<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 FEBRUARY 28, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE
NO. 1-9944
CHAPARRAL STEEL COMPANY
Incorporated in
STATE OF DELAWARE
IRS Employer Identification
NO. 75-1424624
300 WARD ROAD
MIDLOTHIAN, TEXAS 76065
Telephone: (214) 775-8241
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
--- ---
29,679,900 Shares of Common Stock, Par Value $.10 Outstanding at April 13,
1995.
1 of 13
<PAGE> 2
INDEX
CHAPARRAL STEEL COMPANY
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
- ----------------------------- ----
<S> <C>
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets--February 28,
1995 and May 31, 1994 3
Condensed consolidated statements of income--three and nine
months ended February 28, 1995 and 1994 4
Condensed consolidated statements of cash flows
--nine months ended February 28, 1995 and 1994 5
Notes to condensed consolidated financial statements
--February 28, 1995 6
Independent accountants' review report 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 11
- ----------
</TABLE>
2
<PAGE> 3
CONDENSED CONSOLIDATED BALANCE SHEETS
CHAPARRAL STEEL COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
(Unaudited)
February 28, May 31,
1995 1994
---- ----
(In thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,113 $ 3,203
Trade accounts receivable, net of allowance
of $3.4 million and $3.8 million, respectively 53,275 41,734
Inventories 105,362 117,583
Prepaid expenses 9,383 8,914
---------- ---------
TOTAL CURRENT ASSETS 169,133 171,434
PROPERTY, PLANT AND EQUIPMENT
Buildings and improvements 47,992 47,217
Machinery and equipment 442,291 434,041
Land 1,288 1,288
---------- ---------
491,571 482,546
Less allowance for depreciation (268,168) (247,660)
---------- ---------
223,403 234,886
OTHER ASSETS
Goodwill, commissioning costs and other assets,
net of accumulated amortization of $20.9 million
and $16.9 million, respectively 77,886 81,987
---------- ---------
$ 470,422 $ 488,307
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ - $ 15,000
Trade accounts payable 31,747 28,667
Accrued interest payable 3,257 2,435
Other accrued expenses 8,383 12,124
Current portion of long-term debt 13,596 17,983
---------- ---------
TOTAL CURRENT LIABILITIES 56,983 76,209
LONG-TERM DEBT 88,587 96,219
DEFERRED INCOME TAXES
AND OTHER CREDITS 51,889 50,256
STOCKHOLDERS' EQUITY
Common stock, $.10 par value, 29,679,900
shares outstanding, respectively 2,994 2,994
Paid-in capital 188,037 188,037
Retained earnings 84,436 77,096
Cost of common stock in treasury (2,504) (2,504)
---------- ---------
272,963 265,623
---------- ---------
$ 470,422 $ 488,307
========== =========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
(Unaudited)
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
CHAPARRAL STEEL COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three months ended Nine months ended
February 28, February 28,
1995 1994 1995 1994
---- ---- ---- ----
(In thousands except per share)
<S> <C> <C> <C> <C>
Net sales $ 132,388 $118,687 $383,043 $337,808
Costs and expenses:
Cost of sales (exclusive of items stated
separately below) 109,006 96,284 317,998 276,485
Depreciation and amortization 8,579 8,557 25,397 25,373
Selling, general and administrative 5,193 3,995 13,801 12,369
Interest 2,952 3,411 9,366 10,198
Other income (1,533) (846) (2,550) (2,210)
--------- -------- -------- --------
124,197 111,401 364,012 322,215
INCOME BEFORE
INCOME TAXES 8,191 7,286 19,031 15,593
Provision for income taxes:
Current period provision 3,121 2,878 7,239 6,193
Change in statutory federal tax rate - - - 1,443
--------- -------- -------- --------
3,121 2,878 7,239 7,636
NET INCOME $ 5,070 $ 4,408 $ 11,792 $ 7,957
========= ======== ======== ========
Per common share:
NET INCOME $ .17 $ .15 $ .40 $ .27
========= ======== ======== ========
CASH DIVIDENDS $ .05 $ .05 $ .15 $ .15
========= ======== ======== ========
Average shares outstanding - Note B 29,716 29,733 29,713 29,719
========= ======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
(Unaudited)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
CHAPARRAL STEEL COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
Nine months ended
February 28,
1995 1994
---- ----
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 11,792 $ 7,957
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 25,397 25,373
Deferred income taxes 1,621 2,430
Other deferred credits 12 (947)
Changes in operating assets and liabilities:
Trade accounts receivable, net (11,143) (10,429)
Inventories 12,221 (19,683)
Prepaid expenses (469) (45)
Trade accounts payable 3,080 5,790
Accrued interest payable 822 478
Other accrued expenses (3,741) (1,311)
--------- --------
Net cash provided by operating activities 39,592 9,613
INVESTING ACTIVITIES
Capital expenditures (9,914) (4,805)
Other (298) 40
--------- --------
Net cash used in investing activities (10,212) (4,765)
FINANCING ACTIVITIES
Short-term borrowings - 20,000
Repayments on short-term debt (15,000) (10,000)
Long-term borrowings 266 260
Repayments on long-term debt (12,284) (12,734)
Dividends paid (4,452) (4,452)
--------- --------
Net cash used in financing activities (31,470) (6,926)
--------- --------
Decrease in cash and cash equivalents (2,090) (2,078)
Cash and cash equivalents at beginning of period 3,203 3,763
--------- --------
Cash and cash equivalents at end of period $ 1,113 $ 1,685
========= ========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CHAPARRAL STEEL COMPANY AND SUBSIDIARIES
February 28, 1995
NOTE A - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of
Chaparral Steel Company and Subsidiaries (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the nine month period ended February 28, 1995 are not necessarily
indicative of the results that may be expected for the year ending May 31,
1995. 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, 1994.
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 $.6 million and $1.7
million in the three and nine months ended February 28, 1995 and 1994,
respectively. The amount of goodwill, net of accumulated amortization included
in other assets was $71.3 million, $73 million and $75.3 million at February
28, 1995, May 31, 1994 and May 31, 1993, respectively.
Net income per common share is calculated based upon a weighted average of
shares outstanding (including common stock equivalents that are not
antidilutive).
6
<PAGE> 7
NOTE C - Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
February 28, May 31,
1995 1994
---- ----
(In thousands)
<S> <C> <C>
Finished goods $ 59,966 $ 72,946
Work in process 7,416 14,477
Raw materials:
Scrap 15,080 10,407
Crushed cars 553 --
Rolls 16,526 15,602
Supplies 16,015 14,878
LIFO adjustment (10,194) (10,727)
------- --------
$105,362 $117,583
======== ========
</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 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 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 $2.3 million was recorded in the first nine months of fiscal
1995 and 1994, 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.
7
<PAGE> 8
EXHIBIT A
Independent Accountants' Review Report
Board of Directors
Chaparral Steel Company
We have reviewed the accompanying condensed consolidated balance sheet of
Chaparral Steel Company and subsidiaries as of February 28, 1995, and the
related condensed consolidated statements of income for the three-month and
nine-month periods ended February 28, 1995 and 1994, and the condensed
consolidated statements of cash flows for the nine-month periods ended February
28, 1995 and 1994. These financial statements are the responsibility of the
Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, which will be
performed for the full year with the objective of expressing an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying condensed consolidated financial statements
referred to above for them to be in conformity with generally accepted
accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Chaparral Steel Company as of May
31, 1994, 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, 1994, 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, 1994, is
fairly stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
Ernst and Young, LLP
March 17, 1995
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(Unaudited)
Comparison of operations and financial condition for the quarter and nine
months ended February 28, 1995 to the quarter and nine months ended February
28, 1994.
RESULTS OF OPERATIONS
An increase in average selling price of $5 per ton and an increase in shipments
of 34,000 tons resulted in a $13.7 million increase in net sales in the three
month period ended February 28, 1995 compared to the same quarter in fiscal
1994. The market for the Company's bar products remained strong as the average
selling price for those products improved $29 from the prior year quarter. Net
sales increased $45.2 million in the nine month period ended February 28, 1995
compared with the prior year period due to an increase in shipments of 99,000
tons and an $11 increase in average selling price. The improved demand
exhibited in the first six months of fiscal 1995 continued as shipments of
373,000 tons were a record for the winter quarter. Demand from service
centers, fabricators and the mobile home industry for structural mill products
have continued their positive trend. However, continued growth in construction
volume is dependent on the health of the economy and changes in interest rates.
Cost of sales (exclusive of depreciation and amortization) increased $12.7
million to $109 million for the three month period ended February 28, 1995
compared to the same period in the prior year. The increase was caused by the
increase in shipments of 34,000 tons and a $5 increase in cost of sales per ton
which resulted from higher maintenance costs. As expected, scrap prices
followed their seasonal pattern upward in the third quarter although some
relief is anticipated in the May 1995 quarter. The 99,000 ton increase in
shipments coupled with an increase of $11 in cost of sales per ton resulted in
an increase of $41.5 million in cost of sales for the nine month period ending
February 28, 1995. Higher scrap costs and melt shop conversion costs
contributed to the increase in cost of sales per ton.
Selling, general and administrative expense increased $1.2 million and $1.4
million in the three and nine month periods ended February 28, 1995 compared to
the prior year periods primarily due to increases in employee incentive
programs which are based on profitability. A $1.6 million charge for severance
pay is included in selling, general and administrative expense in the nine
month period ended February 28, 1994.
Interest expense decreased $.5 million and $.8 million in the three and nine
month periods ended February 28, 1995 compared to the same periods in the prior
year. Interest expense in the current year periods was reduced by repayments
of long-term debt which is principally at fixed rates.
The provision for income taxes has been calculated on the basis of an estimated
annual rate. The rate was affected by legislation passed in the August 1993
quarter, 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 in the current periods was due principally to
increased volume as the gross profit per ton was virtually unchanged from the
prior year periods. Over the near term, shipment levels are expected to
continue to exceed those of last year at prices that continue to move upward.
Although some relief has been felt in scrap prices, it is too early to tell if
this trend will continue.
9
<PAGE> 10
CAPITAL RESOURCES AND LIQUIDITY
Working capital increased $16.9 million to $112.2 million at February 28, 1995
from the previous fiscal year-end. The increase in profitability provided
additional working capital in the first nine months of fiscal 1995.
Inventories decreased $12.2 million as the Company's planned reduction resulted
in finished goods inventory decreasing by 18%. The Company also repaid $15
million of short-term borrowings in fiscal 1995. The other components of
working capital were virtually unchanged from the previous fiscal year-end. As
a result, cash and cash equivalents decreased $2.1 million after the Company
acquired $9.9 million of capital additions, repaid $12.3 million of long-term
debt and paid cash dividends of $4.5 million. Cash provided by operations in
the first nine months of fiscal 1995 increased $30 million primarily due to the
increase in net cash provided by inventory of $31.9 million and by net income
of $3.8 million.
Capital expenditures for the nine months ended February 28, 1995 totaled $9.9
million and are estimated to be approximately $15 million in fiscal 1995 which
represents normal replacement and upgrades of existing equipment. No major
capital expenditures requiring significant capital resources are currently
planned within the next two years.
The Company's capitalization of $361.6 million at February 28, 1995, consisted
of $88.6 million of long-term debt and $273 million of stockholders' equity.
The current portion of long-term debt totaled $13.6 million at February 28,
1995. The average interest rate on long-term debt is 11%. Payments of
principal and interest are expected to be $24.4 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 its business.
The Company has commitments for short-term credit facilities with two banks
totaling $20 million which will expire January 31, 1996 if not renewed by the
banks or the Company. The Company had maximum borrowings of $15 million at any
one time under its short-term arrangements during the first nine months of
fiscal 1995. At February 28, 1995, there were no outstanding borrowings under
these facilities. It is expected that current financial resources and
anticipated cash provided from operations in fiscal 1995 will be sufficient to
provide funds for capital expenditures, meet scheduled debt payments and
satisfy other known working capital needs for fiscal 1995. 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.
Based on the current outlook for steel consumption levels and its impact on
prices, in fiscal 1995, the Company expects further increases in shipments and
average selling price and cost per ton levels to increase slightly from fiscal
1994. Significant changes in average selling prices without a corresponding
change in the scrap raw material costs could have a substantial effect on the
Company's operating results and liquidity.
10
<PAGE> 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
The following exhibits are included herein:
(11) Statement re: Computation of earnings per share
(15) Letter re: Unaudited interim financial information
(27) Financial Data Schedule
The Registrant did not file any reports on Form 8-K during the three
months ended February 28, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
CHAPARRAL STEEL COMPANY
April 14, 1995 Richard M. Fowler
- -------------- --------------------------
Richard M. Fowler
Senior Vice-President Finance &
Chief Financial Officer
April 14, 1995 Larry L. Clark
- -------------- --------------------------
Larry L. Clark
Vice President - Controller
11
<PAGE> 1
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
CHAPARRAL STEEL COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three months ended Nine months ended
February 28, February 28,
1995 1994 1995 1994
---- ---- ---- ----
(In thousands except per share)
<S> <C> <C> <C> <C>
AVERAGE SHARES OUTSTANDING
Primary:
Average shares outstanding 29,680 29,680 29,680 29,680
Stock options - treasury stock method
using average market prices 36 53 33 39
-------- --------- -------- --------
TOTALS 29,716 29,733 29,713 29,719
======== ========= ======== ========
Fully diluted:
Average shares outstanding 29,680 29,680 29,680 29,680
Stock options - treasury stock method
using end of quarter market
price if higher than average 36 68 34 46
-------- --------- -------- --------
TOTALS 29,716 29,748 29,714 29,726
======== ========= ======== ========
INCOME APPLICABLE
TO COMMON STOCK
Primary and fully diluted:
Net income $ 5,070 $ 4,408 $ 11,792 $ 7,957
Add:
Pre-September 1990 contingent
price amortization 58 58 174 174
-------- --------- -------- --------
$ 5,128 $ 4,466 $ 11,966 $ 8,131
======== ========= ======== ========
PER SHARE
Net income per common share:
Primary $ .17 $ .15 $ .40 $ .27
======== ========= ======== ========
Fully diluted $ .17 $ .15 $ .40 $ .27
======== ========= ======== ========
</TABLE>
12
<PAGE> 1
EXHIBIT 15
Board of Directors
Chaparral Steel Company
We are aware of the incorporation by reference in the Registration Statement
(Form S-8 No. 33-39626) pertaining to the Chaparral Steel Company Stock Option
Plan of our report dated March 17, 1995, relating to the unaudited condensed
consolidated interim financial statements of Chaparral Steel Company and
subsidiaries which are included in its Form 10- Q for the quarter ended
February 28, 1995.
Pursuant to Rule 436(c) of Securities Act of 1933 our report is not a part of
the Registration Statement prepared or certified by accountants within the
meaning of Section 7 or 11 of the Securities Act of 1933.
Ernst and Young, LLP
Dallas, Texas
April 10, 1995
13
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<CIK> 0000833226
<NAME> CHAPARRAL STEEL COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-END> FEB-28-1995
<CASH> 1,113
<SECURITIES> 0
<RECEIVABLES> 56,665
<ALLOWANCES> 3,390
<INVENTORY> 105,362
<CURRENT-ASSETS> 169,133
<PP&E> 491,571
<DEPRECIATION> 268,168
<TOTAL-ASSETS> 470,422
<CURRENT-LIABILITIES> 56,983
<BONDS> 88,587
<COMMON> 2,994
0
0
<OTHER-SE> 269,969
<TOTAL-LIABILITY-AND-EQUITY> 470,422
<SALES> 383,043
<TOTAL-REVENUES> 383,043
<CGS> 317,998
<TOTAL-COSTS> 317,998
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 915
<INTEREST-EXPENSE> 9,366
<INCOME-PRETAX> 19,031
<INCOME-TAX> 7,239
<INCOME-CONTINUING> 11,792
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,792
<EPS-PRIMARY> .40
<EPS-DILUTED> .40
</TABLE>
