-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, PUeTX0ZaRmXq9ic6R1eeeCa9+GVS553ewOLs6r+B0m5V14J7rgACqeH2iRt7AUuG 4z46NYy4qVtSD6nwAFDWNw== 0000950134-94-000016.txt : 19940114 0000950134-94-000016.hdr.sgml : 19940114 ACCESSION NUMBER: 0000950134-94-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19931130 FILED AS OF DATE: 19940112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHAPARRAL STEEL CO CENTRAL INDEX KEY: 0000833226 STANDARD INDUSTRIAL CLASSIFICATION: 3312 IRS NUMBER: 751424624 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 34 SEC FILE NUMBER: 001-09944 FILM NUMBER: 94501117 BUSINESS ADDRESS: STREET 1: 300 WARD RD CITY: MIDLOTHIAN STATE: TX ZIP: 76065 BUSINESS PHONE: 2147758241 10-Q 1 10-Q FOR QUARTER ENDED 11-30-93 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE PERIOD ENDED NOVEMBER 30, 1993 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NO. 1-9944 CHAPARRAL STEEL COMPANY Incorporated in STATE OF DELAWARE IRS Employer Identification NO. 75-1424624 300 WARD ROAD MIDLOTHIAN, TEXAS 76065 Telephone: (214) 775-8241 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No . 29,679,900 Shares of Common Stock, Par Value $.10 Outstanding at January 11, 1994. 1 of 13 2 INDEX CHAPARRAL STEEL COMPANY
Page ---- PART I. FINANCIAL INFORMATION - ----------------------------- Item 1. Financial Statements (Unaudited) Condensed consolidated balance sheets--November 30, 1993 and May 31, 1993 3 Condensed consolidated statements of income--three and six months ended November 30, 1993 and 1992 4 Condensed consolidated statements of cash flows --six months ended November 30, 1993 and 1992 5 Notes to condensed consolidated financial statements --November 30, 1993 6 Independent accountants' review report 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II. OTHER INFORMATION - --------------------------- Item 4. Submission of Matters to a Vote of Security Holders 11 Item 6. Exhibits and Reports on Form 8-K 11 SIGNATURES 11 - ----------
2 3 CONDENSED CONSOLIDATED BALANCE SHEETS CHAPARRAL STEEL COMPANY AND SUBSIDIARIES
(Unaudited) November 30, May 31, 1993 1993 ---------- --------- (In thousands) ASSETS CURRENT ASSETS Cash and cash equivalents $ 1,845 $ 3,763 Trade accounts receivable, net of allowance of $3.2 million and $3.4 million, respectively 41,539 34,187 Inventories 95,818 92,672 Prepaid expenses 11,062 8,147 ---------- --------- TOTAL CURRENT ASSETS 150,264 138,769 PROPERTY, PLANT AND EQUIPMENT Buildings and improvements 47,118 46,634 Machinery and equipment 432,655 430,614 Land 1,288 1,288 ---------- --------- 481,061 478,536 Less allowance for depreciation (236,157) (222,974) ---------- --------- 244,904 255,562 OTHER ASSETS Goodwill, commissioning costs and other assets, net of accumulated amortization of $14.3 million and $11.6 million, respectively 84,255 86,480 ---------- --------- $ 479,423 $ 480,811 ========== ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Trade accounts payable $ 27,955 $ 27,202 Accrued interest payable 2,818 3,044 Other accrued expenses 15,161 14,902 Current portion of long-term debt 11,400 12,720 ---------- --------- TOTAL CURRENT LIABILITIES 57,334 57,868 LONG-TERM DEBT 111,239 113,997 DEFERRED INCOME TAXES AND OTHER CREDITS 50,630 49,348 STOCKHOLDERS' EQUITY Common stock, $.10 par value, 29,679,900 and 29,675,400 shares outstanding, respectively 2,994 2,994 Paid-in capital 188,036 188,050 Retained earnings 71,694 71,113 Cost of common stock in treasury (2,504) (2,559) ---------- --------- 260,220 259,598 ---------- --------- $ 479,423 $ 480,811 ========== =========
See notes to condensed consolidated financial statements. 3 4 (Unaudited) CONDENSED CONSOLIDATED STATEMENTS OF INCOME CHAPARRAL STEEL COMPANY AND SUBSIDIARIES
Three months ended Six months ended November 30, November 30, 1993 1992 1993 1992 ---- ---- ---- ---- (In thousands except per share) Net sales $117,225 $106,568 $219,121 $208,126 Costs and expenses: Cost of sales 94,854 89,938 180,201 180,208 Selling, general and administrative 3,795 3,507 8,374 7,135 Depreciation and amortization 8,410 8,555 16,816 17,102 Interest 3,379 3,764 6,787 7,580 Other income (575) (345) (1,364) (550) -------- -------- -------- -------- 109,863 105,419 210,814 211,475 INCOME (LOSS) BEFORE INCOME TAXES 7,362 1,149 8,307 (3,349) Provision (benefit) for income taxes: Current period provision (benefit) 2,939 482 3,315 (1,707) Change in statutory federal tax rate - - 1,443 - -------- -------- -------- -------- 2,939 482 4,758 (1,707) NET INCOME (LOSS) $ 4,423 $ 667 $ 3,549 $ (1,642) ======== ======== ======== ======== Per common share: NET INCOME (LOSS) $ .15 $ .03 $ .12 $ (.05) ======== ======== ======== ======== CASH DIVIDENDS $ .05 $ .05 $ .10 $ .10 ======== ======== ======== ======== Average shares outstanding - Note B 29,709 29,701 29,712 29,675 ======== ======== ======== ========
See notes to condensed consolidated financial statements. 4 5 (Unaudited) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS CHAPARRAL STEEL COMPANY AND SUBSIDIARIES
Six months ended November 30, 1993 1992 ---- ---- (In thousands) OPERATING ACTIVITIES Net income (loss) $ 3,549 $ (1,642) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 16,816 17,102 Deferred income taxes 1,894 2,964 Other deferred credits (612) (1,622) Changes in operating assets and liabilities: Trade accounts receivable, net (7,796) 2,629 Inventories (3,145) 3,315 Prepaid expenses (2,914) (1,691) Trade accounts payable 752 (7,088) Accrued interest payable (225) (159) Other accrued expenses 259 816 -------- -------- Net cash provided by operating activities 8,578 14,624 INVESTING ACTIVITIES Capital expenditures (3,491) (3,095) Other 41 1 -------- -------- Net cash used in investing activities (3,450) (3,094) FINANCING ACTIVITIES Short-term borrowings 5,000 7,000 Repayments on short-term debt (5,000) (7,000) Long-term borrowings 260 - Repayments on long-term debt (4,338) (4,327) Dividends paid (2,968) (2,968) -------- -------- Net cash used in financing activities (7,046) (7,295) -------- -------- Increase (decrease) in cash and cash equivalents (1,918) 4,235 Cash and cash equivalents at beginning of period 3,763 4,753 -------- -------- Cash and cash equivalents at end of period $ 1,845 $ 8,988 ======== ========
See notes to condensed consolidated financial statements. 5 6 (Unaudited) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CHAPARRAL STEEL COMPANY AND SUBSIDIARIES November 30, 1993 NOTE A - Basis of Presentation The accompanying unaudited condensed consolidated financial statements of Chaparral Steel Company and Subsidiaries (the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six month period ended November 30, 1993 are not necessarily indicative of the results that may be expected for the year ending May 31, 1994. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended May 31, 1993. NOTE B - Earnings Per Share Texas Industries, Inc. ("TXI") owned 100% of the Company from November 1985, when it acquired the remaining 50% of the outstanding securities of the Company from Co-Steel Inc. ("Co-Steel"), until July 1988, when approximately 19.8% of the outstanding securities were sold in an initial public offering of common stock by the Company. Under terms of the purchase agreement between TXI and Co-Steel, TXI made a $42 million initial cash payment and made a $73 million final payment in August 1990. The acquisition by TXI has been accounted for using the purchase method of accounting. The $115 million total purchase price exceeded the value of acquired assets by $83 million and the excess has been recorded as goodwill and additional paid-in-capital. This goodwill is being amortized over 40 years using the straight-line method and reduced earnings by $1.2 million in the six months ended November 30, 1993 and 1992, respectively. The amount of goodwill, net of accumulated amortization included in other assets was $74.2 million, $75.3 million and $77.6 million at November 30, 1993, May 31, 1993 and May 31, 1992, respectively. Net income (loss) per common share is calculated based upon a weighted average of shares outstanding (including common stock equivalents that are not antidilutive). 6 7 NOTE C - Inventories Inventories consist of the following:
November 30, May 31, 1993 1993 ---- ---- (In thousands) Finished goods $55,273 $49,596 Work in process 8,455 7,817 Raw materials: Scrap 9,992 10,843 Crushed cars 359 171 Rolls 14,870 14,579 Supplies 13,807 14,684 LIFO adjustment (6,938) (5,018) ------- ------ $95,818 $92,672 ======= =======
Inventories are stated at the lower of cost (last-in, first-out) or market, except rolls which are stated at cost (specific identification) and supplies which are stated at average cost. NOTE D - Income Tax Provision The provision (benefit) for income taxes has been included in the accompanying financial statements on the basis of an estimated annual rate. In August 1993, President Clinton signed into law the Omnibus Budget Reconciliation Act of 1993 that contained a provision raising the top effective rate for corporations to 35%. This rate increase, when applied to the Company's temporary differences, resulted in a charge of $1.4 million which is included in the income tax provision in the August 1993 quarter. Goodwill amortization also contributed to the difference between provision (benefit) amounts and amounts computed by applying the statutory federal income tax rates. NOTE E - Commissioning Costs The Company's policy for new facilities is to capitalize certain costs until the facility is substantially complete and ready for its intended use. The Large Beam Mill was substantially complete and ready for its intended use in the third quarter of fiscal 1992 with a total of $15.1 million of costs deferred, including $4.4 million of interest and $3.4 million of depreciation. Amortization of $1.5 million was recorded in the first six months of fiscal 1994 and 1993, respectively, based on a five year period. NOTE F - Severance Pay In an effort to stay competitive and reduce costs, the Company decreased its number of employees in the first quarter of fiscal 1994. As a result, a non-recurring charge of $1.6 million for severance pay is included in selling, general and administrative in fiscal 1994. 7 8 EXHIBIT A Independent Accountants' Review Report Board of Directors Chaparral Steel Company We have reviewed the accompanying condensed consolidated balance sheet of Chaparral Steel Company and subsidiaries as of November 30, 1993, and the related condensed consolidated statements of income and cash flows for the three and six month periods ended November 30, 1993 and 1992. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, which will be performed for the full year with the objective of expressing an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying condensed consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Chaparral Steel Company as of May 31, 1993, and the related consolidated statements of income, stockholders' equity and cash flows for the year then ended (not presented herein) and in our report dated July 14, 1993, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of May 31, 1993, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. Ernst and Young December 17, 1993 8 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Unaudited) Comparison of operations and financial condition for the quarter and six months ended November 30, 1993 to the quarter and six months ended November 30, 1992. RESULTS OF OPERATIONS An increase in average selling price of 12% offset a decrease in shipments of 5,000 tons resulting in a $10.7 million increase in net sales in the three month period ended November 30, 1993 compared to the same quarter in fiscal 1993. Net sales increased $11 million in the six month period ending November 30, 1993 principally due to a $32 increase in average selling price. The pricing strategy for certain structural products announced in the May 1993 quarter and general price increases in the current fiscal year, intended to offset the continued escalation in scrap prices, have combined to produce the improvement in selling prices. Demand for structural steel has improved slightly during the fall, but there is no indication that this trend will continue. Cost of sales increased $4.9 million to $94.9 million for the three month period ended November 30, 1993 compared to the same period in the prior year. The increase was predominately caused by a $19 increase in cost of sales per ton which resulted from a scrap price increase offset by the 5,000 ton decrease in shipments. Cost of sales for the six month period was virtually unchanged as a 6% increase in cost of sales per ton was offset by a decrease in shipments of 35,000 tons. Scrap prices, which fluctuate with market conditions, are up approximately 25% from the prior year. Certain cost cutting measures implemented by the Company in the August 1993 quarter continued to reduce other manufacturing costs. Selling, general and administrative expense increased $.3 million from the prior year quarter primarily due to an increase in employee profit sharing which is based on profitability. The $1.6 million charge for severance pay in fiscal 1994 was the primary reason for the increase of $1.2 million in selling, general and administrative expense in the six month period ended November 30, 1993. The Company continues to experience decreases in costs in all other areas of administration and marketing compared to the periods in the previous year. Interest expense decreased $.4 million and $.8 million in the three and six month periods ended November 30, 1993 compared to the same periods in the prior year. Interest expense in the current period was reduced by repayments of long-term debt which is principally at fixed rates. The provision (benefit) for income taxes has been calculated on the basis of an estimated annual rate. The rate was affected by recently passed legislation, which when applied to the Company's temporary differences, resulted in an increase of $1.4 million in the amount of deferred tax expense recorded in the August 1993 quarter. Goodwill amortization also contributed to the difference between provision amounts and income tax amounts computed by applying the statutory federal income tax rates. The increase in net income (loss) in the current periods was due principally to higher average selling prices. Lower depreciation and interest costs in fiscal 1994 increased profitability by $.5 million in the three month period and by $1.1 in the six month period ending November 30, 1993. The increase in net income (loss) was achieved despite the adjustment for severance pay and the additional $1.4 million income tax provision described above. 9 10 CAPITAL RESOURCES AND LIQUIDITY Working capital increased $12 million to $92.9 million at November 30, 1993 from the previous fiscal year-end. Accounts receivable increased $7.4 million from May 1993 as the Days Sales Outstanding ratio increased by five days which follows a historical trend. Prepaid expenses increased from May 31, 1993 as a result of summer shutdown spending. Cash provided by operations in the first six months of fiscal 1994 decreased by $6 million primarily from a change in net cash provided by accounts receivable and inventories. As a result, cash and cash equivalents decreased $1.9 million after the Company acquired $3.5 million of capital additions, repaid $4.3 million of long-term debt and paid cash dividends of $3 million. Capital expenditures for the six months ended November 30, 1993 totaled $3.5 million and are estimated to be approximately $10 million in fiscal 1994 which represents normal replacement and upgrades of existing equipment. The Company continues to study the possibility of new processes related to its primary business. The Company is subject to federal, state and local environmental laws and regulations concerning, among other matters, waste water effluent, air emissions and electric arc furnace ("EAF") dust disposal. From time to time, the Company is involved in litigation relating to claims arising in the ordinary course of business operations. No litigation (based on the opinion of counsel) is pending against or currently affects the Company, the ultimate liability of which, if any, would have a material effect on the Company's financial position or results of operations. The Company maintains a hazardous waste liability policy against certain third party claims, which insurance the Company believes to be adequate in relation to the Company's business. The Company has short-term credit facilities with two banks totaling $20 million which will expire January 31, 1994 if not renewed by the banks or the Company. The Company had maximum borrowings of $5 million at any one time under these arrangements during the first six months of fiscal 1994. At November 30, 1993, the Company had no outstanding borrowings under these facilities. The Company has been offered renewal of the existing facilities at substantially the same terms as the existing facilities. Management is reviewing those offers and similar arrangements offered by other financial institutions and intends to accept some combination of the offers prior to January 31, 1994. The Company expects that current financial resources and anticipated cash provided from operations in fiscal 1994 will be sufficient to provide funds for capital expenditures, meet scheduled debt payments and satisfy other known working capital needs for fiscal 1994. If additional funds are required to accomplish long-term expansion of its productive capabilities, the Company believes that funding can be obtained to meet such requirements. 10 11 PART II. OTHER INFORMATION Item 4. Submission of Matter to a Vote of Security Holders At the Annual Meeting of the Stockholders held October 20, 1993, stockholders elected as Directors of the Company, Robert Alpert, John M. Belk, Gordon E. Forward, Eugenio Clariond Reyes, Robert D. Rogers, Gerald R. Heffernan and Gerhard Liener, to terms expiring in 1994. Votes cast to elect Robert Alpert were 29,334,982 affirmative, 6,336 opposed and 338,582 abstained or non-voted. Votes cast to elect John M. Belk, Gordon E. Forward, Eugenio Clariond Reyes and Robert D. Rogers were 29,335,082 affirmative, 6,236 opposed and 338,582 abstained or non-voted. Votes cast to elect Gerald R. Heffernan were 29,333,682 affirmative, 7,636 opposed and 338,582 abstained or non-voted. Votes cast to elect Gerhard Liener were 29,294,082 affirmative, 47,236 opposed and 338,582 abstained or non-voted. Item 6. Exhibits and Reports on Form 8-K. The following exhibits are included herein: (11) Statement re: Computation of earnings per share (15) Letter re: Unaudited interim financial information The Registrant did not file any reports on Form 8-K during the three months ended November 30, 1993. SIGNATURES Pursuant to the requirements of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CHAPARRAL STEEL COMPANY January 11, 1994 /s/ Richard M. Fowler . Richard M. Fowler Senior Vice-President & Chief Financial Officer January 11, 1994 /s/ Larry L. Clark . Larry L. Clark Vice President - Controller 11 12 EXHIBIT 11 COMPUTATION OF EARNINGS PER SHARE CHAPARRAL STEEL COMPANY AND SUBSIDIARIES
Three months ended Six months ended November 30, November 30, 1993 1992 1993 1992 ---- ---- ---- ---- (In thousands except per share) AVERAGE SHARES OUTSTANDING Primary: Average shares outstanding 29,680 29,675 29,680 29,675 Stock options - treasury stock method using average market prices 29 26 32 A) - --------- --------- -------- --------- TOTALS 29,709 29,701 29,712 29,675 ========= ========= ======== ========= Fully diluted: Average shares outstanding 29,680 29,675 29,680 29,675 Stock options - treasury stock method using end of quarter market price if higher than average 31 31 35 A) - --------- --------- -------- --------- TOTALS 29,711 29,706 29,715 29,675 ========= ========= ======== ========= INCOME (LOSS) APPLICABLE TO COMMON STOCK Primary and fully diluted: Net income (loss) $ 4,423 $ 667 $ 3,549 $ (1,642) Add: Pre-September 1990 contingent price amortization 58 58 116 116 --------- --------- -------- --------- $ 4,481 $ 725 $ 3,665 $ (1,526) ========= ========= ======== ========= PER SHARE Net income (loss) per common share: Primary $ .15 $ .03 $ .12 $ (.05) ========= ========= ======== ========= Fully diluted $ .15 $ .03 $ .12 $ (.05) ========= ========= ======== =========
A) - Shares have been excluded as they are antidilutive. 12 13 EXHIBIT 15 Board of Directors Chaparral Steel Company We are aware of the incorporation by reference in the Registration Statement (Form S-8 No. 33-39626) pertaining to the Chaparral Steel Company Stock Option Plan of our report dated December 17, 1993, relating to the unaudited condensed consolidated interim financial statements of Chaparral Steel Company and subsidiaries which are included in its Form 10-Q for the quarter ended November 30, 1993. Pursuant to Rule 436(c) of Securities Act of 1933 our report is not a part of the Registration Statement prepared or certified by accountants within the meaning of Section 7 or 11 of the Securities Act of 1933. Ernst and Young Dallas, Texas January 11, 1994 13 -----END PRIVACY-ENHANCED MESSAGE-----