<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 AUGUST 31, 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 .
--- ---
29,684,900 Shares of Common Stock, Par Value $.10 Outstanding at October 6,
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--August 31,
1995 and May 31, 1995 3
Condensed consolidated statements of income--three 4
months ended August 31, 1995 and 1994
Condensed consolidated statements of cash flows
--three months ended August 31, 1995 and 1994 5
Notes to condensed consolidated financial statements
--August 31, 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)
August 31, May 31,
1995 1995
----------- ----------
(In thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 9,051 $ 19,140
Trade accounts receivable, net of allowance
of $2.6 million and $2.5 million, respectively 53,693 51,679
Inventories 105,461 101,377
Prepaid expenses 17,407 8,110
--------- ----------
TOTAL CURRENT ASSETS 185,612 180,306
PROPERTY, PLANT AND EQUIPMENT
Buildings and improvements 49,283 48,689
Machinery and equipment 454,621 447,982
Land 1,288 1,288
--------- ----------
505,192 497,959
Less allowance for depreciation (282,308) (275,476)
--------- ----------
222,884 222,483
OTHER ASSETS
Goodwill, commissioning costs and other assets,
net of accumulated amortization of $23.5 million
and $22.3 million, respectively 65,785 67,038
--------- ----------
$ 474,281 $ 469,827
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 34,327 $ 37,818
Accrued interest payable 2,928 1,862
Other accrued expenses 16,512 13,236
Current portion of long-term debt 12,396 13,645
--------- ----------
TOTAL CURRENT LIABILITIES 66,163 66,561
LONG-TERM DEBT 80,990 81,065
DEFERRED INCOME TAXES
AND OTHER CREDITS 52,316 52,333
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 500,000
authorized, none outstanding - -
Common stock, $.10 par value, 29,679,900
shares outstanding 2,994 2,994
Paid-in capital 178,611 178,611
Retained earnings 95,711 90,767
Cost of common stock in treasury (2,504) (2,504)
--------- ----------
274,812 269,868
--------- ----------
$ 474,281 $ 469,827
========= ==========
</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
August 31,
1995 1994
---- ----
(In thousands except per share)
<S> <C> <C>
Net sales $ 138,141 $ 124,382
Costs and expenses:
Cost of sales (exclusive of items stated
separately below) 112,081 105,919
Depreciation and amortization 8,088 8,408
Selling, general and administrative 5,732 3,935
Interest 2,620 3,280
Other income (1,106) (129)
---------- ----------
INCOME BEFORE INCOME TAXES 10,726 2,969
Provision for income taxes 4,298 1,216
---------- ----------
NET INCOME $ 6,428 $ 1,753
========== ==========
Per common share:
NET INCOME $ .22 $ .06
========== ==========
CASH DIVIDENDS $ .05 $ .05
========== ==========
Average shares outstanding - Note B 29,803 29,712
========== ==========
</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>
Three months ended
August 31,
1995 1994
---- ----
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 6,428 $ 1,753
Adjustments to reconcile net income to
net cash provided (used) by operating activities:
Depreciation and amortization 8,088 8,408
Deferred income taxes (378) (24)
Other deferred credits 359 (105)
Changes in operating assets and liabilities:
Trade accounts receivable, net (2,014) (6,285)
Inventories (4,084) 17,442
Prepaid expenses (9,297) (6,021)
Trade accounts payable (3,491) (329)
Accrued interest payable 1,066 994
Other accrued expenses 3,276 2,018
--------- --------
Net cash provided (used) by
operating activities (47) 17,851
INVESTING ACTIVITIES
Capital expenditures (7,504) (3,887)
Other 270 2
--------- --------
Net cash used in investing activities (7,234) (3,885)
FINANCING ACTIVITIES
Short-term borrowings - -
Repayments on short-term debt - (5,000)
Long-term borrowings - -
Repayments on long-term debt (1,324) (2,873)
Dividends paid (1,484) (1,484)
--------- --------
Net cash used in financing activities (2,808) (9,357)
--------- --------
Increase (decrease) in cash and cash equivalents (10,089) 4,609
Cash and cash equivalents at beginning of period 19,140 3,203
--------- --------
Cash and cash equivalents at end of period $ 9,051 $ 7,812
========= ========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CHAPARRAL STEEL COMPANY AND SUBSIDIARIES
August 31, 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 three month period ended August 31, 1995 are not necessarily
indicative of the results that may be expected for the year ending May 31,
1996. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's annual report on Form 10-K for
the year ended May 31, 1995.
NOTE B - Earnings Per Share
Texas Industries, Inc. ("TXI") owned 100% of the Company from November 1985,
when it acquired the remaining 50% of the outstanding securities of the Company
from Co-Steel Inc. ("Co-Steel"), until July 1988, when approximately 19.8% of
the outstanding securities were sold in an initial public offering of common
stock by the Company. Under terms of the purchase agreement between TXI and
Co-Steel, TXI made a $42 million initial cash payment and made a $73 million
final payment in August 1990.
The acquisition by TXI has been accounted for using the purchase method of
accounting. The $115 million total purchase price exceeded the value of
acquired assets by $83 million and the excess has been 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 $60.7 million and
$61.2 million at August 31, 1995 and May 31, 1995, respectively. This goodwill
is being amortized over 40 years using the straight-line method and reduced
earnings by $.5 million and $.6 million in the three months ended August 31,
1995 and 1994, respectively.
Net income per common share is calculated based upon a weighted average of
29,803,000 and 29,712,000 shares outstanding at August 31, 1995 and 1994,
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. The current amount for
fiscal 1996 contains a provision for state income tax. In previous periods,
state tax liabilities were offset with applicable credits. Goodwill
amortization also contributed to the difference between provision amounts and
amounts computed by applying the statutory income tax rates.
6
<PAGE> 7
NOTE D - Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
August 31, May 31,
1995 1995
---- ----
(In thousands)
<S> <C> <C>
Finished goods $ 48,755 $ 54,323
Work in process 13,024 9,856
Raw materials 20,922 14,052
Rolls 16,510 18,148
Supplies 16,739 15,487
LIFO adjustment (10,489) (10,489)
---------- ----------
$ 105,461 $ 101,377
========== ==========
</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 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 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 $4.3 million and $5
million at August 31, 1995 and May 31, 1995, respectively. Amortization of $.8
million was recorded in the first quarter of fiscal 1996 and 1995,
respectively, based on a five year period.
NOTE F - Contingencies
The Company and subsidiaries are defendants in lawsuits which arose in the
normal course of business. In management s judgment (based on the opinion of
counsel) the ultimate liability, if any, from such legal proceedings will not
have a material effect on the Company s financial position.
The Company is subject to federal, state and local environmental laws and
regulations concerning, among other matters, air emissions, furnace dust
disposal and wastewater discharge. The Company believed it is in substantial
compliance with applicable environmental laws and regulations. Notwithstanding
such compliance, if damage to persons or property or contamination of the
environment has been or is caused by the conduct of the Company s business or
by hazardous substances or wastes used in, generated or disposed of by the
Company, the Company could be held liable for such damages and be required to
pay the cost of investigation and remediation of such contamination. The
amount of such liability could be material. Changes in federal or state laws,
regulations or requirements or discovery of unknown conditions could require
additional expenditures by the Company.
7
<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 August 31, 1995, and the related
condensed consolidated statements of income and cash flows for the three month
periods ended August 31, 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, 1995, and the related consolidated statements of income, stockholders'
equity and cash flows for the year then ended (not presented herein), and in
our report dated July 14, 1995, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth
in the accompanying condensed consolidated balance sheet as of May 31, 1995, is
fairly stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
Ernst & Young LLP
Dallas, Texas
September 15, 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 ended August
31, 1995, to the quarter ended August 31, 1994.
RESULTS OF OPERATIONS
A 12% increase in average selling price offsetting a slight decrease in
shipments resulted in a $13.8 million increase in net sales in the three month
period ended August 31, 1995 compared to the same quarter in the prior year.
Average selling prices for beam products continued to rise as the price
increases announced in the May quarter were realized during the summer quarter.
Although current demand for structural products exceeds supply, it is
anticipated that this situation will return to balance by the end of the
November 1995 quarter, as domestic structural producers adjust their production
levels upward. The strong market in nonresidential construction and mobile
home building is expected to continue into the November 1995 quarter. Average
selling prices for bar products were up substantially from the prior year due
to better economic conditions. The SBQ market has slowed recently due to
uncertain consumption patterns in the automotive industry. The Company
continues to monitor and change its product mix in order to maximize profit
margins.
Cost of sales (exclusive of depreciation and amortization) increased $6.2
million to $112.1 million for the three month period ended August 31, 1995
compared to the same period in the prior year. The increase of 6% in cost of
sales per ton was caused by higher raw material and alloy prices and the effect
of the start-up of the new bar mill caster in the current quarter. Scrap
prices, which fluctuate with market conditions, were higher than the prior
year, and historically, mirror the general movements in the average selling
prices of steel products. The installation of the bar mill caster slowed
production slightly which resulted in higher unit costs. Shutdown expenditures
for annual maintenance exceeded those of last year by 32% and will continue to
affect current year results.
Selling, general and administrative expense increased $1.8 million from the
prior year principally due to the increased provisions for employee incentives
of $1.1 million due to increased profits. Marketing expense increased $.2
million from the August 1994 quarter as a result of the Company s expanded
focus on customer service. Other areas of administrative expense were slightly
higher.
Interest expense decreased slightly in the three month period ended August 31,
1995 compared to the same period in the prior year because of repayments of
long-term debt.
The provision for income taxes has been calculated on the basis of an estimated
annual rate. The current year amount includes a provision for a 4.5% state
income tax. In previous periods, state tax liabilities were offset with
applicable credits. Goodwill amortization also contributed to the difference
between provision amounts and income tax amounts computed by applying the
statutory income tax rates.
The positive movement in net income of $4.7 million was due principally to the
increase in average selling price. A $1 million rebate from the electric
utility company also contributed to the improvement in net income during the
current year quarter. Based on the current outlook for steel consumption levels
and its impact on prices, the Company expects favorable earnings' comparisons
in the upcoming quarters. 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.
9
<PAGE> 10
CAPITAL RESOURCES AND LIQUIDITY
Working capital increased $5.7 million to an all-time high of $119.4 million at
August 31, 1995. Inventories increased $4.1 million as the Company increased
its raw material inventories in anticipation of increased prices during the
fall quarter. Historically, upward pressure on prices has been present in the
scrap market during the winter months. Prepaid expenses increased $9.3 million
from May 31, 1995 as a result of summer shutdown spending that will be
amortized over the remainder of the fiscal year. The components of current
liabilities were virtually unchanged from the previous fiscal year-end. Net
cash provided (used) by operations in the August 1995 quarter decreased by
$17.9 million due primarily to the change in net cash provided (used) by
inventory. At May 31, 1994, inventory had increased as management anticipated
higher demand in the summer of 1994. As that higher demand materialized, the
amount of inventory returned to a more normal historical level at August 31,
1994. During 1995, inventory levels were more stable; therefore, diminishing
its effect on cash. All other components of net cash provided (used) by
operations did not change significantly from the prior year. As a result, cash
and cash equivalents decreased $10.1 million after the Company acquired $7.5
million of capital additions, repaid $1.3 million of long-term debt and paid
cash dividends of $1.5 million.
Capital expenditures for the quarter ended August 31, 1995 totaled $7.5 million
and are estimated to be approximately $25-$30 million in fiscal 1996; which
represents normal replacement and technological upgrades of existing equipment.
The Company currently does not plan any long-term expansion of its productive
capabilities requiring significant capital resources within the next two years.
The Company s capitalization of $355.8 million at August 31, 1995, consisted of
$81 million of long-term debt and $274.8 million of stockholders equity. The
current portion of long-term debt totaled $12.4 million at August 31, 1995. The
average interest rate on long-term debt is 11%. The Company s total debt
service is expected to be approximately $24 million during the next twelve
months.
The Company has 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. No borrowings existed under these arrangements during the first
quarter of fiscal 1996. The Company believes that it will be able to renew
these credit facilities or negotiate similar arrangements with other financial
institutions if they are deemed necessary. The Company expects that current
financial resources and anticipated cash provided from operations in fiscal
1996 will be sufficient to provide funds for capital expenditures, meet
scheduled debt payments and satisfy other known working capital needs for
fiscal 1996. If additional funds are required to accomplish long-term
expansion of its productive capabilities, the Company believes that funding can
be obtained to meet such requirements.
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 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 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 business.
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 August 31, 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
October 6, 1995 /s/ RICHARD M. FOWLER
- --------------- -------------------------
Richard M. Fowler
Senior Vice-President,
Treasurer & Chief Financial Officer
October 6, 1995 /s/ LARRY L. CLARK
- --------------- ----------------------------------
Larry L. Clark
Vice President - Controller
& Assistant Treasurer
11
<PAGE> 12
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
11 Statement re: Computation of earnings per share
15 Letter re: Unaudited interim financial information
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
CHAPARRAL STEEL COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three months ended August 31,
1995 1994
---- ----
(In thousands except per share)
<S> <C> <C>
AVERAGE SHARES OUTSTANDING
Primary:
Average shares outstanding 29,680 29,680
Stock options - treasury stock method
using average market prices 123 32
-------- ---------
TOTALS 29,803 29,712
======== =========
Fully diluted:
Average shares outstanding 29,680 29,680
Stock options - treasury stock method
using end of quarter market
price if higher than average 158 32
-------- ---------
TOTALS 29,838 29,712
======== =========
INCOME APPLICABLE TO COMMON STOCK
Primary and fully diluted:
Net income $ 6,428 $ 1,753
Add:
Pre-September 1990 contingent
price amortization 58 58
-------- ---------
$ 6,486 $ 1,811
======== =========
PER SHARE
Net income per common share:
Primary $ .22 $ .06
-------- ---------
Fully diluted $ .22 $ .06
======== =========
</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 September 15, 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
August 31, 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 & Young LLP
Dallas, Texas
October 6, 1995
13
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000833226
<NAME> CHAPARRAL STEEL COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-END> AUG-31-1995
<CASH> 9,051
<SECURITIES> 0
<RECEIVABLES> 56,276
<ALLOWANCES> 2,583
<INVENTORY> 105,461
<CURRENT-ASSETS> 185,612
<PP&E> 505,192
<DEPRECIATION> 282,308
<TOTAL-ASSETS> 474,281
<CURRENT-LIABILITIES> 66,163
<BONDS> 80,990
<COMMON> 2,994
0
0
<OTHER-SE> 271,818
<TOTAL-LIABILITY-AND-EQUITY> 474,281
<SALES> 138,141
<TOTAL-REVENUES> 138,141
<CGS> 112,081
<TOTAL-COSTS> 112,081
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 120
<INTEREST-EXPENSE> 2,620
<INCOME-PRETAX> 10,726
<INCOME-TAX> 4,296
<INCOME-CONTINUING> 6,428
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,428
<EPS-PRIMARY> .22
<EPS-DILUTED> .22
</TABLE>
