-----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, CyYDmsQDBNlqF3Er7sUdH3F+xzUjQ0syroBmvs6CAhAjX5seB/PbgwNePjyoC/GK gBmmVjqHomUJqHrcfdUcvw== 0000950134-96-005351.txt : 19961015 0000950134-96-005351.hdr.sgml : 19961015 ACCESSION NUMBER: 0000950134-96-005351 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960831 FILED AS OF DATE: 19961011 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: 96642405 BUSINESS ADDRESS: STREET 1: 300 WARD RD CITY: MIDLOTHIAN STATE: TX ZIP: 76065 BUSINESS PHONE: 2147758241 MAIL ADDRESS: STREET 1: 300 WARD RD CITY: MIDLOTHIAN STATE: TX ZIP: 76065 10-Q 1 FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE PERIOD ENDED AUGUST 31, 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: (972) 775-8241 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- -----. 28,358,300 Shares of Common Stock, Par Value $.10 Outstanding at October 7, 1996. 1 of 13 2 INDEX CHAPARRAL STEEL COMPANY PART I. FINANCIAL INFORMATION Page - ----------------------------- ---- Item 1. Financial Statements (Unaudited) Condensed consolidated balance sheets--August 31, 1996 and May 31, 1996 3 Condensed consolidated statements of income--three months ended August 31, 1996 and 1995 4 Condensed consolidated statements of cash flows --three months ended August 31, 1996 and 1995 5 Notes to condensed consolidated financial statements --August 31, 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) August 31, May 31, 1996 1996 ---------- ------- (In thousands) ASSETS CURRENT ASSETS Cash and cash equivalents $ 6,693 $ 20,014 Trade accounts receivable, net of allowance of $2.7 million and $2.8 million, respectively 56,879 49,530 Inventories 128,030 121,791 Prepaid expenses 14,025 7,757 -------- -------- TOTAL CURRENT ASSETS 205,627 199,092 PROPERTY, PLANT AND EQUIPMENT Buildings and improvements 55,368 55,342 Machinery and equipment 447,035 436,886 Land 1,288 1,288 -------- -------- 503,691 493,516 Less allowance for depreciation (287,055) (279,447) -------- -------- 216,636 214,069 OTHER ASSETS Goodwill, commissioning costs and other assets, net of accumulated amortization of $28.5 million and $27.3 million, respectively 61,152 62,176 -------- -------- $483,415 $475,337 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Trade accounts payable $32,422 $34,131 Accrued interest payable 2,503 1,402 Other accrued expenses 19,715 14,470 Current portion of long-term debt 12,379 12,366 -------- -------- TOTAL CURRENT LIABILITIES 67,019 62,369 LONG-TERM DEBT 66,702 66,697 DEFERRED INCOME TAXES AND OTHER CREDITS 51,603 51,306 STOCKHOLDERS' EQUITY Preferred stock, $.01 par value, 500,000 authorized, none outstanding - - Common stock, $.10 par value, 28,358,300 and 28,707,400 shares outstanding, respectively 2,994 2,994 Paid-in capital 178,517 178,517 Retained earnings 133,781 126,885 Cost of common stock in treasury (17,201) (13,431) -------- -------- 298,091 294,965 -------- -------- $483,415 $475,337 ======== ========
See notes to condensed consolidated financial statements. 3 4 (Unaudited) CONDENSED CONSOLIDATED STATEMENTS OF INCOME CHAPARRAL STEEL COMPANY AND SUBSIDIARIES
Three months ended August 31, 1996 1995 ---- ---- (In thousands except per share) Net sales $149,527 $138,141 Costs and expenses: Cost of sales (exclusive of items stated separately below) 118,865 112,081 Depreciation and amortization 8,872 8,088 Selling, general and administrative 7,344 5,732 Interest 2,144 2,620 Other income (1,062) (1,106) --------- --------- INCOME BEFORE INCOME TAXES 13,364 10,726 Provision for income taxes 5,050 4,298 --------- --------- NET INCOME $ 8,314 $ 6,428 ========= ========= Average shares outstanding - Note B 28,904 29,803 ========= ========= Per common share: NET INCOME $ .29 $ .22 ========= ========= CASH DIVIDENDS $ .05 $ .05 ========= =========
See notes to condensed consolidated financial statements. 4 5 (Unaudited) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS CHAPARRAL STEEL COMPANY AND SUBSIDIARIES
Three months ended August 31, 1996 1995 ---- ---- (In thousands) OPERATING ACTIVITIES Net income $ 8,314 $ 6,428 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization 8,872 8,088 Deferred income taxes (563) (378) Other deferred credits 860 359 Changes in operating assets and liabilities: Trade accounts receivable, net (7,349) (2,014) Inventories (6,239) (4,084) Prepaid expenses (6,268) (9,297) Trade accounts payable (1,709) (3,491) Accrued interest payable 1,101 1,066 Other accrued expenses 5,245 3,276 ------- ------- Net cash provided (used) by operating activities 2,264 (47) INVESTING ACTIVITIES Capital expenditures (10,535) (7,504) Other 120 270 ------- ------- Net cash used in investing activities (10,415) (7,234) FINANCING ACTIVITIES Long-term borrowings 105 - Repayments on long-term debt (87) (1,324) Purchase of treasury stock (3,770) - Dividends paid (1,418) (1,484) ------- ------ Net cash used in financing activities (5,170) (2,808) ------- ------- Decrease in cash and cash equivalents (13,321) (10,089) Cash and cash equivalents at beginning of period 20,014 19,140 ------- ------- Cash and cash equivalents at end of period $ 6,693 $ 9,051 ======= =======
See notes to condensed consolidated financial statements. 5 6 (Unaudited) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CHAPARRAL STEEL COMPANY AND SUBSIDIARIES August 31, 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. Operating results for the three month period ended August 31, 1996 are not necessarily indicative of the results that may be expected for the year ending May 31, 1997. 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, 1996. 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 $58.7 million and $59.2 million at August 31, 1996 and May 31, 1996, respectively. This goodwill is being amortized over 40 years using the straight-line method and reduced earnings by $.5 million and $.5 million in the three months ended August 31, 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 28,904,000 and 29,803,000 shares outstanding at August 31, 1996 and 1995, respectively. NOTE C - Income Tax Provision The provision for income taxes has been included in the accompanying financial statements on the basis of an estimated annual rate. Goodwill amortization was the primary reason for the difference between provision amounts and amounts computed by applying the statutory federal income tax rates. 6 7 NOTE D - Inventories Inventories consist of the following:
August 31, May 31, 1996 1996 ---------- ------ (In thousands) Finished goods $67,928 $64,962 Work in process 9,653 11,851 Raw materials 25,754 21,082 Rolls and molds 16,439 20,693 Supplies 21,430 16,377 LIFO adjustment (13,174) (13,174) -------- -------- $128,030 $121,791 ======== ========
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 $1.3 million and $2 million at August 31, 1996 and May 31, 1996, respectively. Amortization of $.7 million and $.8 million was recorded in the first quarter of fiscal 1997 and 1996, respectively, based on a five year period. NOTE F - Contingencies The Company and subsidiaries are defendants in lawsuits which arose in the normal course of business. In management's judgment (based on the opinion of counsel) the ultimate liability, if any, from such legal proceedings will not have a material effect on the Company's financial position. The Company is subject to federal, state and local environmental laws and regulations concerning, among other matters, air emission, furnace dust disposal and wastewater discharge. The Company believes it is in substantial compliance with applicable environmental laws and regulations. Notwithstanding such compliance, if damage to persons or property or contamination of the environment has been or is caused by the conduct of the Company's business or by hazardous substances or wastes used in, generated or disposed of by the Company, the Company could be held liable for such damages and be required to pay the cost of investigation and remediation of such contamination. The amount of such liability could be material. Changes in federal or state laws, regulations or requirements or discovery of unknown conditions could require additional expenditures by the Company. NOTE G - New Accounting Pronouncements The adoption of Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of", effective June 1, 1996, had no effect on the financial statements of the Company. The Company has elected to continue utilizing the accounting for stock issued to directors and employees prescribed by APB No. 25, and therefore, the required adoption of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation", is expected to have no effect on the financial position or results of operations of the Company. 7 8 EXHIBIT A Independent Accountants' Review Report Board of Directors Chaparral Steel Company We have reviewed the accompanying condensed consolidated balance sheet of Chaparral Steel Company and subsidiaries as of August 31, 1996 and 1995, and the related condensed consolidated statements of income and cash flows for the three month periods ended August 31, 1996 and 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, 1996, 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 12, 1996, 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, 1996, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. Ernst & Young LLP September 18, 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 ended August 31, 1996, to the quarter ended August 31, 1995. RESULTS OF OPERATIONS An increase in shipments of 7% and a $5 increase in average selling price in the first quarter resulted in a $11.4 million increase in net sales compared to the same period in the prior year. The stable demand for our structural products continued in the summer quarter due to the continued strength in the construction and manufactured housing industries. Imports of wide-flange beams into the North American market have increased this year compared to the prior year. This is expected to have a short-term negative effect on the domestic supply-demand balance as price reductions have been announced for some structural products. Demand and prices for bar products have stabilized recently, but prices are 10% below those of the prior year quarter. Bar Products business unit margins should improve due to the anticipated recovery in the Special Bar Quality market and as the Company shifts its product mix to Special Bar Quality products. Cost of sales (exclusive of depreciation and amortization) increased $6.8 million to $118.9 million for the three month period ended August 31, 1996, compared to the same period in the prior year. The increase was predominately caused by an increase in shipments of 25,000 tons and higher scrap costs. Scrap prices are expected to decline in the 2nd quarter of 1997. Combined rolling conversion costs decreased from the prior year period due to operating efficiencies. Depreciation expense increased from the prior year period due to increased levels of capital spending. Depreciation is computed using the straight-line method over the estimated useful lives of the property. Amortization of goodwill and commissioning costs were unchanged from the prior year. Selling, general and administrative expense increased $1.6 million in the three month period ended August 31, 1996, compared to the prior year period primarily due to increases in employee incentive programs which are based on profitability and employee training programs. Interest expense decreased $.5 million in the three month period ended August 31, 1996, compared to the same period in the prior year. Interest expense in the current period was reduced due to repayments of long-term debt which is principally at fixed rates. The provision for income taxes has been calculated on the basis of an estimated annual rate. Goodwill amortization contributed to the difference between provision amounts and income tax amounts computed by applying the statutory federal income tax rates. 9 10 CAPITAL RESOURCES AND LIQUIDITY Working capital increased $2.1 million to an all-time high of $138.6 million at August 31, 1996. The increase in net income of $1.9 million provided additional working capital in the first three months of fiscal 1997. Accounts receivable increased $7.3 million from the prior fiscal year-end due in part to changes in the Company's cash discount policy. August 31, 1996 inventories increased $6.2 million primarily as raw material levels rose as the Company anticipated higher prices in the fall of 1996. Finished goods increased due to better levels of production brought about by a shorter shutdown period in the summer of 1996. Prepaid expenses increased $6.3 million due to shutdown spending completed in July 1996. Other accrued expenses increased $5.2 million to $19.7 million due to an increase in the accrual for federal income tax. The other components of working capital were virtually unchanged from the previous fiscal year-end. As a result, cash and cash equivalents decreased $13.3 million after the Company bought $10.5 million of capital additions, purchased $3.8 million of treasury stock and paid cash dividends of $1.4 million. Capital expenditures for the three months ended August 31, 1996, totaled $10.5 million and are expected to be in the range of $40-$50 million in fiscal 1997. Total anticipated spending includes upgrades for the Recycled Products and Bar Products business units of approximately $25 million. The Company's capitalization of $364.8 million at August 31, 1996, consisted of $66.7 million of long-term debt and $298.1 million of stockholders' equity. The current portion of long-term debt totaled $12.4 million at August 31, 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 $23 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. The Company expects that current financial resources and anticipated cash provided from operations in fiscal 1997 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 support the short-term operations or to accomplish long-term expansion of its productive capabilities, the Company believes that funding can be obtained to meet such requirements. All statements other than statements of historical fact contained in this 10-Q, including statements in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" concerning the Company's financial position and results of operations are forward looking statements. Although the Company believes that the expectations reflected in such forward looking statements are reasonable, no assurance can be given that such expectations will prove correct. 10 11 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. The following exhibits are included herein: (11) Statement re: Computation of earnings per share (15) Letter re: Unaudited interim financial information (27) Financial Data Schedule The Registrant did not file any reports on Form 8-K during the three months ended August 31, 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 October 7, 1996 /s/ Richard M. Fowler - --------------- --------------------------- Richard M. Fowler Vice President - Finance and Treasurer October 7, 1996 /s/ Larry L. Clark - --------------- --------------------------- Larry L. Clark Vice President - Controller and Assistant Treasurer 11 12 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION ----------- ----------- 11 Statement re: Computation of earnings per share 15 Letter re: Unaudited interim financial information 27 Financial Data Schedule 12 EX-11 2 COMPUTATION OF E.P.S. 1 EXHIBIT 11 COMPUTATION OF EARNINGS PER SHARE CHAPARRAL STEEL COMPANY AND SUBSIDIARIES
Three months ended August 31, 1996 1995 ---- ---- (In thousands except per share) AVERAGE SHARES OUTSTANDING Primary: Average shares outstanding 28,563 29,680 Stock options - treasury stock method using average market prices 341 123 ------ ------ TOTALS 28,904 29,803 ====== ====== Fully diluted: Average shares outstanding 28,563 29,680 Stock options - treasury stock method using end of quarter market price if higher than average 342 158 ------ ------ TOTALS 28,905 29,838 ====== ====== INCOME APPLICABLE TO COMMON STOCK Primary and fully diluted: Net income $8,314 $6,428 Add: Pre-September 1990 contingent price amortization 58 58 ------ ------ $8,372 $6,486 ====== ====== PER SHARE Net income per common share: Primary $ .29 $ .22 ====== ====== Fully diluted $ .29 $ .22 ====== ======
13 EX-15 3 REPORT OF ERNST & YOUNG LLP 1 EXHIBIT 15 Board of Directors Chaparral Steel Company We are aware of the incorporation by reference in the Registration Statement (Form S-8 No. 33-39626) pertaining to the Chaparral Steel Company Stock Option Plan of our report dated September 18, 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 August 31, 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 & Young LLP Dallas, Texas October 4, 1996 14 EX-27 4 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS MAY-31-1997 JUN-01-1996 AUG-31-1996 6,693 0 59,622 2,743 128,030 205,627 503,691 287,055 483,415 67,019 66,702 0 0 2,994 295,097 483,415 149,527 149,527 118,865 118,865 0 75 2,144 13,364 5,050 8,314 0 0 0 8,314 0.29 0.29
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