-----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, KMtn4ChhnzMrgVyiikep/kJ6ZxrPtAGv/dfb8yqwmBAl03TuWTAKEsMBa7wtRaK6 dFo0GN1NhWOioGyxBgkqeA== 0000950134-94-000390.txt : 19940414 0000950134-94-000390.hdr.sgml : 19940414 ACCESSION NUMBER: 0000950134-94-000390 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19940228 FILED AS OF DATE: 19940412 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: 1934 Act SEC FILE NUMBER: 001-09944 FILM NUMBER: 94522336 BUSINESS ADDRESS: STREET 1: 300 WARD RD CITY: MIDLOTHIAN STATE: TX ZIP: 76065 BUSINESS PHONE: 2147758241 10-Q 1 FORM 10-Q 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 FEBRUARY 28, 1994 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 April 11, 1994. 1 of 13 2 INDEX CHAPARRAL STEEL COMPANY PART I. FINANCIAL INFORMATION Page - ----------------------------- ---- Item 1. Financial Statements (Unaudited) Condensed consolidated balance sheets--February 28, 1994 and May 31, 1993 3 Condensed consolidated statements of income--three and nine months ended February 28, 1994 and 1993 4 Condensed consolidated statements of cash flows --nine months ended February 28, 1994 and 1993 5 Notes to condensed consolidated financial statements --February 28, 1994 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 6. Exhibits and Reports on Form 8-K 11 SIGNATURES 11 - ---------- 2 3 CONDENSED CONSOLIDATED BALANCE SHEETS CHAPARRAL STEEL COMPANY AND SUBSIDIARIES
(Unaudited) February 28, May 31, 1994 1993 ------------ ------- (In thousands) ASSETS CURRENT ASSETS Cash and cash equivalents $ 1,685 $ 3,763 Trade accounts receivable, net of allowance of $3.4 million and $3.4 million, respectively 43,753 34,187 Inventories 112,355 92,672 Prepaid expenses 8,192 8,147 --------- --------- TOTAL CURRENT ASSETS 165,985 138,769 PROPERTY, PLANT AND EQUIPMENT Buildings and improvements 47,118 46,634 Machinery and equipment 433,969 430,614 Land 1,288 1,288 --------- --------- 482,375 478,536 Less allowance for depreciation (243,381) (222,974) --------- --------- 238,994 255,562 OTHER ASSETS Goodwill, commissioning costs and other assets, net of accumulated amortization of $15.6 million and $11.6 million, respectively 83,344 86,480 --------- --------- $ 488,323 $ 480,811 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Notes payable $ 10,000 $ - Trade accounts payable 32,992 27,202 Accrued interest payable 3,522 3,044 Other accrued expenses 13,591 14,902 Current portion of long-term debt 9,911 12,720 --------- --------- TOTAL CURRENT LIABILITIES 70,016 57,868 LONG-TERM DEBT 104,332 113,997 DEFERRED INCOME TAXES AND OTHER CREDITS 50,831 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 74,618 71,113 Cost of common stock in treasury (2,504) (2,559) --------- --------- 263,144 259,598 --------- --------- $ 488,323 $ 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 Nine months ended February 28, February 28, 1994 1993 1994 1993 ---- ---- ---- ---- (In thousands except per share) Net sales $118,687 $103,396 $337,808 $311,522 Costs and expenses: Cost of sales 96,284 87,596 276,485 267,804 Selling, general and administrative 3,995 3,390 12,369 10,525 Depreciation and amortization 8,557 8,856 25,373 25,958 Interest 3,411 3,527 10,198 11,107 Other income (846) (817) (2,210) (1,367) -------- -------- -------- -------- 111,401 102,552 322,215 314,027 INCOME (LOSS) BEFORE INCOME TAXES 7,286 844 15,593 (2,505) Provision (benefit) for income taxes: Current period provision (benefit) 2,878 254 6,193 (1,453) Change in statutory federal tax rate - - 1,443 - -------- -------- -------- -------- 2,878 254 7,636 (1,453) NET INCOME (LOSS) $ 4,408 $ 590 $ 7,957 $ (1,052) ======== ======== ======== ======== Per common share: NET INCOME (LOSS) $ .15 $ .02 $ .27 $ (.03) ======== ======== ======== ======== CASH DIVIDENDS $ .05 $ .05 $ .15 $ .15 ======== ======== ======== ======== Average shares outstanding - Note B 29,733 29,744 29,719 29,675 ======== ======== ======== ========
See notes to condensed consolidated financial statements. 4 5 (Unaudited) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS CHAPARRAL STEEL COMPANY AND SUBSIDIARIES
Nine months ended February 28, 1994 1993 ---- ---- (In thousands) OPERATING ACTIVITIES Net income (loss) $ 7,957 $ (1,052) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 25,373 25,958 Deferred income taxes 2,430 2,135 Other deferred credits (947) (2,038) Changes in operating assets and liabilities: Trade accounts receivable, net (10,429) 1,489 Inventories (19,683) 1,180 Prepaid expenses (45) (168) Trade accounts payable 5,790 (7,916) Accrued interest payable 478 (26) Other accrued expenses (1,311) (2,579) -------- -------- Net cash provided by operating activities 9,613 16,983 INVESTING ACTIVITIES Capital expenditures (4,805) (4,271) Other 40 3 -------- -------- Net cash used in investing activities (4,765) (4,268) FINANCING ACTIVITIES Short-term borrowings 20,000 7,000 Repayments on short-term debt (10,000) (7,000) Long-term borrowings 260 - Repayments on long-term debt (12,734) (12,711) Dividends paid (4,452) (4,452) -------- -------- Net cash used in financing activities (6,926) (17,163) -------- -------- Decrease in cash and cash equivalents (2,078) (4,448) Cash and cash equivalents at beginning of period 3,763 4,753 -------- -------- Cash and cash equivalents at end of period $ 1,685 $ 305 ======== ========
See notes to condensed consolidated financial statements. 5 6 (Unaudited) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CHAPARRAL STEEL COMPANY AND SUBSIDIARIES February 28, 1994 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 nine month period ended February 28, 1994 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 $.6 million and $1.7 million in the three and nine months ended February 28, 1994 and 1993, respectively. The amount of goodwill, net of accumulated amortization included in other assets was $73.6 million, $75.3 million and $77.6 million at February 28, 1994, 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:
February 28, May 31, 1994 1993 ---- ---- (In thousands) Finished goods $ 65,059 $49,596 Work in process 17,598 7,817 Raw materials: Scrap 8,660 10,843 Crushed cars 68 171 Rolls 14,735 14,579 Supplies 14,773 14,684 LIFO reserve (8,538) (5,018) -------- ------- $112,355 $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 $2.3 million was recorded in the first nine 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 February 28, 1994, and the related condensed consolidated statements of income for the three-month and nine-month periods ended February 28, 1994 and 1993, and the condensed consolidated statements of cash flows for the nine-month periods ended February 28, 1994 and 1993. 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 March 18, 1994 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 nine months ended February 28, 1994 to the quarter and nine months ended February 28, 1993. RESULTS OF OPERATIONS An increase in average selling price of 14% and an increase in shipments of 3,000 tons resulted in a $15.3 million increase in net sales in the three month period ended February 28, 1994 compared to the same quarter in fiscal 1993. Net sales increased $26.3 million in the nine month period ending February 28, 1994 principally due to a $36 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. Cost of sales increased $8.7 million to $96.3 million for the three month period ended February 28, 1994 compared to the same period in the prior year. The increase was predominately caused by a $25 increase in cost of sales per ton which resulted from a scrap price increase. Cost of sales for the nine month period increased $8.7 million as a 12% increase in cost of sales per ton was offset by a decrease in shipments of 32,000 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 $.6 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 and an increase in employee profit sharing were the primary reason for the increase of $1.8 million in selling, general and administrative expense in the nine month period ended February 28, 1994. 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 $.1 million and $.9 million in the three and nine month periods ended February 28, 1994 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 $.3 million in the three month period and by $.8 million in the nine month period ending February 28, 1994. 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 $15.1 million to $96 million at February 28, 1994 from the previous fiscal year-end. Accounts receivable increased $9.6 million from May 1993 as the Days Sales Outstanding ratio increased by eleven days and average selling price increased 13%. Cash provided by operations in the first nine months of fiscal 1994 decreased by $7.4 million primarily due to the change in accounts receivable and inventories. As a result, cash and cash equivalents decreased $2.1 million after the Company acquired $4.8 million of capital additions, repaid $12.8 million of long-term debt and paid cash dividends of $4.5 million. Capital expenditures for the nine months ended February 28, 1994 totaled $4.8 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, 1995 if not renewed by the banks or the Company. The Company had maximum borrowings of $15 million at any one time under these arrangements during the first nine months of fiscal 1994. At February 28, 1994, the Company had $10 million of outstanding borrowings under these facilities. 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 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 February 28, 1994. 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 April 11, 1994 /s/ RICHARD M. FOWLER Richard M. Fowler Senior Vice-President & Chief Financial Officer April 11, 1994 /s/ LARRY L. CLARK Larry L. Clark Vice President - Controller 11 EX-11 2 COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11 COMPUTATION OF EARNINGS PER SHARE CHAPARRAL STEEL COMPANY AND SUBSIDIARIES
Three months ended Nine months ended February 28, February 28, 1994 1993 1994 1993 ---- ---- ---- ---- (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 53 69 39 A) - --------- --------- -------- --------- TOTALS 29,733 29,744 29,719 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 68 114 46 A) - --------- --------- -------- --------- TOTALS 29,748 29,789 29,726 29,675 ========= ========= ======== ========= INCOME (LOSS) APPLICABLE TO COMMON STOCK Primary and fully diluted: Net income (loss) $ 4,408 $ 590 $ 7,957 $ (1,052) Add: Pre-September 1990 contingent price amortization 58 58 174 174 --------- --------- -------- --------- $ 4,466 $ 648 $ 8,131 $ (878) ========= ========= ======== ========= PER SHARE Net income (loss) per common share: Primary $ .15 $ .02 $ .27 $ (.03) ========= ========= ======== ========= Fully diluted $ .15 $ .02 $ .27 $ (.03) ========= ========= ======== =========
A) - Shares have been excluded as they are antidilutive. 12 EX-15 3 LETTER RE: UNAUDITED INTERIM FINANCIAL INFORMATION 1 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 March 18, 1994, 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 February 28, 1994. 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 April 7, 1994 13 -----END PRIVACY-ENHANCED MESSAGE-----