 8218                           Copies of the Corporation's Annual Report
                                        Boston, Massachusetts 02266-8218        or Form 10-K may be obtained without
Independent Auditors                                                            charge by writing to Mr. Crawford at the
Deloitte & Touche LLP                   Dividend Reinvestment Plan              address below.
Winston-Salem, North Carolina           Roanoke Electric Steel offers its
                                        shareholders a dividend reinvestment    Corporate Office
                                        plan through its transfer agent.        102 Westside Boulevard
                                        For more information, please contact    P.O. Box 13948
                                        the transfer agent or                   Roanoke, Virginia 24038
                                        Thomas J. Crawford, Vice President      540-342-1831
                                        Administration and Secretary.


</TABLE>

<PAGE>





                             [LOGO]    ROANOKE ELECTRIC
                                       STEEL CORPORATION

                                       P.O. Box 13948
                                       Roanoke, Virginia 24038-3948
                                       540-342-1831