-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BBzFIIwgSJ0KcY6SEJ7CfJAhrA0L1f9yNkmpbPqDzVZ91G9RKvfp9KlNxBpLY8jC i28O42H/F7BfAFjHXitICA== 0000950134-97-007094.txt : 19970930 0000950134-97-007094.hdr.sgml : 19970930 ACCESSION NUMBER: 0000950134-97-007094 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970831 FILED AS OF DATE: 19970929 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHAPARRAL STEEL CO CENTRAL INDEX KEY: 0000833226 STANDARD INDUSTRIAL CLASSIFICATION: STEEL WORKS, BLAST FURNACES ROLLING MILLS (COKE OVENS) [3312] IRS NUMBER: 751424624 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09944 FILM NUMBER: 97687869 BUSINESS ADDRESS: STREET 1: 300 WARD RD CITY: MIDLOTHIAN STATE: TX ZIP: 76065 BUSINESS PHONE: 2147758241 MAIL ADDRESS: STREET 1: 300 WARD RD CITY: MIDLOTHIAN STATE: TX ZIP: 76065 10-Q 1 FORM 10-Q FOR QUARTER ENDED AUGUST 31, 1997 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 AUGUST 31, 1997 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: (972) 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 _____. 28,454,000 Shares of Common Stock, Par Value $.10 Outstanding at September 22, 1997. 1 of 13 2 INDEX CHAPARRAL STEEL COMPANY
PART I. FINANCIAL INFORMATION Page - ----------------------------- ---- Item 1. Financial Statements (Unaudited) Condensed consolidated balance sheets--August 31, 1997 and May 31, 1997 3 Condensed consolidated statements of income--three months ended August 31, 1997 and 1996 4 Condensed consolidated statements of cash flows --three months ended August 31, 1997 and 1996 5 Notes to condensed consolidated financial statements --August 31, 1997 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) August 31, May 31, 1997 1997 --------- ------ (In thousands) ASSETS CURRENT ASSETS Cash and cash equivalents $ 14,928 $ 14,291 Trade accounts receivable, net of allowance of $2.1 million and $2.7 million, respectively 67,511 66,266 Inventories 114,953 131,034 Prepaid expenses 15,603 9,218 ----------- --------- TOTAL CURRENT ASSETS 212,995 220,809 PROPERTY, PLANT AND EQUIPMENT Buildings and improvements 57,572 57,506 Machinery and equipment 501,618 464,485 Land 1,288 1,288 ---------- ---------- 560,478 523,279 Less allowance for depreciation (316,036) (308,359) ---------- ---------- 244,442 214,920 OTHER ASSETS Goodwill, commissioning costs and other assets, net of accumulated amortization of $31.9 million and $28.5 million, respectively 58,008 58,481 ---------- ---------- $ 515,445 $ 494,210 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Trade accounts payable $ 38,382 $ 31,466 Accrued interest payable 2,163 965 Other accrued expenses 25,034 20,681 Current portion of long-term debt 12,421 12,445 ---------- ---------- TOTAL CURRENT LIABILITIES 78,000 65,557 LONG-TERM DEBT 52,467 52,554 DEFERRED INCOME TAXES AND OTHER CREDITS 50,269 49,839 STOCKHOLDERS' EQUITY Preferred stock, $.01 par value, 500,000 authorized, none outstanding - - Common stock, $.10 par value, 28,454,000 and 28,403,700 shares outstanding, respectively 2,994 2,994 Paid-in capital 178,871 178,689 Retained earnings 169,300 161,392 Cost of common stock in treasury (16,456) (16,815) ---------- ---------- 334,709 326,260 ---------- ---------- $ 515,445 $ 494,210 ========== ========== See notes to condensed consolidated financial statements.
3 4 (Unaudited) CONDENSED CONSOLIDATED STATEMENTS OF INCOME CHAPARRAL STEEL COMPANY AND SUBSIDIARIES
Three months ended August 31, 1997 1996 ---- ---- (In thousands except per share) Net sales $ 179,006 $ 149,527 Costs and expenses: Cost of sales (exclusive of items stated separately below) 146,538 118,865 Depreciation and amortization 8,182 8,872 Selling, general and administrative 8,684 7,344 Interest 1,449 2,144 Other income (417) (1,062) ---------- --------- INCOME BEFORE INCOME TAXES 14,570 13,364 Provision for income taxes 5,240 5,050 ---------- --------- NET INCOME $ 9,330 $ 8,314 ========== ========== Average shares outstanding - Note B 28,850 28,904 ========= ========= Per common share: NET INCOME $ .33 $ .29 ========= ========= CASH DIVIDENDS $ .05 $ .05 ========= =========
See notes to condensed consolidated financial statements. 4 5 (Unaudited) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS CHAPARRAL STEEL COMPANY AND SUBSIDIARIES
Three months ended August 31, 1997 1996 ---- ---- (In thousands) OPERATING ACTIVITIES Net income $ 9,330 $ 8,314 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 8,182 8,872 Deferred income taxes (491) (563) Other deferred credits 921 860 Changes in operating assets and liabilities: Trade accounts receivable, net (1,245) (7,349) Inventories 16,081 (6,239) Prepaid expenses (6,385) (6,268) Trade accounts payable 6,916 (1,709) Accrued interest payable 1,198 1,101 Other accrued expenses 4,353 5,245 -------- -------- Net cash provided by operating activities 38,860 2,264 INVESTING ACTIVITIES Capital expenditures (37,550) (10,535) Other 320 120 -------- -------- Net cash used in investing activities (37,230) (10,415) FINANCING ACTIVITIES Long-term borrowings -- 105 Repayments on long-term debt (111) (87) Purchase of treasury stock -- (3,770) Proceeds from issuance of treasury stock 541 -- Dividends paid (1,423) (1,418) -------- -------- Net cash used in financing activities (993) (5,170) -------- -------- Increase (decrease) in cash and cash equivalents 637 (13,321) Cash and cash equivalents at beginning of period 14,291 20,014 -------- -------- Cash and cash equivalents at end of period $ 14,928 $ 6,693 ======== ========
See notes to condensed consolidated financial statements. 5 6 (Unaudited) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CHAPARRAL STEEL COMPANY AND SUBSIDIARIES August 31, 1997 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 three month period ended August 31, 1997 are not necessarily indicative of the results that may be expected for the year ending May 31, 1998. 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, 1997. 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 was recorded as goodwill and additional paid-in-capital. The amount of goodwill, net of accumulated amortization included in other assets was $56.7 million and $57.2 million at August 31, 1997 and May 31, 1997, respectively. This goodwill is being amortized over 40 years using the straight-line method and reduced earnings by $.5 million and $.5 million in the three months ended August 31, 1997 and 1996, respectively. Management reviews the remaining goodwill with consideration toward recovery through future operating results (undiscounted) at the current rate of amortization. Net income per common share is calculated based upon a weighted average of 28,850,000 and 28,904,000 shares outstanding at August 31, 1997 and 1996, respectively. NOTE C - Income Tax Provision The provision for income taxes has been included in the accompanying financial statements on the basis of an estimated annual rate. Goodwill amortization was the primary reason for the difference between provision amounts and amounts computed by applying the statutory federal income tax rates. 6 7 NOTE D - Inventories
Inventories consist of the following: August 31, May 31, 1997 1997 ---- ---- (In thousands) Finished goods $ 53,793 $ 73,926 Work in process 10,707 11,534 Raw materials 19,895 15,832 Rolls and molds 23,603 22,989 Supplies 17,214 17,012 LIFO adjustment (10,259) (10,259) ---------- --------- $114,953 $131,034 ========== =========
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 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. Commissioning costs were fully amortized at January 31, 1997. Amortization of $0 million and $.7 million was recorded in the first quarter of fiscal 1997 and 1996, respectively, based on a five year period. NOTE F - Contingencies The Company and subsidiaries are defendants in lawsuits which arose in the normal course of business. In management's judgment (based on the opinion of counsel) the ultimate liability, if any, from such legal proceedings will not have a material effect on the Company's financial position. The Company is subject to federal, state and local environmental laws and regulations concerning, among other matters, air emission, furnace dust disposal and wastewater discharge. The Company believes it is in substantial compliance with applicable environmental laws and regulations. Notwithstanding such compliance, if damage to persons or property or contamination of the environment has been or is caused by the conduct of the Company's business or by hazardous substances or wastes used in, generated or disposed of by the Company, the Company could be held liable for such damages and be required to pay the cost of investigation and remediation of such contamination. The amount of such liability could be material. Changes in federal or state laws, regulations or requirements or discovery of unknown conditions could require additional expenditures by the Company. NOTE G - Merger Proposal On May 22, 1997, the Board of Directors received an unsolicited offer to merge with Texas Industries, Inc., ("TXI") owner of 85% of Chaparral Steel. Under terms of the offer, owners of the publicly traded shares of Chaparral Steel would receive consideration of $14.25 per share, pursuant to a cash merger. The Board of Directors appointed a Special Committee to consider the offer and make a recommendation to Chaparral's Board. On July 25, 1997, the Board of Directors received a revised unsolicited offer of $15.50 per share. On July 29, 1997, the Special Committee unanimously accepted the revised $15.50 per share cash offer by TXI. On July 30, 1997, the Board of Directors of Chaparral Steel unanimously accepted TXI's revised offer subject to stockholder approval. 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 August 31, 1997 and the related condensed consolidated statements of income and cash flows for the three month periods ended August 31, 1997 and 1996. 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, 1997, 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 8, 1997, 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, 1997, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. Ernst & Young LLP September 17, 1997 8 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Unaudited) Comparison of operations and financial condition for the quarter ended August 31, 1997, to the quarter ended August 31, 1996. GENERAL In April 1997, the Board of Directors approved the engineering and site selection work in connection with a plan for the construction of a new structural mill in the eastern United States with production scheduled to begin in 1999. The new mill's annual capacity is expected to exceed one million tons and is expected to produce a full range of structural beams up to 36" in depth and sheet pile sections. The mill will be positioned to replace the decrease in supply caused by the reduction in domestic suppliers that has taken place over the last few years. Patented technologies and existing material recycling expertise will be incorporated in the new location. Site selection for the new facility is on schedule. On May 22, 1997, the Board of Directors received an unsolicited offer to merge with Texas Industries, Inc., ("TXI") owner of 85% of Chaparral Steel. Under terms of the offer, owners of the publicly traded shares of Chaparral Steel would receive consideration of $14.25 per share, pursuant to a cash merger. The Board of Directors appointed a Special Committee to consider the offer and make a recommendation to Chaparral's Board. On July 25, 1997, the Board of Directors received a revised unsolicited offer of $15.50 per share. On July 29, 1997, the Special Committee unanimously accepted the revised $15.50 per share cash offer by TXI. On July 30, 1997, the Board of Directors of Chaparral Steel unanimously accepted TXI's revised offer subject to stockholder approval. RESULTS OF OPERATIONS A 21% increase in shipments and a $4 per ton decrease in average selling price in the first quarter resulted in a $29.5 million increase in net sales compared to the same period in the prior year. The stable demand for our structural products continued in the summer quarter due to the continued strength in the construction industries. Steady demand for bar products contributed to the 5% increase in average price from those of the prior year quarter. Cost of sales (exclusive of depreciation and amortization) increased $27.7 million to $146.5 million for the three month period ended August 31, 1997, compared to the same period in the prior year. The increase was predominately caused by an increase in shipments of 80,000 tons. Combined rolling conversion costs increased from the prior year due to decreased production volume that historically accompanies the summer shutdown period. Depreciation expense increased from the prior year period due to increased levels of capital spending. Depreciation is computed using the straight-line method over the estimated useful lives of the property. Amortization costs decreased due to the completion of the amortization of commissioning costs on January 31, 1997. Selling, general and administrative expense increased $1.3 million in the three month period ended August 31, 1997, compared to the prior year period primarily due to increases in employee incentive programs which are based on profitability. 9 10 Interest expense decreased $.7 million in the three month period ended August 31, 1997, compared to the same period in the prior year. Interest expense in the current period was reduced due to repayments of long-term debt which is principally at fixed rates. The provision for income taxes has been calculated on the basis of an estimated annual rate. Goodwill amortization contributed to the difference between provision amounts and income tax amounts computed by applying the statutory federal income tax rates. CAPITAL RESOURCES AND LIQUIDITY Working capital decreased $20.3 million to $135 million at August 31, 1997. Inventories at August 31, 1997 decreased $16.1 million primarily as demand for the Company's products remained strong. Prepaid expenses increased $6.4 million due to shutdown spending completed in August 1997. Trade accounts payable increased $6.9 million due to summer shutdown spending. Other accrued expenses increased $4.4 million to $25 million due to an increase in the accrual for federal income tax. The other components of working capital were virtually unchanged from the previous fiscal year-end. As a result, cash and cash equivalents increased $.6 million after the Company bought $37.6 million of capital additions and paid cash dividends of $1.4 million. Capital expenditures for the three months ended August 31, 1997, totaled $37.6 million and are expected to be in the range of $70-$80 million in fiscal 1998. Total anticipated spending includes upgrades for the Recycled Products and Bar Products business units of approximately $30 million. The Company's capitalization of $387.2 million at August 31, 1997, consisted of $52.5 million of long-term debt and $334.7 million of stockholders' equity. The current portion of long-term debt totaled $12.4 million at August 31, 1997. The Company's average interest rate on long-term debt is 11%. The Company's payments of principal and interest are expected to be approximately $22 million during the next twelve months. 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. Effective January 1, 1997, the Company has a short-term credit facility with a bank totaling $10 million which will expire December 31, 1997 if not renewed by the bank or the Company. The Company believes that it will be able to renew this credit facility or negotiate similar arrangements with other financial institutions if they are deemed necessary. The Company expects that current financial resources and anticipated cash provided from operations in fiscal 1998 will be sufficient to provide funds for capital expenditures, meet scheduled debt payments and satisfy other known working capital needs for fiscal 1998. If additional funds are required to support the short-term operations or 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 (27) Financial Data Schedule The Company filed the following reports on Form 8-K during the three months ended August 31, 1997. On June 2, 1997, Chaparral Steel Company filed a report on Form 8-K relative to the offer to merger with Texas Industries, Inc., owner of 85% of Chaparral Steel Company. Under terms of the offer, owners of the publicly traded shares of Chaparral Steel Company would receive consideration of $14.25 per share, pursuant to a cash merger. The Board of Directors appointed a Special Committee to consider the offer and make a recommendation to Chaparral's Board. On July 25, 1997, Chaparral Steel Company filed a report on Form 8-K relative to a revised offer from Texas Industries, Inc., to purchase all publicly traded shares of Chaparral Steel Company for $15.50 per share. 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 September 26, 1997 /s/ Gordon E. Forward - ------------------ --------------------- Gordon E. Forward President, Chief Executive Officer and Director September 26, 1997 /s/ Larry L. Clark - ------------------ ------------------ Larry L. Clark Vice President - Controller and Assistant Treasurer 11 12 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------ ----------- 11 Statement re: Computation of earnings per share 15 Letter re: Unaudited interim financial information 27 Financial Data Schedule
EX-11 2 COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11 COMPUTATION OF EARNINGS PER SHARE CHAPARRAL STEEL COMPANY AND SUBSIDIARIES
Three months ended August 31, 1997 1996 ---- ---- (In thousands except per share) AVERAGE SHARES OUTSTANDING Primary: Average shares outstanding 28,449 28,563 Stock options - treasury stock method using average market prices 401 341 -------- -------- TOTALS 28,850 28,904 ======== ======== Fully diluted: Average shares outstanding 28,449 28,563 Stock options - treasury stock method using end of quarter market price if higher than average 449 342 -------- ------- TOTALS 28,898 28,905 ======== ======== INCOME APPLICABLE TO COMMON STOCK Primary and fully diluted: Net income $ 9,330 $ 8,314 Add: Pre-September 1990 contingent price amortization 58 58 -------- -------- $ 9,388 $ 8,372 ======== ======== PER SHARE Net income per common share: Primary $ .33 $ .29 ======== ======== Fully diluted $ .33 $ .29 ======== ========
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 September 17, 1997, 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 August 31, 1997. 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 & Young LLP Dallas, Texas September 24, 1997 EX-27 4 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS MAY-31-1998 JUN-01-1997 AUG-31-1997 14,928 0 69,630 2,119 114,953 212,995 560,478 316,036 515,445 78,000 52,467 0 0 2,994 331,715 515,445 179,006 179,006 146,538 146,538 0 75 1,449 14,570 5,240 9,330 0 0 0 9,330 0.33 0.33
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