-----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, WnRhPQBS68qEaBFNem46ZK0/lOaM2jDKU+9bEIqCZhPD3Y/CfT3OKJevR+i1h7gg p83M7oqhW1PeSp+/UYidFQ== 0000950134-96-001340.txt : 19960416 0000950134-96-001340.hdr.sgml : 19960416 ACCESSION NUMBER: 0000950134-96-001340 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960229 FILED AS OF DATE: 19960412 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: 96546365 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 FEBRUARY 29, 1996 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 29, 1996 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 . --- --- 28,705,400 Shares of Common Stock, Par Value $.10 Outstanding at April 10, 1996. 1 of 13 2 INDEX CHAPARRAL STEEL COMPANY PART I. FINANCIAL INFORMATION Page - ----------------------------- ---- Item 1. Financial Statements (Unaudited) Condensed consolidated balance sheets--February 29, 1996 and May 31, 1995 3 Condensed consolidated statements of income--three and nine months ended February, 1996 and 1995 4 Condensed consolidated statements of cash flows --nine months ended February, 1996 and 1995 5 Notes to condensed consolidated financial statements --February 29, 1996 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 29, May 31, 1996 1995 --------- --------- (In thousands) ASSETS CURRENT ASSETS Cash and cash equivalents $ 20,455 $ 19,140 Trade accounts receivable, net of allowance of $2.7 million and $2.5 million, respectively 60,504 51,679 Inventories 108,923 101,377 Prepaid expenses 8,769 8,110 --------- --------- TOTAL CURRENT ASSETS 198,651 180,306 PROPERTY, PLANT AND EQUIPMENT Buildings and improvements 49,291 48,689 Machinery and equipment 460,902 447,982 Land 1,288 1,288 --------- --------- 511,481 497,959 Less allowance for depreciation (295,977) (275,476) --------- --------- 215,504 222,483 OTHER ASSETS Goodwill, commissioning costs and other assets, net of accumulated amortization of $26 million and $22.3 million, respectively 63,435 67,038 --------- --------- $ 477,590 $ 469,827 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Trade accounts payable $ 29,100 $ 37,818 Accrued interest payable 2,810 1,862 Other accrued expenses 17,918 13,236 Current portion of long-term debt 12,381 13,645 --------- --------- TOTAL CURRENT LIABILITIES 62,209 66,561 LONG-TERM DEBT 74,762 81,065 DEFERRED INCOME TAXES AND OTHER CREDITS 51,845 52,333 STOCKHOLDERS' EQUITY Preferred stock, $.01 par value, 500,000 authorized, none outstanding -- -- Common stock, $.10 par value, 29,112,100 and 29,679,900 shares outstanding, respectively 2,994 2,994 Paid-in capital 178,521 178,611 Retained earnings 115,152 90,767 Cost of common stock in treasury (7,893) (2,504) --------- --------- 288,774 269,868 --------- --------- $ 477,590 $ 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 Nine months ended February February 1996 1995 1996 1995 -------- -------- -------- -------- (In thousands except per share) Net sales $ 158,954 $ 132,388 $ 452,085 $ 383,043 Costs and expenses: Cost of sales (exclusive of items stated separately below) 124,054 109,006 357,502 317,998 Depreciation and amortization 8,091 8,579 24,269 25,397 Selling, general and administrative 7,116 5,193 19,626 13,801 Interest 2,474 2,952 7,712 9,366 Other income (1,480) (1,533) (3,723) (2,550) --------- --------- --------- --------- 140,255 124,197 405,386 364,012 INCOME BEFORE INCOME TAXES 18,699 8,191 46,699 19,031 Provision for income taxes 6,804 3,121 17,891 7,239 --------- --------- --------- --------- NET INCOME $ 11,895 $ 5,070 $ 28,808 $ 11,792 ========= ========= ========= ========= Per common share: NET INCOME $ .41 $ .17 $ .98 $ .40 ========= ========= ========= ========= CASH DIVIDENDS $ .05 $ .05 $ .15 $ .15 ========= ========= ========= ========= Average shares outstanding - Note B 29,423 29,716 29,658 29,713 ========= ========= ========= =========
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 1996 1995 -------- ------- (In thousands) OPERATING ACTIVITIES Net income $ 28,808 $ 11,792 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 24,269 25,397 Deferred income taxes (1,471) 1,621 Other deferred credits 985 12 Changes in operating assets and liabilities: Trade accounts receivable, net (8,825) (11,143) Inventories (7,546) 12,221 Prepaid expenses (659) (469) Trade accounts payable (8,718) 3,080 Accrued interest payable 948 822 Other accrued expenses 4,682 (3,741) -------- -------- Net cash provided by operating activities 32,473 39,592 INVESTING ACTIVITIES Capital expenditures (14,340) (9,914) Other 1,575 (298) -------- -------- Net cash used in investing activities (12,765) (10,212) FINANCING ACTIVITIES Repayments on short-term debt -- (15,000) Long-term borrowings 52 266 Repayments on long-term debt (7,619) (12,284) Purchase of treasury stock (6,402) -- Dividends paid (4,424) (4,452) -------- -------- Net cash used in financing activities (18,393) (31,470) -------- -------- Increase (decrease) in cash and cash equivalents 1,315 (2,090) Cash and cash equivalents at beginning of period 19,140 3,203 -------- -------- Cash and cash equivalents at end of period $ 20,455 $ 1,113 ======== ========
See notes to condensed consolidated financial statements. 5 6 (Unaudited) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CHAPARRAL STEEL COMPANY AND SUBSIDIARIES February 29, 1996 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. Effective March 1, 1996, the Company's assets were transferred to a Limited Partnership. The Company will continue to control all operations through wholly owned affiliates. Operating results for the nine month period ended February 29, 1996 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 was 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 $59.7 million, $61.2 million and $73 million at February 29, 1996, May 31, 1995 and May 31, 1994, respectively. 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, 1996 and 1995, 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 shares outstanding. 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 also contributed to 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:
February 29, May 31, 1996 1995 --------- --------- (In thousands) Finished goods $ 56,184 $ 54,323 Work in process 12,906 9,856 Raw materials 15,962 14,052 Rolls 19,144 18,148 Supplies 16,707 15,487 LIFO adjustment (11,980) (10,489) --------- --------- $ 108,923 $ 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 fiscal 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 $2.7 million and $5 million at February 29, 1996 and May 31, 1995, respectively. Amortization of $2.3 million was recorded in the first nine months 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 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. 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 29, 1996, and the related condensed consolidated statements of income for the three month and nine month periods ended February 29, 1996 and February 28, 1995, and the condensed consolidated statements of cash flows for the nine month periods ended February 29, 1996 and February 28, 1995. 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 and Young LLP Dallas, Texas March 15, 1996 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 29, 1996 to the quarter and nine months ended February 28, 1995. RESULTS OF OPERATIONS An increase in average selling price and shipments of approximately 10% resulted in a $26.6 million increase in net sales in the three month period ended February 29, 1996 compared to the same quarter in the prior year. Net sales increased $69 million in the nine month period ended February 29, 1996 due to an 11% increase in average selling price and an increase in shipments of 71,000 tons. The improved demand exhibited in the first half of fiscal 1996 continued in the current quarter as demand from service centers, fabricators and the mobile home industry for structural mill products has increased substantially from the prior year. However, continued growth in construction volume is generally dependent on the health of the economy and changes in interest rates. Demand for bar products continued to decrease in the February 1996 quarter as U.S. manufacturing weakened. 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 $15 million to $124.1 million for the three month period ended February 29, 1996 compared to the same period in the prior year. The increase was predominately caused by an increase in shipments of 35,000 tons and higher conversion costs. Cost of sales increased $39.5 million to $357.5 million for the nine month period ended February 29, 1996 compared to the same period in the prior year due primarily to the increase in shipments and higher scrap and conversion costs. Scrap prices followed their seasonal pattern of moving slightly upward during the winter but are expected to moderate in the spring. Combined rolling conversion costs increased slightly from the prior year periods. Selling, general and administrative expense increased $1.9 million and $5.8 million in the three and nine month periods ended February 29, 1996 compared to the prior year periods primarily due to increases in employee incentive programs which are based on profitability. Interest expense decreased $.5 million and $1.7 million in the three and nine month periods ended February 29, 1996 compared to the same periods in the prior year. Interest expense in the current periods was reduced by 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. The increase in net income in the current periods was due to higher average selling prices and increased shipments. Over the near term, shipment levels are expected to continue to exceed those of last year at prices that have begun to stabilize. Scrap prices are expected to moderate in the spring of 1996. In the upcoming quarters, the Company anticipates positive earnings comparisons to the prior year. 9 10 CAPITAL RESOURCES AND LIQUIDITY Working capital increased $22.7 million to an all-time high of $136.4 million at February 29, 1996. The increase in net income of $17 million provided additional working capital in the first nine months of fiscal 1996. Accounts receivable increased $8.8 million from the prior fiscal year-end due to strong sales in February 1996 and the short month. Inventories increased $7.5 million as the Company anticipates higher demand in the spring of 1996. Accounts payable decreased $8.7 million to a more normal level of $29.1 million at February 29, 1996. Other accrued expenses increased $4.7 million to $17.9 million due to increases in accruals for income taxes, payroll and employee incentives. The other components of working capital were virtually unchanged from the previous fiscal year-end. Net cash provided by operations in the nine months ended February 29, 1996 decreased by $7.1 million due primarily to the change in net cash provided 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 November 30, 1994. As a result, cash and cash equivalents increased $1.3 million after the Company bought $14.3 million of capital additions, repaid $7.6 million of long-term debt, purchased $6.4 million of treasury stock and paid cash dividends of $4.4 million. Capital expenditures for the nine months ended February 29, 1996 totaled $14.3 million and are estimated to be approximately $20-$25 million in fiscal 1996; which represents normal replacement and upgrades of existing equipment. The Company currently does not plan any major capital expenditures requiring significant capital resources within the next two years. The Company's capitalization of $375.9 million at February 29, 1996, consisted of $87.1 million of long-term debt and $288.8 million of stockholders' equity. The current portion of long-term debt totaled $12.4 million at February 29, 1996. 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 $20 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. Management determined that the short-term credit facilities with two banks totaling $20 million were no longer necessary to support the operations of the Company. No borrowings existed under these arrangements during the current fiscal year before they expired January 31, 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. 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 February 29, 1996. 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, 1996 Richard M. Fowler - -------------- ----------------------------------- Richard M. Fowler Vice President-Finance & Chief Financial Officer April 11, 1996 Larry L. Clark - -------------- ----------------------------------- Larry L. Clark Vice President - Controller 11 EX-11 2 COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11 COMPUTATION OF EARNINGS PER SHARE CHAPARRAL STEEL COMPANY AND SUBSIDIARIES
Three months ended Nine months ended February February 1996 1995 1996 1995 ------- ------- ------- ------- (In thousands except per share) AVERAGE SHARES OUTSTANDING Primary: Average shares outstanding 29,083 29,680 29,450 29,680 Stock options - treasury stock method using average market prices 340 36 208 33 ------- ------- ------- ------- TOTALS 29,423 29,716 29,658 29,713 ======= ======= ======= ======= Fully diluted: Average shares outstanding 29,083 29,680 29,450 29,680 Stock options - treasury stock method using end of quarter market price if higher than average 340 36 229 34 ------- ------- ------- ------- TOTALS 29,423 29,716 29,679 29,714 ======= ======= ======= ======= INCOME APPLICABLE TO COMMON STOCK Primary and fully diluted: Net income $11,895 $ 5,070 $28,808 $11,792 Add: Pre-September 1990 contingent price amortization 58 58 174 174 ------- ------- ------- ------- $11,953 $ 5,128 $28,982 $11,966 ======= ======= ======= ======= PER SHARE Net income per common share: Primary $ .41 $ .17 $ .98 $ .40 ======= ======= ======= ======= Fully diluted $ .41 $ .17 $ .98 $ .40 ======= ======= ======= =======
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 March 15, 1996, 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 29, 1996. 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 LLP Dallas, Texas April 8, 1996 13 EX-27 4 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS MAY-31-1996 FEB-29-1996 20,455 0 63,189 2,685 108,923 198,651 511,481 295,977 477,590 62,209 74,762 2,994 0 0 285,780 477,590 452,085 452,085 357,502 357,502 0 380 7,712 46,699 17,891 28,808 0 0 0 28,808 .98 .98
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