-----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, OxH87YFEU5g+rxE3XuqLbNhoOBmFVqY4KkbBD/oE7huhADIDRNGSlQoULVj/Nqlt smsXDpT2kICoU7mJE3ZOQg== 0000950134-95-002465.txt : 19951016 0000950134-95-002465.hdr.sgml : 19951016 ACCESSION NUMBER: 0000950134-95-002465 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19950831 FILED AS OF DATE: 19951013 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: 1934 Act SEC FILE NUMBER: 001-09944 FILM NUMBER: 95580484 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 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, 1995 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 . --- --- 29,684,900 Shares of Common Stock, Par Value $.10 Outstanding at October 6, 1995. 1 of 13 2 INDEX CHAPARRAL STEEL COMPANY
PART I. FINANCIAL INFORMATION Page - ----------------------------- ---- Item 1. Financial Statements (Unaudited) Condensed consolidated balance sheets--August 31, 1995 and May 31, 1995 3 Condensed consolidated statements of income--three 4 months ended August 31, 1995 and 1994 Condensed consolidated statements of cash flows --three months ended August 31, 1995 and 1994 5 Notes to condensed consolidated financial statements --August 31, 1995 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, 1995 1995 ----------- ---------- (In thousands) ASSETS CURRENT ASSETS Cash and cash equivalents $ 9,051 $ 19,140 Trade accounts receivable, net of allowance of $2.6 million and $2.5 million, respectively 53,693 51,679 Inventories 105,461 101,377 Prepaid expenses 17,407 8,110 --------- ---------- TOTAL CURRENT ASSETS 185,612 180,306 PROPERTY, PLANT AND EQUIPMENT Buildings and improvements 49,283 48,689 Machinery and equipment 454,621 447,982 Land 1,288 1,288 --------- ---------- 505,192 497,959 Less allowance for depreciation (282,308) (275,476) --------- ---------- 222,884 222,483 OTHER ASSETS Goodwill, commissioning costs and other assets, net of accumulated amortization of $23.5 million and $22.3 million, respectively 65,785 67,038 --------- ---------- $ 474,281 $ 469,827 ========= ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Trade accounts payable $ 34,327 $ 37,818 Accrued interest payable 2,928 1,862 Other accrued expenses 16,512 13,236 Current portion of long-term debt 12,396 13,645 --------- ---------- TOTAL CURRENT LIABILITIES 66,163 66,561 LONG-TERM DEBT 80,990 81,065 DEFERRED INCOME TAXES AND OTHER CREDITS 52,316 52,333 STOCKHOLDERS' EQUITY Preferred stock, $.01 par value, 500,000 authorized, none outstanding - - Common stock, $.10 par value, 29,679,900 shares outstanding 2,994 2,994 Paid-in capital 178,611 178,611 Retained earnings 95,711 90,767 Cost of common stock in treasury (2,504) (2,504) --------- ---------- 274,812 269,868 --------- ---------- $ 474,281 $ 469,827 ========= ==========
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, 1995 1994 ---- ---- (In thousands except per share) Net sales $ 138,141 $ 124,382 Costs and expenses: Cost of sales (exclusive of items stated separately below) 112,081 105,919 Depreciation and amortization 8,088 8,408 Selling, general and administrative 5,732 3,935 Interest 2,620 3,280 Other income (1,106) (129) ---------- ---------- INCOME BEFORE INCOME TAXES 10,726 2,969 Provision for income taxes 4,298 1,216 ---------- ---------- NET INCOME $ 6,428 $ 1,753 ========== ========== Per common share: NET INCOME $ .22 $ .06 ========== ========== CASH DIVIDENDS $ .05 $ .05 ========== ========== Average shares outstanding - Note B 29,803 29,712 ========== ==========
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, 1995 1994 ---- ---- (In thousands) OPERATING ACTIVITIES Net income $ 6,428 $ 1,753 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization 8,088 8,408 Deferred income taxes (378) (24) Other deferred credits 359 (105) Changes in operating assets and liabilities: Trade accounts receivable, net (2,014) (6,285) Inventories (4,084) 17,442 Prepaid expenses (9,297) (6,021) Trade accounts payable (3,491) (329) Accrued interest payable 1,066 994 Other accrued expenses 3,276 2,018 --------- -------- Net cash provided (used) by operating activities (47) 17,851 INVESTING ACTIVITIES Capital expenditures (7,504) (3,887) Other 270 2 --------- -------- Net cash used in investing activities (7,234) (3,885) FINANCING ACTIVITIES Short-term borrowings - - Repayments on short-term debt - (5,000) Long-term borrowings - - Repayments on long-term debt (1,324) (2,873) Dividends paid (1,484) (1,484) --------- -------- Net cash used in financing activities (2,808) (9,357) --------- -------- Increase (decrease) in cash and cash equivalents (10,089) 4,609 Cash and cash equivalents at beginning of period 19,140 3,203 --------- -------- Cash and cash equivalents at end of period $ 9,051 $ 7,812 ========= ========
See notes to condensed consolidated financial statements. 5 6 (Unaudited) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CHAPARRAL STEEL COMPANY AND SUBSIDIARIES August 31, 1995 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, 1995 are not necessarily indicative of the results that may be expected for the year ending May 31, 1996. 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, 1995. 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. During May 1995, the Company recorded a $9.4 million adjustment to the original amount of goodwill. The amount of goodwill, net of accumulated amortization included in other assets was $60.7 million and $61.2 million at August 31, 1995 and May 31, 1995, respectively. This goodwill is being amortized over 40 years using the straight-line method and reduced earnings by $.5 million and $.6 million in the three months ended August 31, 1995 and 1994, respectively. Net income per common share is calculated based upon a weighted average of 29,803,000 and 29,712,000 shares outstanding at August 31, 1995 and 1994, 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. The current amount for fiscal 1996 contains a provision for state income tax. In previous periods, state tax liabilities were offset with applicable credits. Goodwill amortization also contributed to the difference between provision amounts and amounts computed by applying the statutory income tax rates. 6 7 NOTE D - Inventories Inventories consist of the following:
August 31, May 31, 1995 1995 ---- ---- (In thousands) Finished goods $ 48,755 $ 54,323 Work in process 13,024 9,856 Raw materials 20,922 14,052 Rolls 16,510 18,148 Supplies 16,739 15,487 LIFO adjustment (10,489) (10,489) ---------- ---------- $ 105,461 $ 101,377 ========== ==========
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 1992 with a total of $15.1 million of costs deferred, including $4.4 million of interest and $3.4 million of depreciation. The amounts of commissioning costs (net of amortization) were $4.3 million and $5 million at August 31, 1995 and May 31, 1995, respectively. Amortization of $.8 million was recorded in the first quarter of fiscal 1996 and 1995, 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 emissions, furnace dust disposal and wastewater discharge. The Company believed 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. 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, 1995, and the related condensed consolidated statements of income and cash flows for the three month periods ended August 31, 1995 and 1994. 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, 1995, 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, 1995, 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, 1995, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. Ernst & Young LLP Dallas, Texas September 15, 1995 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, 1995, to the quarter ended August 31, 1994. RESULTS OF OPERATIONS A 12% increase in average selling price offsetting a slight decrease in shipments resulted in a $13.8 million increase in net sales in the three month period ended August 31, 1995 compared to the same quarter in the prior year. Average selling prices for beam products continued to rise as the price increases announced in the May quarter were realized during the summer quarter. Although current demand for structural products exceeds supply, it is anticipated that this situation will return to balance by the end of the November 1995 quarter, as domestic structural producers adjust their production levels upward. The strong market in nonresidential construction and mobile home building is expected to continue into the November 1995 quarter. Average selling prices for bar products were up substantially from the prior year due to better economic conditions. The SBQ market has slowed recently due to uncertain consumption patterns in the automotive industry. The Company continues to monitor and change its product mix in order to maximize profit margins. Cost of sales (exclusive of depreciation and amortization) increased $6.2 million to $112.1 million for the three month period ended August 31, 1995 compared to the same period in the prior year. The increase of 6% in cost of sales per ton was caused by higher raw material and alloy prices and the effect of the start-up of the new bar mill caster in the current quarter. Scrap prices, which fluctuate with market conditions, were higher than the prior year, and historically, mirror the general movements in the average selling prices of steel products. The installation of the bar mill caster slowed production slightly which resulted in higher unit costs. Shutdown expenditures for annual maintenance exceeded those of last year by 32% and will continue to affect current year results. Selling, general and administrative expense increased $1.8 million from the prior year principally due to the increased provisions for employee incentives of $1.1 million due to increased profits. Marketing expense increased $.2 million from the August 1994 quarter as a result of the Company s expanded focus on customer service. Other areas of administrative expense were slightly higher. Interest expense decreased slightly in the three month period ended August 31, 1995 compared to the same period in the prior year because of repayments of long-term debt. The provision for income taxes has been calculated on the basis of an estimated annual rate. The current year amount includes a provision for a 4.5% state income tax. In previous periods, state tax liabilities were offset with applicable credits. Goodwill amortization also contributed to the difference between provision amounts and income tax amounts computed by applying the statutory income tax rates. The positive movement in net income of $4.7 million was due principally to the increase in average selling price. A $1 million rebate from the electric utility company also contributed to the improvement in net income during the current year quarter. Based on the current outlook for steel consumption levels and its impact on prices, the Company expects favorable earnings' comparisons in the upcoming quarters. Significant changes in average selling price without a corresponding change in the scrap raw material costs could have a substantial effect on the Company s operating results and liquidity. 9 10 CAPITAL RESOURCES AND LIQUIDITY Working capital increased $5.7 million to an all-time high of $119.4 million at August 31, 1995. Inventories increased $4.1 million as the Company increased its raw material inventories in anticipation of increased prices during the fall quarter. Historically, upward pressure on prices has been present in the scrap market during the winter months. Prepaid expenses increased $9.3 million from May 31, 1995 as a result of summer shutdown spending that will be amortized over the remainder of the fiscal year. The components of current liabilities were virtually unchanged from the previous fiscal year-end. Net cash provided (used) by operations in the August 1995 quarter decreased by $17.9 million due primarily to the change in net cash provided (used) by inventory. At May 31, 1994, inventory had increased as management anticipated higher demand in the summer of 1994. As that higher demand materialized, the amount of inventory returned to a more normal historical level at August 31, 1994. During 1995, inventory levels were more stable; therefore, diminishing its effect on cash. All other components of net cash provided (used) by operations did not change significantly from the prior year. As a result, cash and cash equivalents decreased $10.1 million after the Company acquired $7.5 million of capital additions, repaid $1.3 million of long-term debt and paid cash dividends of $1.5 million. Capital expenditures for the quarter ended August 31, 1995 totaled $7.5 million and are estimated to be approximately $25-$30 million in fiscal 1996; which represents normal replacement and technological upgrades of existing equipment. The Company currently does not plan any long-term expansion of its productive capabilities requiring significant capital resources within the next two years. The Company s capitalization of $355.8 million at August 31, 1995, consisted of $81 million of long-term debt and $274.8 million of stockholders equity. The current portion of long-term debt totaled $12.4 million at August 31, 1995. The average interest rate on long-term debt is 11%. The Company s total debt service is expected to be approximately $24 million during the next twelve months. The Company has short-term credit facilities with two banks totaling $20 million which will expire January 31, 1996 if not renewed by the banks or the Company. No borrowings existed under these arrangements during the first quarter of fiscal 1996. The Company believes that it will be able to renew these credit facilities 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 1996 will be sufficient to provide funds for capital expenditures, meet scheduled debt payments and satisfy other known working capital needs for fiscal 1996. 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. 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 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 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 business. 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 Registrant did not file any reports on Form 8-K during the three months ended August 31, 1995. 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 October 6, 1995 /s/ RICHARD M. FOWLER - --------------- ------------------------- Richard M. Fowler Senior Vice-President, Treasurer & Chief Financial Officer October 6, 1995 /s/ LARRY L. CLARK - --------------- ---------------------------------- Larry L. Clark Vice President - Controller & 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, 1995 1994 ---- ---- (In thousands except per share) AVERAGE SHARES OUTSTANDING Primary: Average shares outstanding 29,680 29,680 Stock options - treasury stock method using average market prices 123 32 -------- --------- TOTALS 29,803 29,712 ======== ========= Fully diluted: Average shares outstanding 29,680 29,680 Stock options - treasury stock method using end of quarter market price if higher than average 158 32 -------- --------- TOTALS 29,838 29,712 ======== ========= INCOME APPLICABLE TO COMMON STOCK Primary and fully diluted: Net income $ 6,428 $ 1,753 Add: Pre-September 1990 contingent price amortization 58 58 -------- --------- $ 6,486 $ 1,811 ======== ========= PER SHARE Net income per common share: Primary $ .22 $ .06 -------- --------- Fully diluted $ .22 $ .06 ======== =========
12 EX-15 3 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 15, 1995, 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, 1995. 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 October 6, 1995 13 EX-27 4 FINANCIAL DATA SCHEDULE
5 0000833226 CHAPARRAL STEEL COMPANY 1,000 3-MOS MAY-31-1996 AUG-31-1995 9,051 0 56,276 2,583 105,461 185,612 505,192 282,308 474,281 66,163 80,990 2,994 0 0 271,818 474,281 138,141 138,141 112,081 112,081 0 120 2,620 10,726 4,296 6,428 0 0 0 6,428 .22 .22
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