-----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, PWZh+qJ6l57BRfdQ7V0hqL5B+dXpvypzS3dQH+yETPHYVGWjoE6H7i0qhWT0Tjxe IHp4z97tbqncthvv0ARCpQ== 0000950134-96-004545.txt : 19960828 0000950134-96-004545.hdr.sgml : 19960828 ACCESSION NUMBER: 0000950134-96-004545 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19960531 FILED AS OF DATE: 19960827 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09944 FILM NUMBER: 96621554 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-K 1 FORM 10-K 1 =============================================================================== SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED MAY 31, 1996 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 1-9944 CHAPARRAL STEEL COMPANY (Exact name of registrant as specified in its charter) DELAWARE 75-1424624 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 300 WARD ROAD, MIDLOTHIAN, TEXAS 76065 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: A/C 214 775-8241 Securities registered pursuant to Section 12(b) of the Act: NAME OF EACH EXCHANGE ON TITLE OF EACH CLASS WHICH REGISTERED ------------------- ---------------- COMMON STOCK, PAR VALUE $.10 NEW YORK STOCK EXCHANGE Securities registered pursuant to Section 12(g) of the Act: NONE 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 --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [x]. Aggregate market value of the voting stock (which consists solely of shares of Common Stock) held by non-affiliates of the registrant as of August 9, 1996, computed by reference to the closing sale price of the registrant's Common Stock on the New York Stock Exchange on such date: $55,568,325. Indicate the number of shares outstanding of each of the Registrant's classes of Common Stock, as of the latest practicable date. COMMON STOCK - $.10 PAR VALUE 28,358,300 SHARES AS OF AUGUST 9, 1996 DOCUMENTS INCORPORATED BY REFERENCE PORTIONS OF THE REGISTRANT'S ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR ENDED MAY 31, 1996 ARE INCORPORATED BY REFERENCE INTO PART II. PORTIONS OF THE REGISTRANT'S DEFINITIVE PROXY STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD OCTOBER 16, 1996, ARE INCORPORATED BY REFERENCE INTO PART III. (Page 1 of 19 pages including Exhibits) =============================================================================== 2 TABLE OF CONTENTS
PAGE PART I Item 1. Business................................................ 1 Item 2. Properties.............................................. 5 Item 3. Legal Proceedings....................................... 5 Item 4. Submission of Matters to a Vote of Security Holders................................... 5 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters........................ 5 Item 6. Selected Financial Data................................. 6 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................ 6 Item 8. Financial Statements and Supplementary Data............. 6 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................ 6 PART III Item 10. Directors and Executive Officers of the Registrant...... 7 Item 11. Executive Compensation.................................. 9 Item 12. Security Ownership of Certain Beneficial Owners and Management..................................... 9 Item 13. Certain Relationships and Related Transactions.......... 9 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................................ 10
3 PART I ITEM 1. BUSINESS (a) General development of business Chaparral Steel Company (the "Company") was organized as a Delaware corporation in July 1973 by Texas Industries, Inc. ("TXI") and Co-Steel Inc.("Co-Steel"), a Canadian corporation, which owns steel mills in New Jersey, Canada and the United Kingdom. TXI is a New York Stock Exchange listed company which produces cement and concrete. At the time of the Company's organization, TXI and Co-Steel each owned a 50% interest in the Company. 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, until July 1988 when approximately 19.8% of the outstanding securities were sold in an initial public offering of common stock by the Company. The consolidated financial statements include the operations of Chaparral Steel Company, America Steel Transport and Castelite Steel Products, Inc. (b) Financial information about industry segments The Company operates in the steel industry only; therefore, no industry segment information is presented. (c) Narrative description of business The Company's original steel mill facility was completed in 1975 and consisted of an electric arc furnace and a rolling mill, which produced rebar used in concrete construction, and small size angles, channels, rounds and flats. In 1982, a major expansion of the steel mill, at a cost of approximately $180 million, added an additional electric arc furnace and rolling mill to produce medium-sized structural products. The expansion enabled the Company to produce beams up to 8" wide. Additional modifications to the medium section mill now enable the Company to produce beams up to 14" wide, in addition to large channels and angles. During fiscal 1992, commissioning was completed on a large beam mill which has expanded the existing product range up to include 24" wide-flange beams. The expansion was financed with long-term senior unsecured notes of $80 million. PRODUCTS The Company's products are sold generally to steel service centers and steel fabricators for use in the construction industry, as well as to cold finishers, forgers and original equipment manufacturers for use in the railroad, defense, automotive, mobile home and energy industries. The Company designed its bar and structural mills to efficiently produce bar mill products (28% of 1996 sales on a tonnage basis), structural mill products (46% of 1996 sales on a tonnage basis) and large beam mill products (26% of 1996 sales on a tonnage basis). The bar and structural mills can be modified, without substantial cost or delay, to change current product mix in order to comply with customer needs or changes in market conditions. 1 4 After inspection, bundling and strapping, finished products are delivered by common carrier, customer-owned truck, rail or barge. The Company maintains an inventory of finished products based on anticipated short-term usage to provide prompt shipments to customers when possible. The following is a general description of the Company's products: STRUCTURAL PRODUCT BUSINESS UNIT: BEAMS Beams are used for building construction and the non-building fabrication industries. Sales of beams currently constitute approximately 71% of the Company's sales on a tonnage basis. Beams produced by the Company's medium section mill include wide-flange beams (ranging in size from 4" x 4" to 14" x 6-3/4"), certain sizes of standard "I" beams and Bantam(TM) beams. Those beams are used in low-rise construction (up to five stories) and in various fabrication operations for industrial machinery and mobile home frames. The large beam mill has enabled the Company to produce wide-flange beams from 8" to 24" in diameter that are used in multi-story buildings, short-span bridges and other heavy industrial applications. The Company's products are predominately marketed in North America exclusively by Company salespersons. Approximately 50% of the Company's products are sold in Texas, Oklahoma, Louisiana and Arkansas. Other regional sales of the Company's products are approximately 15% in the midwest United States and approximately 13% in the southeastern United States. Rebar, merchant shapes and other products are sold principally to customers located in the southwestern United States. The Free Trade Agreements between the United States, Canada and Mexico may continue to favorably affect the Company's position as a supplier of certain steel products in the Canadian and Mexican markets. Export sales accounted for 4% of 1996 shipments. BAR PRODUCT BUSINESS UNIT: REINFORCING BAR The Company produces all commercial sizes of rebar from 3/8" diameter to 1-3/8" diameter for use in construction applications ranging from highway and public works projects to residential and high-rise construction. MERCHANT QUALITY ROUNDS Merchant quality rounds are cylindrical steel bars used in construction and fabrication operations. Common uses include roof joists, anchor bolts and truss supports. SPECIAL BAR QUALITY ROUNDS Special Bar Quality ("SBQ") rounds are produced in a large variety of carbon and alloy grades primarily for use in the forging, machining and cold drawing industries for production of automotive gears and hand tools. SBQ rounds are also used as sucker rod material in the oil industry. STRUCTURAL MERCHANT SHAPES AND OTHER PRODUCTS These products consist of structural channels, flat bars and squares used in the equipment manufacturing and construction industries, particularly in low-rise structures. 2 5 EXPANDING CAPACITY Historically, the Company's philosophy was to operate its mill at full production capacity. Recently, the Company refocused on serving customer requirements and specific markets while striving to achieve the lowest possible unit cost of production. The Company's strategy is to continually increase its melting capacity through productivity improvements, the utilization of new technology and capital expenditures. Continuing increases in melting capacity have dictated further capital spending for increases in rolling capacity to allow maximum use of the Company's facilities to take advantage of marketplace opportunities. RAW MATERIALS AND ENERGY The Company's primary raw material is scrap steel, which includes shredded steel. The Company produces a major portion of its shredded steel requirements from its own shredder operation at the site of the steel mill. Shredded material, which constitutes approximately 41% of the Company's raw material mix, is produced by the Company at its facility and is primarily composed of crushed auto bodies purchased on the open market. Another grade of scrap steel is #1 Heavy, which constitutes approximately 25% of the Company's scrap steel requirements and is also purchased on the open market. Historically, the Company has had an adequate supply of scrap steel for its operations, and the Company believes that the supply of scrap steel will be adequate to meet future requirements. The purchase price of scrap steel is subject to market forces largely beyond the control of the Company. The Company has historically maintained a scrap inventory commensurate with market conditions. The Company's steel mill consumes large amounts of electricity and natural gas. Electricity is obtained from a local electric utility under an interruptible supply contract with price adjustments which reflect increases or decreases in the utility's fuel costs. The Company believes that the savings in the cost of electricity resulting from the interruption provisions of the contract offsets any loss which might result from interruptions. Natural gas is purchased in the open market generally under a one year supply contract. The Company believes that adequate supplies of both electricity and natural gas are readily available. SEASONALITY While there is generally no seasonality in demand for the Company's products, production at the mill is normally shut down for up to two weeks each summer and up to one week in December, in order to conduct comprehensive maintenance (in addition to normal maintenance performed throughout the year) and to install capital improvements. During these periods, much of the equipment in the plant is dismantled, inspected and overhauled. The resulting lower production during the three month periods ending August and February affect the Company's financial results for those periods. MARKETING AND BACKLOG At present, the Company has approximately 1,700 customers. One customer accounted for 11% of the Company's sales in 1996. The commodity nature of certain of the Company's products is generally not characteristic of a long lead time order cycle. The Company does not believe that backlog is a significant factor in its business. While the Company has a small number of long-term customer contracts, most contracts are for quarterly customer requirements or for immediate shipment. Orders are generally filled within 45 days and are cancelable. 3 6 COMPETITION AND OTHER MARKET FACTORS The Company competes with steel producers, including foreign producers, on the basis of price, quality and service. Intense sales competition exists for substantially all of the Company's products. A substantial portion of the Company's products is sold to the construction industry. Both the domestic and foreign steel industries are characterized by excess mill capacity. Steel producers in the United States have faced strong competition from producers around the world. The Company believes that its success in increasing productivity, reducing production costs and shifting into higher margin product lines should continue to enable it to compete effectively with both foreign and domestic producers. ENVIRONMENTAL MATTERS The operations of the Company and its subsidiaries are subject to various federal and state environmental laws and regulations. Under these laws the U.S. Environmental Protection Agency ("EPA") and agencies of state government have the authority to promulgate regulations which could result in substantial expenditures for pollution control and solid waste treatment. Three major areas regulated by these authorities are air quality, water quality and hazardous waste management. Pursuant to these laws and regulations emission sources at the Company's facilities are regulated by a combination of permit limitations and emission standards of statewide application, and the Company believes that it is in substantial compliance with its permit limitations and applicable laws and regulations. The Company's steel mill generates, in the same manner as other similar steel mills in the industry, electric arc furnace ("EAF") dust that contains lead, chromium and cadmium. The EPA has listed this EAF dust, which is collected in baghouses, as a hazardous waste. The Company has contracts with reclamation facilities in the United States and Mexico pursuant to which such facilities receive the EAF dust generated by the Company and recover the metals from the dust for reuse, thus rendering the dust non-hazardous. In addition, the Company is continually investigating alternative reclamation technologies and has implemented processes for diminishing the amount of EAF dust generated. In March 1991, the EPA issued an Administrative Order for Removal Action requiring the Company, along with several other companies, to undertake final removal activities (the "Final Activities") at a site to which it had shipped EAF dust. The Company had participated earlier in preliminary remedial activities at the site under an Administrative Order on Consent entered into in January 1986 among the EPA, Chaparral and the other companies. Chaparral's share of the costs associated with the Final Activities did not have a material adverse effect on its competitive position, operations or financial condition. The Company intends to comply with all legal requirements regarding the environment, but since many of them are not fixed, presently determinable, or are likely to be affected by future legislation or rule making by government agencies, it is not possible to accurately predict the aggregate future costs of compliance and their effect on the Company's operations, future net income or financial condition. 4 7 EMPLOYEES At May 31, 1996, the Company had 1,183 employees. ITEM 2. PROPERTIES The Company's original steel mill facility completed in 1975 in Midlothian, Texas, consisted of an electric arc furnace and a rolling mill. In 1982, a major expansion of the steel mill, added an additional electric arc furnace and rolling mill that produced medium-sized structural products. In 1992, a large beam mill was commissioned that results in excess rolling capacity over the production capacity of the melting operation. The Company's real property, plant and equipment are subject to liens securing its long-term debt. Operating facilities are as follows:
(000's) (000's) Production Approximate Capacity 1996 square footage (Tons) (Tons) of facilities -------- ---------- -------------- Melting 1,600 1,611 265,000 Rolling 1,900 1,550 560,000
ITEM 3. LEGAL PROCEEDINGS From time to time, the Company is involved in litigation relating to claims arising in the ordinary course of business operations. No material litigation is pending against or currently affects the Company. The Company maintains insurance with financially sound insurance companies against certain risks, which insurance the Company believes to be adequate in relation to the Company's business. The Company also maintains a hazardous waste liability policy against certain third party claims. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Common stock market prices, dividends and certain other items as shown in the "Quarterly Stock Prices and Dividends" information located on page 15 of the Registrant's Annual Report to Stockholders for the year ended May 31, 1996, are incorporated herein by reference. The restriction on the payment of dividends described in Note E to the Consolidated Financial Statements entitled "Long-Term Debt" on page 11 and 12 of the Registrant's Annual Report to Stockholders for the year ended May 31, 1996, is incorporated herein by reference. 5 8 ITEM 6. SELECTED FINANCIAL DATA The "Selected Financial Data" on page five of the Registrant's Annual Report to Stockholders for the year ended May 31, 1996, is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages three and four of the Registrant's Annual Report to Stockholders for the year ended May 31, 1996, are incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following Consolidated Financial Statements and Supplementary Data of the Registrant and its subsidiaries, included in the Registrant's Annual Report to Stockholders for the year ended May 31, 1996, are incorporated herein by reference: Consolidated Balance Sheets - May 31, 1996 and 1995 Consolidated Statements of Income - Years ended May 31, 1996, 1995 and 1994 Consolidated Statements of Cash Flows - Years ended May 31, 1996, 1995 and 1994 Consolidated Statements of Stockholders' Equity - Years ended May 31, 1996, 1995 and 1994 Notes to Consolidated Financial Statements - May 31, 1996 Quarterly Financial Information ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None 6 9 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Reference is made to "Election of Directors" on page two of the Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held October 16, 1996. Information on the directors and executive officers of the Registrant is presented below:
POSITIONS WITH REGISTRANT, OTHER NAME AGE EMPLOYMENT DURING LAST FIVE YEARS ---- --- --------------------------------- Robert D. Rogers........ 60 Chairman of the Board of the Company; President, Chief Executive Officer and Director of TXI; Director of Consolidated Freightways, Inc. (2)(3) Gordon E. Forward....... 60 President, Chief Executive Officer and Director; Director of TXI (2) Kenneth R. Allen........ 39 Director of Investor Relations of Chaparral Steel and TXI; Treasurer of TXI Dennis E. Beach......... 57 Vice President - Administration Larry L. Clark.......... 52 October 1993 to present, Vice President - Controller and Assistant Treasurer; 1976 to September 1993, Controller and Assistant Treasurer David A. Fournie........ 48 October 1995 to present, Vice President - Structural Products Business Unit; 1992 to October 1995, Vice President of Operations; 1990 to 1991, General Manager - Medium Section Mill Richard M. Fowler....... 53 Vice President - Finance and Treasurer; Vice President - Finance of TXI H. Duff Hunt, III....... 50 October 1995 to present, Vice President - Recycled Products Business Unit; 1993 to October 1995, General Manager Operations - Melt Shop; 1992 to 1993, General Manager - Engineering; 1990 to 1992, General Manager Operations - Melt Shop Richard T. Jaffre....... 53 Vice President - Raw Materials / Transportation Robert C. Moore......... 62 Vice President - General Counsel and Secretary; Vice President - General Counsel and Secretary of TXI
7 10 Libor F. Rostik......... 62 Vice President - Engineering Peter H. Wright......... 54 October 1995 to present, Vice President - Bar Products Business Unit; 1991 to October 1995, Vice President - Quality Control and SBQ Sales Robert Alpert........... 64 Director; Director of TXI and Consolidated Freightways, Inc.; Chairman of the Board of Alpert Companies (1)(3) John M. Belk............ 76 Director; Chairman of the Board of Belk Stores Services, Inc.; Director of Lowe's Companies, Inc. and Coca-Cola Bottling Co. Consolidated (3) Gerald R. Heffernan..... 76 Director; President - G. R. Heffernan & Associates, Ltd. Eugenio Clariond Reyes.. 53 October 1993 to present, Director; Director General and Chief Executive Officer, Grupo IMSA S. A.; President, Mexico - U.S. Chamber of Commerce; Director, Instituto Tecnologico y de Estudias Superiores de Monterrey, A.C.(1)
(1) Member of the Audit Committee. (2) Member of the Executive Committee. (3) Member of the Compensation Committee. Directors who are not employees of the Company currently receive $15,000 per year plus $1,000 for each day that a Board and/or a Committee Meeting is attended. All references to years in the above biographies are references to calendar years. 8 11 ITEM 11. EXECUTIVE COMPENSATION The "Executive Compensation" and "Report of the Compensation Committee on Executive Compensation" on pages five through nine of the Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held October 16, 1996, is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The "Security Ownership of Certain Beneficial Owners" on page two and the "Security Ownership of Management" on page four of the Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held October 16, 1996, is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS No reportable transactions occurred between the Company and any director, nominee for director, officer or any affiliate of, or person related to, any of the foregoing since the beginning of the Company's last fiscal year (June 1, 1995). 9 12 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) and (2) The response to this portion of Item 14 is submitted as a separate section of this report. (a)(3) Listing of Exhibits 3. Articles of Incorporation. (incorporated by reference from Chaparral Steel Company's Form S-1 Registration No. 33-22103 as filed June 29, 1988) 4. Instruments defining rights of security holders. (incorporated by reference from Chaparral Steel Company's Form S-1 Registration No. 33-22103 as filed June 29, 1988) 10. Material contracts. (incorporated by reference from Chaparral Steel Company's Form S-1 Registration No. 33-22103 as filed June 29, 1988) 11. Statement re: computation of per share earnings. 13. Annual report to security holders--Registrant's annual report to security holders for its last fiscal year, except for those portions thereof which are expressly incorporated by reference in this filing, is furnished for the information of the Commission and is not to be deemed "filed" as part of this filing. 21. Subsidiaries of the Registrant. 23. Consents of experts and counsel. 24. Power of Attorney for certain members of the Board of Directors. (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended May 31, 1996. (c) Exhibits -- The response to this portion of Item 14 is submitted as a separate section of this report. (d) Financial Statement Schedules -- The response to this portion of Item 14 is submitted as a separate section of this report. 10 13 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the issuer has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Dallas, State of Texas, on the 23rd day of August, 1996. CHAPARRAL STEEL COMPANY By: /s/GORDON E. FORWARD -------------------- (Gordon E. Forward) President, Chief Executive Officer and Director Pursuant to the requirements of the Securities Act of 1934, this report has been signed by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
Signatures Title Date ---------- ----- ---- /s/ROBERT D. ROGERS* Chairman of the Board August 23, 1996 -------------------- (Robert D. Rogers) /s/GORDON E. FORWARD President, August 23, 1996 -------------------- Chief Executive Officer (Gordon E. Forward) and Director /s/RICHARD M. FOWLER Vice President - August 23, 1996 -------------------- Finance and Treasurer (Richard M. Fowler) Chief Financial and Accounting Officer Director August 23, 1996 -------------------- (Robert Alpert) Director August 23, 1996 -------------------- (John M. Belk)
11 14 /s/GERALD R. HEFFERNAN* Director August 23, 1996 -------------------------- (Gerald R. Heffernan) /s/EUGENIO CLARIOND REYES* Director August 23, 1996 -------------------------- (Eugenio Clariond Reyes) *By /s/RICHARD M. FOWLER -------------------------- (Richard M. Fowler) Attorney-in-Fact
12 15 ANNUAL REPORT ON FORM 10-K ITEM 14 (a)(1) AND (2), (c) AND (d) LIST OF FINANCIAL STATEMENTS AND SCHEDULES FINANCIAL STATEMENT SCHEDULES CERTAIN EXHIBITS YEAR ENDED MAY 31, 1996 CHAPARRAL STEEL COMPANY AND SUBSIDIARIES MIDLOTHIAN, TEXAS 13 16 FORM 10-K ITEM 14 (a)(1) and (2) and ITEM 14(d) LIST OF FINANCIAL STATEMENTS AND SCHEDULES The following consolidated financial statements of Chaparral Steel Company included in the annual report of the Company to its stockholders for the year ended May 31, 1996, are incorporated by reference in Item 8: CHAPARRAL STEEL COMPANY AND SUBSIDIARIES Consolidated Balance Sheets - May 31, 1996 and 1995 Consolidated Statements of Income - Years ended May 31, 1996, 1995 and 1994 Consolidated Statements of Cash Flows - Years ended May 31, 1996, 1995 and 1994 Consolidated Statements of Stockholders' Equity - Years ended May 31, 1996, 1995 and 1994 Notes to Consolidated Financial Statements - May 31, 1996 The following consolidated financial statement schedule for the years ended May 31, 1996, 1995 and 1994 is submitted herewith: Schedule II -- Valuation and qualifying accounts All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions, or are inapplicable and therefore, have been omitted. 14 17 CHAPARRAL STEEL COMPANY AND SUBSIDIARIES SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS For the Years Ended May 31, 1996, 1995 and 1994 (In thousands)
Col. A Col. B Col. C Col. D Col. E ------ ------ ------ ------ ------ Additions Balance at Charged to Balance at Beginning Costs and End of Description of Period Expenses Deductions Period ----------- ---------- ---------- ---------- ---------- 1996: Allowance for doubtful accounts........ $2,468 $ 635 $ 255 (1) $2,848 1995: Allowance for doubtful accounts........ $3,848 $ 1,440 $ 2,820 (1) $2,468 1994: Allowance for doubtful accounts........ $3,425 $ 800 $ 377 (1) $3,848
(1) Uncollectible receivables written off. 15 18 INDEX TO EXHIBITS
EXHIBIT NUMBER EXHIBIT - ------ ------- 11. Statement re: computation of per share earnings. 12. Annual report to security holders--Registrant's annual report to security holders for its last fiscal year, except for those portions thereof which are expressly incorporated by reference in this filing, is furnished for the information of the Commission and is not to be deemed "filed" as part of this filing. Since the financial statements in the report have been incorporated by reference in this filing, the accountant's certificate is manually signed in the signed copy of this filing. 21. Subsidiaries of the Registrant. 23. Consents of experts and counsel. 24. Power of Attorney for certain members of the Board of Directors. 27. Financial Data Schedule
EX-11 2 COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS CHAPARRAL STEEL COMPANY
Year Ended May 31, ----------------------------------- 1996 1995 1994 ------- ------- ------- (In thousands except per share) AVERAGE SHARES OUTSTANDING: For 1996, 1995 and 1994, weighted average shares outstanding ................................. 29,278 29,680 29,680 ======= ======= ======= Primary: Average shares outstanding ..................... 29,278 29,680 29,680 Stock options and other equivalents treasury stock method ....................... 265 42 41 ------- ------- ------- TOTALS 29,543 29,722 29,721 Fully diluted: Average shares outstanding ..................... 29,278 29,680 29,680 Stock options and other equivalents treasury stock method ....................... 287 42 49 ------- ------- ------- TOTALS 29,565 29,722 29,729 INCOME APPLICABLE TO COMMON STOCK: Primary and fully diluted: NET INCOME .................................. $41,977 $19,607 $11,919 Add: Pre-September 1990 contingent amortization ....................... 233 233 233 ------- ------- ------- NET INCOME APPLICABLE TO COMMON STOCK ............. $42,210 $19,840 $12,152 ======= ======= ======= PRIMARY AND FULLY DILUTED: NET INCOME PER COMMON SHARE ....................... $ 1.43 $ .67 $ .41 ======= ======= =======
16 EX-13 3 ANNUAL REPORT 1 CORPORATE PROFILE CHAPARRAL STEEL COMPANY AND SUBSIDIARIES Chaparral Steel Company, located in Midlothian, Texas, owns and operates a technologically advanced steel mill which produces bar and structural steel products by recycling scrap steel. The plant commenced operations in 1975 and more than doubled in capacity in 1982. In 1992, a large beam mill was completed which further expanded Chaparral's capacity and product range. The Company now has two electric arc furnaces with continuous casters, a bar mill, structural mill and a large beam mill which enable it to produce a broader array of steel products than traditional mini mills. Chaparral follows a market mill concept which entails the production of a wide variety of products ranging from reinforcing bar and specialty products to large-sized structural beams at low cost and is able to change its product mix to recognize changing market conditions or customer requirements. The Company's steel products include beams, reinforcing bars, special bar quality rounds, channels and merchant quality rounds. These products are sold principally to the construction industry and to the railroad, defense, automotive, mobile home and energy industries. Chaparral's principal customers are steel service centers, steel fabricators, cold finishers, forgers and original equipment manufacturers. The Company distributes its products primarily to markets in North America, and under certain market conditions, to Europe and Asia. Chaparral is listed on the New York Stock Exchange, under the ticker symbol CSM, and is 84 percent owned by Texas Industries, Inc. 2 CHAPARRAL STEEL COMPANY AND SUBSIDIARIES TO OUR STOCKHOLDERS Fiscal year 1996 earnings were more than twice those reported for 1995. The increase was primarily driven by the Structural Products business unit, which benefited from the sustained recovery of U.S. nonresidential building. The improved results for the Company occurred despite weak markets for major products supplied by the Bar Products business unit. Net income for 1996 equaled $42 million or $1.43 per share, which compares to $19.6 million or $.67 per share for the previous year. Revenues of $607.7 million were up 14% from last year on record shipments of 1.6 million tons and 9% higher realized prices. With demand for structural steel beams having recovered, Chaparral looks forward to pressing its advantages in lightweight beam sizes by developing new markets and products. We also intend to increase and strengthen our Bar Products business unit's position in special quality steels. Finally, we have intensified our efforts to realize the full potential of our Recycled Products business unit. STRUCTURAL PRODUCTS BUSINESS UNIT Shipments from the Structural Mills slightly exceeded 1.1 million tons, an increase of 10% over the previous year. Average selling price increased 13%. Sustained U.S. nonresidential building activity contributed to structural beam demand. Sales in the manufactured housing industry have been strong as well, resulting in good demand for Chaparral's Bantam BeamTM product. With fewer domestic producers of beams in the market, supply and demand conditions are favorable. Some imports are required to meet demand. However, U.S. fabricators are exporting beams to overseas markets, indicating the strong competitive position of U.S. beam producers relative to producers elsewhere in the world. Chaparral's strategy has been to focus on beams in the very lightweight ranges. These sizes fit very well with the expected building of suburban offices, shopping centers, warehouses and manufactured homes in the U.S. Going forward, we intend to continue that focus and develop new applications and products, such as our Castelite Beam(TM), which is designed to be used in roof and floor support systems. BAR PRODUCTS BUSINESS UNIT Bar Mill shipments equaled 453,000 tons in 1996, down 5% compared to the prior year. Average selling price declined slightly as well. Demand for special quality steels, which accounted for half of the Bar Mill shipments, weakened considerably during the year as general manufacturing activity slipped. Demand for reinforcing bar was strong, but that market was over supplied with product. Chaparral's strategy has been to increase its mix of special quality steel products in order to improve the long term profitability of the Bar Products business unit. The over supply of the reinforcing bar market indicates that this was, and continues to be, the correct course. Early in 1995, the caster that supplies billets to the Bar Mill was reconfigured in order to upgrade the special quality steel product line. Over the next three years, we plan to increase the capacity and upgrade the capability for making these products in order to further improve the competitive position of the mill. RECYCLED PRODUCTS BUSINESS UNIT The goal of the Recycled Products business unit is to develop synergies in recycling among all operations of Chaparral Steel. Specific responsibilities include scrap processing, melt shop operations and the transformation of by-products from manufacturing processes into value-added products. Chaparral's shredder operation transformed over 700,000 tons of old cars and other light scrap into raw material in 1996. This volume represents about 40% of Chaparral's total scrap needs. The shredder operation, which is the largest and most productive in the world, provides Chaparral with a competitive advantage in the acquisition of raw material. We intend to increase the volume of material processed through the shredder in order to expand on that advantage. With the addition of a new ladle furnace and other improvements, annual production capacity in the Melt Shop will be increased by approximately 100,000 tons. Shipments should be positively impacted as a result. OUTLOOK 1996 was a good year, but not a great year. Our efforts will be focused on improving results in the coming year by increasing shipments, continuing to upgrade the Bar Mill product line and focusing on the beam market products that play to our strengths. The strong cash flows and balance sheet of the Company provide the flexibility to grow and expand. Our goal is to grow, but grow in a way that generates above average returns for our stockholders. Innovation has been and will continue to be a major key to Chaparral's success and that innovation has been driven by the imagination and efforts of Chaparral's employees. Opportunities for further innovation are only limited by our imagination and I can assure you that your Company is well-stocked with that resource! /s/ GORDON E. FORWARD, PH.D. Gordon E. Forward, Ph.D. President and Chief Executive Officer July 12, 1996 3 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CHAPARRAL STEEL COMPANY AND SUBSIDIARIES GENERAL The Company's steel plant is a market mill with the flexibility to produce a wide range of steel products. The ability to produce a variety of products at low cost has enabled the Company to penetrate markets throughout the United States and overseas. The principal components of the Company's cost of sales are raw material and conversion costs. Scrap steel, the cost of which fluctuates with market conditions, is the Company's primary raw material. Conversion costs are comprised principally of energy, maintenance and labor. RESULTS OF OPERATIONS NET SALES In 1996, net sales increased $75.8 million from the previous year due to a 9% increase in average selling price and a 79,000 ton increase in shipments to a record level of 1,590,000 tons. Export sales decreased to 4% of total shipments in 1996 because of a strong domestic market. The demand for structural products from service centers, fabricators and the mobile home industry has increased substantially from the prior year. Prices for structural mill products increased 13% in 1996. Bar mill shipments were 5% below the previous year on somewhat lower average selling prices. Chaparral uses its ability to adjust its product mix to maximize profit margins. Net sales in 1995 increased $69.5 million from the previous year as shipments increased 149,000 to 1,511,000 tons. Export sales were 7% of total shipments in 1995. The demand for the Company's products improved due to a stronger United States economy. Special Bar Quality shipments increased 26% during fiscal 1995 reflecting the Company's expanded penetration in this market. Average selling price increased $13 per ton from the prior year also brought about by better economic conditions. COST OF SALES (EXCLUSIVE OF DEPRECIATION AND AMORTIZATION) Cost of sales increased $40.6 million, in 1996, due to the 79,000 ton increase in shipments and a 4% increase in average cost per ton. Higher scrap and melt shop conversion costs in 1996 accounted for a significant portion of the increase in average cost of sales. Combined rolling costs were slightly higher than the prior year. In 1995, cost of sales increased $56.6 million due primarily to the 149,000 ton increase in shipments. Increases in scrap and melt shop conversion costs were offset by decreases in combined rolling costs. SELLING, GENERAL AND ADMINISTRATIVE EXPENSE Selling, general and administrative expenses generally fluctuate with the provisions for employee incentive programs that are based on profitability which amounted to $6.8 million, $2.8 million and $(.1) million for 1996, 1995 and 1994, respectively. 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 1994. INTEREST EXPENSE Payment of scheduled maturities of long-term debt during the three years ended May 31, 1996 served to reduce the amount of interest expense. NET INCOME In 1996, net income more than doubled to $42 million due primarily to the 9% increase in average selling prices. Depreciation costs decreased slightly as the Company did not incur any major capital improvements during 1996. Amortization of commissioning costs, that are being expensed over a five year period, totaled $3 million in the current year. Amortization of goodwill totaled $2 million in 1996. In 1995, net income improved $7.7 million to $19.6 million due primarily to the 149,000 ton increase in shipments. Depreciation costs were unchanged as the Company did not incur any major capital improvements during 1995. Amortization of commissioning costs and goodwill totaled $3 million and $2.3 million, respectively, in fiscal 1995. 4 CHAPARRAL STEEL COMPANY AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES Working capital increased $23 million to an all-time high of $136.7 million at May 31, 1996. Cash provided by operations decreased by $20.1 million from the prior year as the increase in net income of $22.4 million was offset by a decrease in cash provided by inventories of $36.6 million. Finished goods was higher at May 31, 1996 due to increased production in the structural mills. Raw material levels were higher in anticipation of higher scrap costs in the fall of 1996. Cash provided by accounts payable decreased by $12.8 million as the May 31, 1996 balance returned to more historical levels. As a result, at May 31, 1996, cash and cash equivalents increased $.9 million to $20 million after the Company acquired $20.6 million of capital additions, repaid $15.7 million of long-term debt, purchased $12.5 million of treasury stock and paid cash dividends of $5.9 million. Capital expenditures for fiscal 1997 are currently estimated to be approximately $15 million; which represents normal replacement and technological upgrades of existing equipment. The Company's capitalization of $361.7 million at May 31, 1996, consisted of $66.7 million in long-term debt and $295 million of stockholders' equity. The Company's stockholders' equity includes paid-in capital which resulted from the excess of cost over fair value of net assets acquired, net of amortization. In 1995, paid-in capital and goodwill were decreased by $9.4 million due to an adjustment to the excess of cost over fair value of net assets acquired. During 1996, the Board of Directors approved the repurchase of a portion of the Company's outstanding stock to satisfy outstanding stock option grants. The long-term debt-to-capitalization ratio was 18% at May 31, 1996 versus 23% at May 31, 1995. The decrease was caused by the repayment of $15.7 million of long-term debt and the increase in stockholders' equity which was due to the net income of $42 million minus the payment of cash dividends of $5.9 million and the purchase of treasury stock of $12.5 million. The Company's earnings improved in 1996 due primarily to the 9% increase in average selling price. Based on the current outlook for steel consumption levels in 1997 and its impact on prices, the Company anticipates a slight decrease in average selling price. Cost per ton levels should level off as an expected slight increase in scrap costs should be offset by lower conversion costs. Management anticipates a modest increase in shipment levels during fiscal 1997 resulting from increased raw steel production. 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. The Company expects the current financial resources and anticipated cash provided from operations will be sufficient to provide funds for capital expenditures, meet scheduled debt payments and satisfy other known working capital needs for fiscal 1997. 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. Management determined that the short-term credit facilities with two banks totaling $20 million were not currently required to support the operations of the Company. No borrowings had 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. INFLATION Energy, scrap and labor, which are the principal components of the Company's manufacturing cost, are generally susceptible to inflationary pressures, while finished product prices are more readily influenced by competition within the steel industry. Since May 31, 1993, inflation has not materially affected the Company's results of operations or financial condition. 5 SELECTED FINANCIAL DATA CHAPARRAL STEEL COMPANY AND SUBSIDIARIES
In thousands except per share 1996 1995 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------------------------- RESULTS OF OPERATIONS Net sales $607,656 $531,811 $ 462,275 $ 420,210 $ 416,610 Gross profit (exclusive of depreciation and amortization) 130,050 94,761 81,777 58,624 66,678 Employee profit sharing 6,116 2,933 1,896 - 1,199 Interest expense 10,007 12,082 13,439 14,650 12,541 Net income (loss) 41,977 19,607 11,919 (2,051) 7,090 - ------------------------------------------------------------------------------------------------------------------------------- PER SHARE INFORMATION Net income (loss) $ 1.43 $ .67 $ .41 $ (.06) $ .25 Dividends .20 .20 .20 .20 .20 - ------------------------------------------------------------------------------------------------------------------------------- FOR THE YEAR Net cash provided by operating activities $ 52,618 $ 72,723 $ 10,603 $ 25,087 $ 28,841 Capital expenditures 20,630 16,234 7,805 7,424 12,616 - ------------------------------------------------------------------------------------------------------------------------------- YEAR END POSITION Total assets $475,337 $469,827 $ 488,307 $ 480,811 $ 504,905 Net working capital 136,723 113,745 95,225 80,901 75,252 Long-term debt 66,697 81,065 96,219 113,997 126,714 Stockholders' equity 294,965 269,868 265,623 259,598 267,584
6 CHAPARRAL STEEL COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - MAY 31
In thousands 1996 1995 - ----------------------------------------------------------------------------------------------------------------------------- ASSETS Current Assets Cash and cash equivalents $ 20,014 $ 19,140 Trade accounts receivable, net of allowance of $2.8 million and $2.5 million, respectively 49,530 51,679 Inventories 121,791 101,377 Prepaid expenses 7,757 8,110 - ----------------------------------------------------------------------------------------------------------------------------- Total Current Assets 199,092 180,306 Property, Plant And Equipment Buildings and improvements 55,342 48,689 Machinery and equipment 436,886 447,982 Land 1,288 1,288 - ----------------------------------------------------------------------------------------------------------------------------- 493,516 497,959 Less allowance for depreciation 279,447 275,476 - ----------------------------------------------------------------------------------------------------------------------------- 214,069 222,483 Other Assets Goodwill, commissioning costs and other assets, net of accumulated amortization of $27.3 million and $22.3 million, respectively 62,176 67,038 - ----------------------------------------------------------------------------------------------------------------------------- $ 475,337 $ 469,827 - ----------------------------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Trade accounts payable $ 34,131 $ 37,818 Accrued interest payable 1,402 1,862 Other accrued expenses 14,470 13,236 Current portion of long-term debt 12,366 13,645 - ----------------------------------------------------------------------------------------------------------------------------- Total Current Liabilities 62,369 66,561 Long-Term Debt 66,697 81,065 Deferred Income Taxes And Other Credits 51,306 52,333 Stockholders' Equity Preferred stock, $.01 par value, 500,000 authorized, none outstanding - - Common stock, $.10 par value, 50,000,000 authorized, 28,707,400 and 29,679,900 outstanding, respectively 2,994 2,994 - ----------------------------------------------------------------------------------------------------------------------------- Paid-in capital 178,517 178,611 Retained earnings 126,885 90,767 Cost of common shares in treasury (13,431) (2,504) - ----------------------------------------------------------------------------------------------------------------------------- 294,965 269,868 - ----------------------------------------------------------------------------------------------------------------------------- $ 475,337 $ 469,827 - -----------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. 7 CONSOLIDATED STATEMENTS OF INCOME - YEAR ENDED MAY 31 CHAPARRAL STEEL COMPANY AND SUBSIDIARIES
In thousands except per share 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------- Net sales $ 607,656 $ 531,811 $ 462,275 Costs and expenses: Cost of sales (exclusive of items stated separately below) 477,606 437,050 380,498 Depreciation and amortization 32,493 33,887 33,756 Selling, general and administrative 26,099 20,362 15,937 Interest 10,007 12,082 13,439 Other income (4,318) (3,116) (3,372) - ------------------------------------------------------------------------------------------------------------------------------- 541,887 500,265 440,258 Income Before Income Taxes 65,769 31,546 22,017 Provision for income taxes 23,792 11,939 10,098 - ------------------------------------------------------------------------------------------------------------------------------- Net Income $ 41,977 $ 19,607 $ 11,919 - ------------------------------------------------------------------------------------------------------------------------------- Net Income Per Common Share $ 1.43 $ .67 $ .41 - ------------------------------------------------------------------------------------------------------------------------------- Cash Dividends Per Common Share $ .20 $ .20 $ .20 - -------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. 8 CHAPARRAL STEEL COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - YEAR ENDED MAY 31
In thousands 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income $ 41,977 $ 19,607 $ 11,919 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 32,493 33,887 33,756 Provision for deferred income taxes (1,894) 1,994 3,101 Other deferred credits 867 83 (2,193) Changes in operating assets and liabilities: Trade accounts receivable, net 2,149 (9,548) (8,380) Inventories (20,414) 16,206 (24,911) Prepaid expenses 353 804 (767) Trade accounts payable (3,687) 9,151 1,465 Accrued interest payable (460) (573) (609) Other accrued expenses 1,234 1,112 (2,778) - ------------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 52,618 72,723 10,603 INVESTING ACTIVITIES Capital expenditures (20,630) (16,234) (7,805) Other 1,429 (124) 93 - ------------------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (19,201) (16,358) (7,712) FINANCING ACTIVITIES Short-term borrowings - -- 30,000 Repayments on short-term debt - (15,000) (15,000) Long-term borrowings 52 985 260 Repayments on long-term debt (15,700) (20,477) (12,775) Dividends paid (5,859) (5,936) (5,936) Proceeds from issuance of treasury stock 1,470 -- -- Purchase of treasury stock (12,506) -- -- - ------------------------------------------------------------------------------------------------------------------------------- Net cash used in financing activities (32,543) (40,428) (3,451) - ------------------------------------------------------------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents 874 15,937 (560) Cash and cash equivalents at beginning of year 19,140 3,203 3,763 - ------------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $ 20,014 $ 19,140 $ 3,203 - -------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. 9 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY CHAPARRAL STEEL COMPANY AND SUBSIDIARIES
Preferred Common Stock Paid-in Retained Treasury Stock In thousands Stock Shares Amount Capital Earnings Shares Amount - --------------------------------------------------------------------------------------------------------------------------------- Balance at May 31, 1993 $ - 29,940 $2,994 $188,050 $ 71,113 (265) $ (2,559) Net income for the year ended May 31, 1994 - - - - 11,919 - - Dividends paid to stockholders ($.20 per share) - - - - (5,936) - - Treasury stock issued for options - 4,500 shares - - - (13) - 5 55 - --------------------------------------------------------------------------------------------------------------------------------- Balance at May 31, 1994 - 29,940 2,994 188,037 77,096 (260) (2,504) Net income for the year ended May 31, 1995 - - - - 19,607 - - Dividends paid to stockholders ($.20 per share) - - - - (5,936) - - Adjustment to the excess of cost over fair value of net assets acquired - - - (9,426) - - - - --------------------------------------------------------------------------------------------------------------------------------- Balance at May 31, 1995 - 29,940 2,994 178,611 90,767 (260) (2,504) Net income for the year ended May 31, 1996 - - - - 41,977 - - Dividends paid to stockholders ($.20 per share) - - - - (5,859) - - Treasury stock purchased - - - - - (1,107) (12,506) Treasury stock issued for options - 134,000 shares - - - (94) - 134 1,579 - --------------------------------------------------------------------------------------------------------------------------------- Balance at May 31, 1996 $ - 29,940 $2,994 $178,517 $ 126,885 (1,233) $ (13,431) - ---------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. 10 CHAPARRAL STEEL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - MAY 31, 1996 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION AND RELATED MATTERS: The consolidated financial statements include the operations of Chaparral Steel Company (the "Company") and its majority owned subsidiaries. The Company is 84% owned by Texas Industries, Inc. ("TXI"). FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS: The Company operates in the steel industry only; therefore, no industry segment information is presented. CASH EQUIVALENTS: Cash equivalents consist of highly liquid investments with original maturities of three months or less. CREDIT RISK: The Company extends credit to various companies in steel distribution, fabrication and related industries. Such credit risk is considered by management to be limited due to the Company's sizable customer base and the geographical dispersion of the customer base. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. INVENTORIES: 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. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the property. EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED: The amount of goodwill, net of amortization, arising from the purchase of 50% of the outstanding securities of the Company by TXI, was recorded using the purchase method of accounting and totaled $59.2 million and $61.2 million at May 31, 1996 and 1995, respectively. Due to an adjustment of the original amount, goodwill and paid-in capital were decreased $9.4 million in 1995. This goodwill is being amortized over 40 years using the straight-line method and reduced earnings by $2 million, $2.3 million and $2.3 million in 1996, 1995 and 1994, respectively. 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. INCOME TAXES: The Company and TXI have a tax sharing agreement (the "Agreement") whereby the Company is included in the consolidated income tax return of TXI. The agreement provides that the Company will account for income taxes on a stand-alone basis. Accordingly, the Company makes payments to or receives payments from TXI in amounts equal to the income taxes it would have otherwise paid or received. Deferred income taxes are determined using the liability method. COMPUTATION OF NET INCOME PER COMMON SHARE: Net income per common share is calculated based upon a weighted average of 29,543,000, 29,722,000 and 29,721,000 shares outstanding (including common stock equivalents) during 1996, 1995 and 1994, respectively. The calculations of net income per common share for periods after August 31, 1990, contain an adjustment for the previous amortization of an estimated amount of goodwill. USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. RECENT ACCOUNTING PRONOUNCEMENT: In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121 ("Statement No. 121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of", that requires recognition of impairment losses on long-lived assets. Statement No. 121 also addresses the accounting for long-lived assets that are expected to be disposed of in future periods. The Company will adopt Statement No. 121 in the first quarter of 1997 and, based on estimates as of May 31, 1996, believes the effect of adoption, if any, will not have material effect on the financial statements of the Company. 11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CHAPARRAL STEEL COMPANY AND SUBSIDIARIES NOTE B - INVENTORIES Inventories consist of the following:
May 31 In thousands 1996 1995 - ------------------------------------------------------------------ Finished goods $ 64,962 $ 54,323 Work in process 11,851 9,856 Raw materials 21,082 14,052 Rolls and molds 20,693 18,148 Supplies 16,377 15,487 LIFO adjustment (13,174) (10,489) - ------------------------------------------------------------------ $ 121,791 $101,377 - ------------------------------------------------------------------
NOTE C - COMMISSIONING COSTS In fiscal 1990, the Company began construction of the large beam mill and commissioning commenced in February 1991. The 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. The amounts of commissioning costs (net of amortization) were $2 million and $5 million at May 31, 1996 and 1995, respectively. The amounts of amortization charged to income were $3 million in 1996, 1995 and 1994, based on a five year period. NOTE D - CONTINGENCIES The Company and subsidiaries are defendants in lawsuits which arose in the normal course of business. In management's judgement (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 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. At May 31, 1996, the Company had $1.6 million accrued for closure and post closure costs as prescribed by the Texas Natural Resource Conservation Commission. NOTE E - LONG-TERM DEBT Outstanding long-term debt is as follows:
May 31 In thousands Interest Rate 1996 1995 - ------------------------------------------------------------------------------- First mortgage notes payable: $61.4 million note, due in annual installments through January 2000 14.2% $ 14,320 $ 20,458 $70.9 million note, due in 1.5% to semiannual installments 2% over through June 1995 Libor -- 1,248 - ------------------------------------------------------------------------------- 14,320 21,706 $80 million senior unsecured notes due in annual installments from April 1995 through 2004 10.2% 64,000 72,000 Other notes payable, due through 2000 Various 743 1,004 - ------------------------------------------------------------------------------- 79,063 94,710 Less current portion 12,366 13,645 - ------------------------------------------------------------------------------- $ 66,697 $ 81,065 - -------------------------------------------------------------------------------
12 CHAPARRAL STEEL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Scheduled maturities of long-term debt at May 31, 1996 for each of the five succeeding fiscal years are as follows: In thousands - ------------------------------------------------------------------------------- 1997 $ 12,366 1998 12,339 1999 12,309 2000 10,049 2001 8,000
Substantially all of the assets of the Company except accounts receivable, inventories and certain equipment not forming an integral part of the mill have been pledged as collateral on the first mortgage notes. The terms of the loan agreements impose certain restrictions on the Company, the most significant of which require the Company to maintain minimum amounts of working capital, limit the incurrence of certain indebtedness and restrict payments of cash dividends and purchases of treasury stock. The amounts of earnings available for restricted payments were approximately $41 million and $37 million at May 31, 1996 and 1995, respectively. Interest payments were $10.5 million, $12.7 million and $14 million in 1996, 1995 and 1994, respectively. NOTE F - INCOME TAXES The provisions for income taxes are comprised of:
Year Ended May 31 In thousands 1996 1995 1994 - ------------------------------------------------------------------- Current $26,176 $ 9,451 $ 6,982 Deferred (2,384) 2,488 3,116 - ------------------------------------------------------------------- $ 23,792 $ 11,939 $ 10,098 - -------------------------------------------------------------------
The reasons for the differences between the provisions for income taxes and the amounts computed by applying the statutory federal income tax rates to income before income taxes are:
Year Ended May 31 In thousands 1996 1995 1994 - ------------------------------------------------------------------ Statutory rate applied to income before income taxes $ 23,019 $ 11,041 $ 7,706 Increase in taxes resulting from: Change in statutory federal tax rate - -- 1,443 Goodwill amortization 702 811 811 Other - net 71 87 138 - ------------------------------------------------------------------ $ 23,792 $ 11,939 $ 10,098 - ------------------------------------------------------------------
13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CHAPARRAL STEEL COMPANY AND SUBSIDIARIES The components of the net deferred tax liability as of May 31, 1996 and 1995 are summarized below:
Year Ended May 31 In thousands 1996 1995 - ------------------------------------------------------------------ Deferred tax assets: Deferred compensation $ 458 $ 242 Accounts receivable 997 864 Uniform capitalization expense 1,165 1,117 Net operating loss carryforwards -- 15 Alternative minimum tax credit carryforwards -- 1,391 Expenses not currently tax deductible 1,872 1,563 - ------------------------------------------------------------------ Total deferred tax assets 4,492 5,192 Deferred tax liabilities: Accelerated tax depreciation (49,229) (51,010) Commissioning costs (704) (1,760) Other - net -- (247) - ------------------------------------------------------------------ Total deferred tax liabilities (49,933) (53,017) Net deferred tax liability (45,441) (47,825) Current portion 4,034 3,544 - ------------------------------------------------------------------ Non-current portion of deferred tax liability $ (49,475) $(51,369) - ------------------------------------------------------------------
The Company made income tax payments of $25.6 million, $9.6 million and $7.2 million in 1996, 1995 and 1994, respectively. NOTE G - RETIREMENT PLAN A non-contributory defined contribution plan provides retirement benefits for substantially all employees. The Company makes a regular contribution of 1% of annual compensation for each participant and a variable contribution equal to 1/2 of 1% of pre-tax income, as defined, to this plan. The amounts of expense charged to income for this plan were $.8 million, $.6 million and $.5 million in 1996, 1995 and 1994, respectively. The plan is funded to the extent of charges to income. NOTE H - INCENTIVE PLANS The Company has a profit-sharing plan which provides that all personnel employed as of May 31 share currently in the pre-tax income, as defined, of the Company for the year then ended based on a predetermined formula. The duration of the plan is one year and is subject to annual renewal by the Board of Directors. The provisions for this plan were $6.1 million, $2.9 million and $1.9 million for 1996, 1995 and 1994, respectively. In 1987, the Board of Directors approved a deferred compensation plan for certain executives of the Company. The plan is based on a five-year average of earnings. Amounts recorded as expense (income) under this plan were $.7 million, ($.1) million and ($2) million for 1996, 1995 and 1994, respectively. The amount of deferred compensation currently payable was $.1 million at May 31, 1996 and 1995. 14 CHAPARRAL STEEL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE I - STOCK OPTION PLAN In 1989, the stockholders approved a stock option plan whereby options to purchase Common Stock may be granted to officers and key employees at prices not less than the market value at the date of grant. Generally, options become exercisable beginning two years after date of grant and expire ten years after the date of grant. The Company accounts for its options to purchase shares of common stock in accordance with APB No. 25. A summary of option transactions for the two years ended May 31, 1996, follows:
Shares Under Option Aggregate In thousands except option price Option Price Option Price - ------------------------------------------------------------------------------- Outstanding at May 31, 1994 1,110 $8.88 - 12.13 $ 12,046 Granted 395 8.34 - 8.38 3,307 Terminated (10) 10.625 - 12.13 (114) - ------------------------------------------------------------------------------- Outstanding at May 31, 1995 1,495 8.34 - 12.13 15,239 Terminated (66) 8.34 - 12.13 (647) Exercised (134) 8.88 - 12.13 (1,470) - --------------------------------------------------------------------------- Outstanding at May 31, 1996 1,295 $8.34 - 12.13 $ 13,122 - ---------------------------------------------------------------------------
May 31 In thousands 1996 1995 - --------------------------------------------------------------------------- Shares at end of year: Exercisable 787 796 Available for future grants 66 -0-
The options outstanding at May 31, 1996, expire on various dates to January 18, 2005. Note J - Fair Value Of Financial Instruments The estimated fair value amounts of financial instruments at May 31, 1996 and 1995 have been determined using available market information and the following methodologies: Cash and cash equivalents, accounts receivable, accounts payable: The carrying amounts of these items are a reasonable estimate of their fair values at May 31, 1996 and 1995. Long-term debt: Interest rates that are currently available to the Company for issuance of the debt with similar terms and remaining maturities are used to estimate fair value for debt issues using a discounted cash flow analysis.
MAY 31 IN MILLIONS 1996 1995 - ------------------------------------------------------------------------------- Long-term debt: Carrying amount $ 79.1 $ 94.7 Estimated fair value 86.0 110.0
15 CHAPARRAL STEEL COMPANY AND SUBSIDIARIES QUARTERLY FINANCIAL INFORMATION (UNAUDITED) The following table is a summary of quarterly financial information for the two years ended May 31, 1996:
Three Months Ended In thousands except per share Aug.(2) Nov. Feb. May - ------------------------------------------------------------------------- 1996 Net sales $138,141 $154,990 $158,954 $ 155,571 Gross profit(1) 26,060 33,623 34,900 35,467 Net income 6,428 10,485 11,895 13,169 - ------------------------------------------------------------------------- Net income per common share .22 .35 .41 .45 1995 Net sales $124,382 $126,273 $132,388 $ 148,768 Gross profit(1) 18,463 23,200 23,382 29,716 Net income 1,753 4,969 5,070 7,815(3) - ------------------------------------------------------------------------- Net income per common share .06 .17 .17 .27
(1) Gross profit exclusive of depreciation and amortization. (2) Results are effected by annual maintenance performed during the summer months. (3) Reflects higher selling prices and shipments. QUARTERLY STOCK PRICES AND DIVIDENDS (UNAUDITED) The Company's common stock is listed on the New York Stock Exchange (ticker symbol CSM). The number of record holders of the Company's common stock at May 31, 1996 was 913. High and low stock prices and dividends for the last two years were:
Stock Prices Dividends High Low - ----------------------------------------------------------------------- 1996 First quarter 11 3/4 9 1/8 $ .05 Second quarter 11 7/8 9 1/8 .05 Third quarter 16 3/4 10 1/2 .05 Fourth quarter 15 7/8 13 .05 1995 First quarter 9 1/2 8 3/8 $ .05 Second quarter 10 1/8 6 7/8 .05 Third quarter 9 6 1/2 .05 Fourth quarter 10 8 3/8 .05
16 CHAPARRAL STEEL COMPANY AND SUBSIDIARIES REPORT OF INDEPENDENT AUDITORS BOARD OF DIRECTORS CHAPARRAL STEEL COMPANY We have audited the accompanying consolidated balance sheets of Chaparral Steel Company and subsidiaries as of May 31, 1996 and 1995, and the related consolidated statements of income, cash flows and stockholders' equity for each of the three years in the period ended May 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Chaparral Steel Company and subsidiaries at May 31, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended May 31, 1996, in conformity with generally accepted accounting principles. /s/ ERNST AND YOUNG LLP Dallas, Texas July 12, 1996 17
FINANCIAL HIGHLIGHTS In thousands except per share 1996 1995 1994 ========================================================================================= RESULTS OF OPERATIONS Tons shipped: Bar mill 453 475 424 Structural mills 1,137 1,036 938 - ----------------------------------------------------------------------------------------- Total 1,590 1,511 1,362 Net sales: Bar mill $157,130 $167,962 $138,353 Structural mills 447,115 359,845 320,210 Transportation service 3,411 4,004 3,712 - ----------------------------------------------------------------------------------------- Total 607,656 531,811 462,275 Net income 41,977 19,607 11,919 - ----------------------------------------------------------------------------------------- PER SHARE INFORMATION Net income 1.43 .67 .41 Dividends .20 .20 .20 - ----------------------------------------------------------------------------------------- FOR THE YEAR Net cash provided by operating activities 52,618 72,723 10,603 Capital expenditures 20,630 16,234 7,805 - ----------------------------------------------------------------------------------------- YEAR END POSITION Total assets 475,337 469,827 488,307 Net working capital 136,723 113,745 95,225 Stockholders' equity $294,965 $269,868 $265,623 - -----------------------------------------------------------------------------------------
MISSION STATEMENT To be No. 1 in costs, quality and service in the markets we serve and to achieve a return on equity at least 50% higher than the industry average. 18 CHAPARRAL STEEL COMPANY DIRECTORS Robert D. Rogers Chairman of the Board Gordon E. Forward President and Chief Executive Officer Robert Alpert Chairman of the Board Alpert Companies Dallas, Texas John M. Belk Chairman of the Board Belk Stores Services, Inc. Charlotte, North Carolina Lic. Eugenio Clariond Reyes Director General and Chief Executive Officer Grupo IMSA, S.A. Monterrey Gerald R. Heffernan President G.R. Heffernan & Associates, Ltd. Toronto, Ontario OFFICERS Gordon E. Forward President and Chief Executive Officer Kenneth R. Allen Director-Investor Relations Dennis E. Beach Vice President-Administration Larry L. Clark Vice President-Controller and Assistant Treasurer David A. Fournie Vice President-Structural Products Business Unit Richard M. Fowler Vice President-Finance and Treasurer H. Duff Hunt Vice President-Recycled Products Richard T. Jaffre Vice President-Raw Materials/Transportation Robert C. Moore Vice President-General Counsel and Secretary Libor F. Rostik Vice President-Engineering Peter H. Wright Vice President-Bar Products Business Unit STOCKHOLDER INFORMATION TRANSFER AGENT AND REGISTRAR OF STOCK Chase Mellon Shareholder Services Common Stock Stockholder Inquiries 1-800-635-9270 STOCK EXCHANGE LISTING New York Stock Exchange WEB ADDRESS http://www.chaparralsteel.com FORM 10-K AND 10-Q REQUESTS Stockholders may obtain, without charge, a copy of the Company's Form 10-K for the year ended May 31, 1996, and Form 10-Q for the quarters ended August 31, 1995, November 30, 1995 and February 29, 1996, as filed with the Securities and Exchange Commission. Written requests should be addressed to the Director-Investor Relations. The information contained herein is not given in connection with any sale or offer of, or solicitation of any offer to buy, any securities. ANNUAL MEETING The Annual Meeting of Stockholders of Chaparral Steel Company will be held Wednesday, October 16, 1996, at 9:30 a.m., CDT, at Environmental Education Center, 1600 Bowers Road, Seagoville, Texas. SAFE HARBOR STATEMENT With the exception of historical information, the matters discussed in this annual report to stockholders are forward- looking statements that involve risks and uncertainties. EX-21 4 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT CHAPARRAL STEEL COMPANY
Jurisdiction Subsidiary of Incorporation ---------- ---------------- Wholly-Owned: Chaparral Steel Texas, Inc.................... Delaware Chaparral Steel Holdings, Inc................. Delaware Chaparral Steel Trust......................... Delaware Chaparral Steel Midlothian, LP................ Delaware Castelite Steel Products, Inc.................. Texas 80% Owned: America Steel Transport, Inc.................. Texas
17 EX-23 5 CONSENTS OF EXPERTS AND COUNSEL 1 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K) of Chaparral Steel Company of our report dated July 12, 1996, included in the 1996 Annual Report to Stockholders of Chaparral Steel Company. Our audits also included the financial statement schedule of Chaparral Steel Company listed in Item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-39626) pertaining to the Chaparral Steel Company Stock Option Plan and in the related Prospectus of our report dated July 12, 1996, with respect to the consolidated financial statements incorporated herein by reference, and our report included in the preceding paragraph with respect to the financial statement schedule included in this Annual Report (Form 10-K) of Chaparral Steel Company. /s/ERNST AND YOUNG LLP - ---------------------- Ernst and Young LLP Dallas, Texas August 22, 1996 18 EX-24 6 POWER OF ATTORNEY 1 Exhibit 24 POWER OF ATTORNEY Each of the undersigned hereby constitutes and appoints GORDON E. FORWARD, RICHARD M. FOWLER and LARRY L. CLARK, and each of them, with full power of substitution as the undersigned's attorney or attorney-in-fact, to sign for each of them and in each of their names, as members of the Board of Directors, an Annual Report on Form 10-K for the year ended May 31, 1996, and any and all amendments, filed by CHAPARRAL STEEL COMPANY, a Delaware corporation, with the Securities and Exchange Commission under the provisions of the Securities Act of 1934, as amended, with full power and authority to do and perform any and all acts and things necessary or appropriate to be done in the premises. DATED: July 11, 1996 ---------------------------------- ROBERT ALPERT (Director) ---------------------------------- JOHN M. BELK (Director) /s/GERALD R. HEFFERNAN ---------------------------------- GERALD R. HEFFERNAN (Director) /s/EUGENIO CLARIOND REYES ---------------------------------- EUGENIO CLARIOND REYES (Director) /s/ROBERT D. ROGERS ---------------------------------- ROBERT D. ROGERS (Director) STATE OF TEXAS (delta) (delta) COUNTY OF DALLAS (delta) On this 11th day of July, 1996, before me personally came ROBERT ALPERT, JOHN M. BELK, GERALD R. HEFFERNAN, EUGENIO CLARIOND REYES AND ROBERT D. ROGERS, known to me to be the same persons described in and who executed the foregoing Power of Attorney and each of them duly acknowledged to me that they each executed the same for the purposes therein stated. GWYNN E. HERRICK /s/GWYNN E. HERRICK ------------------------------- Notary Public in and for the State of Texas 19 EX-27 7 FINANCIAL DATA SCHEDULE
5 0000833226 CHAPARRAL STEEL COMPANY 1,000 YEAR MAY-31-1996 JUN-01-1995 MAY-31-1996 20,014 0 52,378 2,848 121,791 199,092 493,516 279,447 475,337 62,369 66,697 0 0 2,994 291,971 475,337 607,656 607,656 477,606 477,606 0 635 10,007 65,769 23,792 41,977 0 0 0 41,977 1.43 1.43
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