<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, 1994
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 9,
1995.
1 of 13
<PAGE> 2
INDEX
CHAPARRAL STEEL COMPANY
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets--November 30,
1994 and May 31, 1994 3
Condensed consolidated statements of income--three and six
months ended November 30, 1994 and 1993 4
Condensed consolidated statements of cash flows
--six months ended November 30, 1994 and 1993 5
Notes to condensed consolidated financial statements
--November 30, 1994 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>
2
<PAGE> 3
CONDENSED CONSOLIDATED BALANCE SHEETS
CHAPARRAL STEEL COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
(Unaudited)
November 30, May 31,
1994 1994
------------ ----------
(In thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 11,893 $ 3,203
Trade accounts receivable, net of allowance
of $3.1 million and $3.8 million, respectively 43,552 41,734
Inventories 102,631 117,583
Prepaid expenses 11,537 8,914
-------- --------
TOTAL CURRENT ASSETS 169,613 171,434
PROPERTY, PLANT AND EQUIPMENT
Buildings and improvements 47,974 47,217
Machinery and equipment 439,611 434,041
Land 1,288 1,288
-------- --------
488,873 482,546
Less allowance for depreciation (261,811) (247,660)
-------- --------
227,062 234,886
OTHER ASSETS
Goodwill, commissioning costs and other assets,
net of accumulated amortization of $19.6 million
and $16.9 million, respectively 78,948 81,987
-------- --------
$475,623 $488,307
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ - $ 15,000
Trade accounts payable 29,020 28,667
Accrued interest payable 2,394 2,435
Other accrued expenses 12,442 12,124
Current portion of long-term debt 16,717 17,983
-------- --------
TOTAL CURRENT LIABILITIES 60,573 76,209
LONG-TERM DEBT 94,633 96,219
DEFERRED INCOME TAXES
AND OTHER CREDITS 51,040 50,256
STOCKHOLDERS' EQUITY
Common stock, $.10 par value, 29,679,900
shares outstanding 2,994 2,994
Paid-in capital 188,037 188,037
Retained earnings 80,850 77,096
Cost of common stock in treasury (2,504) (2,504)
-------- --------
269,377 265,623
-------- --------
$475,623 $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 Six months ended
November 30, November 30,
1994 1993 1994 1993
-------- -------- -------- --------
(In thousands except per share)
<S> <C> <C> <C> <C>
Net sales $126,273 $117,325 $250,655 $219,121
Costs and expenses:
Cost of sales 103,073 94,854 208,992 l80,20l
Selling, general and administrative 4,673 3,795 8,608 8,374
Depreciation and amortization 8,410 8,410 16,818 16,816
Interest 3,134 3,379 6,414 6,787
Other income (888) (575) (1,017) (1,364)
-------- -------- -------- --------
118,402 109,863 239,815 210,814
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 7,871 7,362 10,840 8,307
Provision for income taxes:
Current period provision 2,902 2,939 4,118 3,315
Change in statutory federal tax rate - - - 1,443
-------- -------- -------- --------
2,902 2,939 4,118 4,758
NET INCOME $ 4,969 $ 4,423 $ 6,722 $ 3,549
======== ======== ======== ========
Per common share:
NET INCOME $ .17 $ .15 $ .23 $ .12
======== ======== ======== ========
CASH DIVIDENDS $ .05 $ .05 $ .10 $ .10
======== ======== ======== ========
Average shares outstanding - Note B 29,711 29,709 29,712 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>
Six months ended
November 30,
1994 1993
-------- -------
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 6,722 $ 3,549
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 16,818 16,816
Deferred income taxes 937 1,894
Other deferred credits (153) (612)
Changes in operating assets and liabilities:
Trade accounts receivable, net (1,458) (7,796)
Inventories 14,952 (3,145)
Prepaid expenses (2,623) (2,914)
Trade accounts payable 353 752
Accrued interest payable (41) (225)
Other accrued expenses 318 259
-------- -------
Net cash provided by operating activities 35,825 8,578
INVESTING ACTIVITIES
Capital expenditures (6,327) (3,491)
Other 12 41
-------- -------
Net cash used in investing activities (6,315) (3,450)
FINANCING ACTIVITIES
Short-term borrowings - 5,000
Repayments on short-term debt (15,000) (5,000)
Long-term borrowings 63 260
Repayments on long-term debt (2,915) (4,338)
Dividends paid (2,968) (2,968)
-------- -------
Net cash used in financing activities (20,820) (7,046)
-------- -------
Increase (decrease) in cash and cash equivalents 8,690 (1,918)
Cash and cash equivalents at beginning of period 3,203 3,763
-------- -------
Cash and cash equivalents at end of period $ 11,893 $ 1,845
======== =======
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CHAPARRAL STEEL COMPANY AND SUBSIDIARIES
November 30, 1994
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, 1994 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 $1.2 million in the six
months ended November 30, 1994 and 1993, respectively. The amount of
goodwill, net of accumulated amortization included in other assets was $71.8
million, $73 million and $75.3 million at November 30, 1994, 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>
November 30, May 31,
1994 1994
---- ----
(In thousands)
<S> <C> <C>
Finished goods $ 62,364 $ 72,946
Work in process 8,546 14,477
Raw materials:
Scrap 10,859 10,407
Crushed cars 38 --
Rolls 16,357 15,602
Supplies 14,661 14,878
LIFO adjustment (10,194) (10, 727)
-------- --------
$102,631 $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 $1.5 million was recorded in the first six 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 November 30, 1994, and the
related condensed consolidated statements of income for the three-month and
six-month periods ended November 30, 1994 and 1993, and the condensed
consolidated statements of cash flows for the six month periods ended November
30, 1994 and 1993. 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
Dallas, Texas
December 16, 1994
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 six months
ended November 30, 1994 to the quarter and six months ended November 30, 1993.
RESULTS OF OPERATIONS
An increase in average selling price of $11 and an increase in shipments of
15,000 tons resulted in a $9 million increase in net sales in the three month
period ended November 30, 1994 compared to the same quarter in fiscal 1994.
The market for the Company's Special Bar Quality products remained strong as
the average selling price for those products improved $20 from the prior year
quarter. Net sales increased $31.5 million in the six month period ended
November 30, 1994 due to a $14 increase in average selling price and an
increase in shipments of 66,000 tons. The improved demand exhibited in the
first quarter of 1995 continued in the current period as the Company announced
price increases on most structural products effective in the third quarter of
fiscal 1995. Demand from service centers, fabricators and the mobile home
industry for structural mill products appears to have established a positive
trend. However, continued growth in construction volume is dependent on the
health of the economy and changes in interest rates.
Cost of sales increased $8.2 million to $103.1 million for the three month
period ended November 30, 1994 compared to the same period in the prior year.
The increase was predominately caused by the increase in shipments of 15,000
tons and a $9 increase in cost of sales per ton which resulted from higher
scrap prices. Scrap prices are expected to follow their seasonal pattern upward
this winter before moderating in the spring. Combined rolling conversion costs
increased slightly from the prior year quarter. Cost of sales for the six month
period increased $28.8 million due to the increase in shipments of 66,000 tons
and a $6 increase in scrap prices. Combined rolling conversion costs were
virtually unchanged from the previous year periods. Higher additives costs were
incurred in the current year periods as the Company produced more Special Bar
Quality products.
Selling, general and administrative expense increased $.9 million and $.2
million in the three and six month periods ended November 30, 1994 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 six month
period ended November 30, 1993.
Interest expense decreased $.2 million and $.4 million in the three and six
month periods ended November 30, 1994 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 for income taxes has been calculated on the basis of an estimated
annual rate. The rate was affected by legislation passed in August 1993, 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 to higher average
selling prices, increased volume and a shift in product mix to higher margin
products. Over the near term, shipment levels are expected to continue to
exceed those of last year at prices that continue to move upward. Higher scrap
prices will somewhat offset increasing selling prices, but positive earnings
comparisons to the prior year should result.
9
<PAGE> 10
CAPITAL RESOURCES AND LIQUIDITY
Working capital increased $13.8 million to $109 million at November 30, 1994
from the previous fiscal year-end. The increase in profitability provided
additional working capital in the first six months of fiscal 1995. Inventories
decreased $15 million as the Company's planned reduction resulted in finished
goods inventory decreasing by 20%. 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 increased $8.7 million after the Company bought $6.3
million of capital additions, repaid $2.9 million of long-term debt and paid
cash dividends of $3 million. Cash provided by operations in the first six
months of fiscal 1995 increased by $27.2 million primarily due to the increase
in net cash provided by accounts receivable of $6.3 million and by inventory of
$18.1 million.
Capital expenditures for the six months ended November 30, 1994 totaled $6.3
million and are estimated to be approximately $15 million in fiscal 1995 which
represents normal replacement and upgrades of existing equipment. The Company
currently does not plan any major capital expenditures requiring significant
capital resources within the next two years.
The Company's capitalization of $364 million at November 30, 1994, consisted of
$94.6 million of long-term debt and $269.4 million of stockholders' equity.
The current portion of long-term debt totaled $16.7 million at November 30,
1994. The Company's average interest rate on long-term debt is 11%. The
Company's payments of principal and interest are expected to be $27.5 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 has short-term credit facilities with two banks totaling $20
million which will expire January 31, 1995. The Company expects to renew the
short-term facilities with substantially the same terms and conditions. The
Company had maximum borrowings of $15 million at any one time under these
arrangements during the first six months of fiscal 1995. At November 30, 1994,
the Company had no outstanding borrowings under these facilities. The Company
expects 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 4. Submission of Matter to a Vote of Security Holders
At the Annual Meeting of the Stockholders held October 19, 1994,
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 1995. Votes cast to elect
the Directors were as follows:
<TABLE>
<CAPTION>
Shares withheld
Shares for and against
---------- ---------------
<S> <C> <C>
Robert Alpert 29,425,296 27,270
John M. Belk 29,384,346 68,220
Gordon E. Forward 29,423,989 28,577
Gerald R. Heffernan 29,380,146 72,720
Gerhard Liener 29,421,596 30,970
Eugenio Clariond Reyes 29,425,096 27,470
Robert D. Rogers 29,423,146 29,420
</TABLE>
The stockholders also approved an amendment to the Company's Stock Option Plan.
Votes cast were 29,352,306 affirmative, 100,260 withheld and against.
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, 1994.
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 10, 1995 Richard M. Fowler
___________________________
Richard M. Fowler
Senior Vice-President &
Chief Financial Officer
January 10, 1995 Larry L. Clark
___________________________
Larry L. Clark
Vice President - Controller
11
<PAGE> 12
INDEX TO EXHIBITS
Exhibit Description
- ------- -----------
11 Statement re: Computation of earnings per share
15 Letter re: Unaudited interim financial information
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
CHAPARRAL STEEL COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three months ended Six months ended
November 30, November 30,
1994 1993 1994 1993
------- ------- ------- -------
(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 31 29 32 32
------- ------- ------- -------
TOTALS 29,711 29,709 29,712 29,712
======= ======= ======= =======
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 32 31 32 35
------- ------- ------- -------
TOTALS 29,712 29,711 29,712 21,715
======= ======= ======= =======
INCOME APPLICABLE
TO COMMON STOCK
Primary and fully diluted:
Net income $ 4,969 $ 4,423 $ 6,722 $ 3,549
Add:
Pre-September 1990 contingent
price amortization 58 58 116 116
------- ------- ------- -------
$ 5,027 $ 4,481 $ 6,838 $ 3,665
======= ======= ======= =======
PER SHARE
Net income per common share:
Primary $ .17 $ .15 $ .23 $ .12
======= ======= ======= =======
Fully diluted $ .17 $ .15 $ .23 $ .12
======= ======= ======= =======
</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 December 16, 1994, 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, 1994.
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
January 9, 1995
13
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000833226
<NAME> CHAPARRAL STEEL COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-END> NOV-30-1994
<CASH> 11,893
<SECURITIES> 0
<RECEIVABLES> 46,678
<ALLOWANCES> 3,126
<INVENTORY> 102,631
<CURRENT-ASSETS> 169,613
<PP&E> 488,873
<DEPRECIATION> 261,811
<TOTAL-ASSETS> 475,623
<CURRENT-LIABILITIES> 60,573
<BONDS> 111,350
<COMMON> 2,994
0
0
<OTHER-SE> 266,383
<TOTAL-LIABILITY-AND-EQUITY> 475,623
<SALES> 250,655
<TOTAL-REVENUES> 250,655
<CGS> 208,992
<TOTAL-COSTS> 208,992
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 525
<INTEREST-EXPENSE> 6,414
<INCOME-PRETAX> 10,840
<INCOME-TAX> 4,118
<INCOME-CONTINUING> 6,722
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,722
<EPS-PRIMARY> .23
<EPS-DILUTED> .23
</TABLE>
