<PAGE> 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 NOVEMBER 30, 1993
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE
NO. 1-9944
CHAPARRAL STEEL COMPANY
Incorporated in
STATE OF DELAWARE
IRS Employer Identification
NO. 75-1424624
300 WARD ROAD
MIDLOTHIAN, TEXAS 76065
Telephone: (214) 775-8241
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
29,679,900 Shares of Common Stock, Par Value $.10 Outstanding at January 11,
1994.
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INDEX
CHAPARRAL STEEL COMPANY
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
- -----------------------------
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets--November 30,
1993 and May 31, 1993 3
Condensed consolidated statements of income--three and six
months ended November 30, 1993 and 1992 4
Condensed consolidated statements of cash flows
--six months ended November 30, 1993 and 1992 5
Notes to condensed consolidated financial statements
--November 30, 1993 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 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 11
- ----------
</TABLE>
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CONDENSED CONSOLIDATED BALANCE SHEETS
CHAPARRAL STEEL COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
(Unaudited)
November 30, May 31,
1993 1993
---------- ---------
(In thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,845 $ 3,763
Trade accounts receivable, net of allowance
of $3.2 million and $3.4 million, respectively 41,539 34,187
Inventories 95,818 92,672
Prepaid expenses 11,062 8,147
---------- ---------
TOTAL CURRENT ASSETS 150,264 138,769
PROPERTY, PLANT AND EQUIPMENT
Buildings and improvements 47,118 46,634
Machinery and equipment 432,655 430,614
Land 1,288 1,288
---------- ---------
481,061 478,536
Less allowance for depreciation (236,157) (222,974)
---------- ---------
244,904 255,562
OTHER ASSETS
Goodwill, commissioning costs and other assets,
net of accumulated amortization of $14.3 million
and $11.6 million, respectively 84,255 86,480
---------- ---------
$ 479,423 $ 480,811
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 27,955 $ 27,202
Accrued interest payable 2,818 3,044
Other accrued expenses 15,161 14,902
Current portion of long-term debt 11,400 12,720
---------- ---------
TOTAL CURRENT LIABILITIES 57,334 57,868
LONG-TERM DEBT 111,239 113,997
DEFERRED INCOME TAXES
AND OTHER CREDITS 50,630 49,348
STOCKHOLDERS' EQUITY
Common stock, $.10 par value, 29,679,900
and 29,675,400 shares outstanding, respectively 2,994 2,994
Paid-in capital 188,036 188,050
Retained earnings 71,694 71,113
Cost of common stock in treasury (2,504) (2,559)
---------- ---------
260,220 259,598
---------- ---------
$ 479,423 $ 480,811
========== =========
</TABLE>
See notes to condensed consolidated financial statements.
3
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(Unaudited)
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
CHAPARRAL STEEL COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three months ended Six months ended
November 30, November 30,
1993 1992 1993 1992
---- ---- ---- ----
(In thousands except per share)
<S> <C> <C> <C> <C>
Net sales $117,225 $106,568 $219,121 $208,126
Costs and expenses:
Cost of sales 94,854 89,938 180,201 180,208
Selling, general and administrative 3,795 3,507 8,374 7,135
Depreciation and amortization 8,410 8,555 16,816 17,102
Interest 3,379 3,764 6,787 7,580
Other income (575) (345) (1,364) (550)
-------- -------- -------- --------
109,863 105,419 210,814 211,475
INCOME (LOSS) BEFORE
INCOME TAXES 7,362 1,149 8,307 (3,349)
Provision (benefit) for income taxes:
Current period provision (benefit) 2,939 482 3,315 (1,707)
Change in statutory federal tax rate - - 1,443 -
-------- -------- -------- --------
2,939 482 4,758 (1,707)
NET INCOME (LOSS) $ 4,423 $ 667 $ 3,549 $ (1,642)
======== ======== ======== ========
Per common share:
NET INCOME (LOSS) $ .15 $ .03 $ .12 $ (.05)
======== ======== ======== ========
CASH DIVIDENDS $ .05 $ .05 $ .10 $ .10
======== ======== ======== ========
Average shares outstanding - Note B 29,709 29,701 29,712 29,675
======== ======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
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(Unaudited)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
CHAPARRAL STEEL COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
Six months ended
November 30,
1993 1992
---- ----
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 3,549 $ (1,642)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 16,816 17,102
Deferred income taxes 1,894 2,964
Other deferred credits (612) (1,622)
Changes in operating assets and liabilities:
Trade accounts receivable, net (7,796) 2,629
Inventories (3,145) 3,315
Prepaid expenses (2,914) (1,691)
Trade accounts payable 752 (7,088)
Accrued interest payable (225) (159)
Other accrued expenses 259 816
-------- --------
Net cash provided by operating activities 8,578 14,624
INVESTING ACTIVITIES
Capital expenditures (3,491) (3,095)
Other 41 1
-------- --------
Net cash used in investing activities (3,450) (3,094)
FINANCING ACTIVITIES
Short-term borrowings 5,000 7,000
Repayments on short-term debt (5,000) (7,000)
Long-term borrowings 260 -
Repayments on long-term debt (4,338) (4,327)
Dividends paid (2,968) (2,968)
-------- --------
Net cash used in financing activities (7,046) (7,295)
-------- --------
Increase (decrease) in cash and cash equivalents (1,918) 4,235
Cash and cash equivalents at beginning of period 3,763 4,753
-------- --------
Cash and cash equivalents at end of period $ 1,845 $ 8,988
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
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(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CHAPARRAL STEEL COMPANY AND SUBSIDIARIES
November 30, 1993
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 six month period ended November 30, 1993 are not necessarily
indicative of the results that may be expected for the year ending May 31,
1994. 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, 1993.
NOTE B - Earnings Per Share
Texas Industries, Inc. ("TXI") owned 100% of the Company from November 1985,
when it acquired the remaining 50% of the outstanding securities of the Company
from Co-Steel Inc. ("Co-Steel"), until July 1988, when approximately 19.8% of
the outstanding securities were sold in an initial public offering of common
stock by the Company. Under terms of the purchase agreement between TXI and
Co-Steel, TXI made a $42 million initial cash payment and made a $73 million
final payment in August 1990.
The acquisition by TXI has been accounted for using the purchase method of
accounting. The $115 million total purchase price exceeded the value of
acquired assets by $83 million and the excess has been recorded as goodwill and
additional paid-in-capital. This goodwill is being amortized over 40 years
using the straight-line method and reduced earnings by $1.2 million in the six
months ended November 30, 1993 and 1992, respectively. The amount of goodwill,
net of accumulated amortization included in other assets was $74.2 million,
$75.3 million and $77.6 million at November 30, 1993, May 31, 1993 and May 31,
1992, respectively.
Net income (loss) per common share is calculated based upon a weighted average
of shares outstanding (including common stock equivalents that are not
antidilutive).
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NOTE C - Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
November 30, May 31,
1993 1993
---- ----
(In thousands)
<S> <C> <C>
Finished goods $55,273 $49,596
Work in process 8,455 7,817
Raw materials:
Scrap 9,992 10,843
Crushed cars 359 171
Rolls 14,870 14,579
Supplies 13,807 14,684
LIFO adjustment (6,938) (5,018)
------- ------
$95,818 $92,672
======= =======
</TABLE>
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 D - Income Tax Provision
The provision (benefit) for income taxes has been included in the accompanying
financial statements on the basis of an estimated annual rate. In August 1993,
President Clinton signed into law the Omnibus Budget Reconciliation Act of 1993
that contained a provision raising the top effective rate for corporations to
35%. This rate increase, when applied to the Company's temporary differences,
resulted in a charge of $1.4 million which is included in the income tax
provision in the August 1993 quarter. Goodwill amortization also contributed
to the difference between provision (benefit) amounts and amounts computed by
applying the statutory federal income tax rates.
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.
Amortization of $1.5 million was recorded in the first six months of fiscal
1994 and 1993, respectively, based on a five year period.
NOTE F - Severance Pay
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 fiscal 1994.
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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 November 30, 1993, and the
related condensed consolidated statements of income and cash flows for the
three and six month periods ended November 30, 1993 and 1992. 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, 1993, and the related consolidated statements of income, stockholders'
equity and cash flows for the year then ended (not presented herein) and in our
report dated July 14, 1993, 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, 1993, is
fairly stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
Ernst and Young
December 17, 1993
8
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Unaudited)
Comparison of operations and financial condition for the quarter and six months
ended November 30, 1993 to the quarter and six months ended November 30, 1992.
RESULTS OF OPERATIONS
An increase in average selling price of 12% offset a decrease in shipments of
5,000 tons resulting in a $10.7 million increase in net sales in the three
month period ended November 30, 1993 compared to the same quarter in fiscal
1993. Net sales increased $11 million in the six month period ending November
30, 1993 principally due to a $32 increase in average selling price. The
pricing strategy for certain structural products announced in the May 1993
quarter and general price increases in the current fiscal year, intended to
offset the continued escalation in scrap prices, have combined to produce the
improvement in selling prices. Demand for structural steel has improved
slightly during the fall, but there is no indication that this trend will
continue.
Cost of sales increased $4.9 million to $94.9 million for the three month
period ended November 30, 1993 compared to the same period in the prior year.
The increase was predominately caused by a $19 increase in cost of sales per
ton which resulted from a scrap price increase offset by the 5,000 ton decrease
in shipments. Cost of sales for the six month period was virtually unchanged
as a 6% increase in cost of sales per ton was offset by a decrease in shipments
of 35,000 tons. Scrap prices, which fluctuate with market conditions, are up
approximately 25% from the prior year. Certain cost cutting measures
implemented by the Company in the August 1993 quarter continued to reduce other
manufacturing costs.
Selling, general and administrative expense increased $.3 million from the
prior year quarter primarily due to an increase in employee profit sharing
which is based on profitability. The $1.6 million charge for severance pay in
fiscal 1994 was the primary reason for the increase of $1.2 million in selling,
general and administrative expense in the six month period ended November 30,
1993. The Company continues to experience decreases in costs in all other
areas of administration and marketing compared to the periods in the previous
year.
Interest expense decreased $.4 million and $.8 million in the three and six
month periods ended November 30, 1993 compared to the same periods in the prior
year. Interest expense in the current period was reduced by repayments of
long-term debt which is principally at fixed rates.
The provision (benefit) for income taxes has been calculated on the basis of an
estimated annual rate. The rate was affected by recently passed legislation,
which when applied to the Company's temporary differences, resulted in an
increase of $1.4 million in the amount of deferred tax expense recorded in the
August 1993 quarter. Goodwill amortization also contributed to the difference
between provision amounts and income tax amounts computed by applying the
statutory federal income tax rates.
The increase in net income (loss) in the current periods was due principally to
higher average selling prices. Lower depreciation and interest costs in fiscal
1994 increased profitability by $.5 million in the three month period and by
$1.1 in the six month period ending November 30, 1993. The increase in net
income (loss) was achieved despite the adjustment for severance pay and the
additional $1.4 million income tax provision described above.
9
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CAPITAL RESOURCES AND LIQUIDITY
Working capital increased $12 million to $92.9 million at November 30, 1993
from the previous fiscal year-end. Accounts receivable increased $7.4 million
from May 1993 as the Days Sales Outstanding ratio increased by five days which
follows a historical trend. Prepaid expenses increased from May 31, 1993 as a
result of summer shutdown spending. Cash provided by operations in the first
six months of fiscal 1994 decreased by $6 million primarily from a change in
net cash provided by accounts receivable and inventories. As a result, cash and
cash equivalents decreased $1.9 million after the Company acquired $3.5 million
of capital additions, repaid $4.3 million of long-term debt and paid cash
dividends of $3 million.
Capital expenditures for the six months ended November 30, 1993 totaled $3.5
million and are estimated to be approximately $10 million in fiscal 1994 which
represents normal replacement and upgrades of existing equipment. The Company
continues to study the possibility of new processes related to its primary
business.
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 has short-term credit facilities with two banks totaling $20
million which will expire January 31, 1994 if not renewed by the banks or the
Company. The Company had maximum borrowings of $5 million at any one time
under these arrangements during the first six months of fiscal 1994. At
November 30, 1993, the Company had no outstanding borrowings under these
facilities. The Company has been offered renewal of the existing facilities at
substantially the same terms as the existing facilities. Management is
reviewing those offers and similar arrangements offered by other financial
institutions and intends to accept some combination of the offers prior to
January 31, 1994. The Company expects that current financial resources and
anticipated cash provided from operations in fiscal 1994 will be sufficient to
provide funds for capital expenditures, meet scheduled debt payments and
satisfy other known working capital needs for fiscal 1994. 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.
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PART II. OTHER INFORMATION
Item 4. Submission of Matter to a Vote of Security Holders
At the Annual Meeting of the Stockholders held October 20, 1993,
stockholders elected as Directors of the Company, Robert Alpert, John M. Belk,
Gordon E. Forward, Eugenio Clariond Reyes, Robert D. Rogers, Gerald R.
Heffernan and Gerhard Liener, to terms expiring in 1994. Votes cast to elect
Robert Alpert were 29,334,982 affirmative, 6,336 opposed and 338,582 abstained
or non-voted. Votes cast to elect John M. Belk, Gordon E. Forward, Eugenio
Clariond Reyes and Robert D. Rogers were 29,335,082 affirmative, 6,236 opposed
and 338,582 abstained or non-voted. Votes cast to elect Gerald R. Heffernan
were 29,333,682 affirmative, 7,636 opposed and 338,582 abstained or non-voted.
Votes cast to elect Gerhard Liener were 29,294,082 affirmative, 47,236 opposed
and 338,582 abstained or non-voted.
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
The Registrant did not file any reports on Form 8-K during the three
months ended November 30, 1993.
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
January 11, 1994 /s/ Richard M. Fowler .
Richard M. Fowler
Senior Vice-President &
Chief Financial Officer
January 11, 1994 /s/ Larry L. Clark .
Larry L. Clark
Vice President - Controller
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EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
CHAPARRAL STEEL COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three months ended Six months ended
November 30, November 30,
1993 1992 1993 1992
---- ---- ---- ----
(In thousands except per share)
<S> <C> <C> <C> <C>
AVERAGE SHARES OUTSTANDING
Primary:
Average shares outstanding 29,680 29,675 29,680 29,675
Stock options - treasury stock method
using average market prices 29 26 32 A) -
--------- --------- -------- ---------
TOTALS 29,709 29,701 29,712 29,675
========= ========= ======== =========
Fully diluted:
Average shares outstanding 29,680 29,675 29,680 29,675
Stock options - treasury stock method
using end of quarter market
price if higher than average 31 31 35 A) -
--------- --------- -------- ---------
TOTALS 29,711 29,706 29,715 29,675
========= ========= ======== =========
INCOME (LOSS) APPLICABLE
TO COMMON STOCK
Primary and fully diluted:
Net income (loss) $ 4,423 $ 667 $ 3,549 $ (1,642)
Add:
Pre-September 1990 contingent
price amortization 58 58 116 116
--------- --------- -------- ---------
$ 4,481 $ 725 $ 3,665 $ (1,526)
========= ========= ======== =========
PER SHARE
Net income (loss) per common share:
Primary $ .15 $ .03 $ .12 $ (.05)
========= ========= ======== =========
Fully diluted $ .15 $ .03 $ .12 $ (.05)
========= ========= ======== =========
</TABLE>
A) - Shares have been excluded as they are antidilutive.
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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 December 17, 1993, 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 November
30, 1993.
Pursuant to Rule 436(c) of Securities Act of 1933 our report is not a part of
the Registration Statement prepared or certified by accountants within the
meaning of Section 7 or 11 of the Securities Act of 1933.
Ernst and Young
Dallas, Texas
January 11, 1994
13
