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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED AUGUST 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE
NO. 1-9944
CHAPARRAL STEEL COMPANY
Incorporated in
STATE OF DELAWARE
IRS Employer Identification
NO. 75-1424624
300 WARD ROAD
MIDLOTHIAN, TEXAS 76065
Telephone: (972) 775-8241
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes x No .
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28,454,000 Shares of Common Stock, Par Value $.10 Outstanding at September 22,
1997.
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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 ended August
31, 1997, to the quarter ended August 31, 1996.
GENERAL
In April 1997, the Board of Directors approved the engineering and site
selection work in connection with a plan for the construction of a new
structural mill in the eastern United States with production scheduled to begin
in 1999. The new mill's annual capacity is expected to exceed one million tons
and is expected to produce a full range of structural beams up to 36" in depth
and sheet pile sections. The mill will be positioned to replace the decrease in
supply caused by the reduction in domestic suppliers that has taken place over
the last few years. Patented technologies and existing material recycling
expertise will be incorporated in the new location. Site selection for the new
facility is on schedule.
On May 22, 1997, the Board of Directors received an unsolicited offer to merge
with Texas Industries, Inc., ("TXI") owner of 85% of Chaparral Steel. Under
terms of the offer, owners of the publicly traded shares of Chaparral Steel
would receive consideration of $14.25 per share, pursuant to a cash merger. The
Board of Directors appointed a Special Committee to consider the offer and make
a recommendation to Chaparral's Board. On July 25, 1997, the Board of Directors
received a revised unsolicited offer of $15.50 per share. On July 29, 1997, the
Special Committee unanimously accepted the revised $15.50 per share cash offer
by TXI. On July 30, 1997, the Board of Directors of Chaparral Steel unanimously
accepted TXI's revised offer subject to stockholder approval.
RESULTS OF OPERATIONS
A 21% increase in shipments and a $4 per ton decrease in average selling price
in the first quarter resulted in a $29.5 million increase in net sales compared
to the same period in the prior year. The stable demand for our structural
products continued in the summer quarter due to the continued strength in the
construction industries. Steady demand for bar products contributed to the 5%
increase in average price from those of the prior year quarter.
Cost of sales (exclusive of depreciation and amortization) increased $27.7
million to $146.5 million for the three month period ended August 31, 1997,
compared to the same period in the prior year. The increase was predominately
caused by an increase in shipments of 80,000 tons. Combined rolling conversion
costs increased from the prior year due to decreased production volume that
historically accompanies the summer shutdown period.
Depreciation expense increased from the prior year period due to increased
levels of capital spending. Depreciation is computed using the straight-line
method over the estimated useful lives of the property. Amortization costs
decreased due to the completion of the amortization of commissioning costs on
January 31, 1997.
Selling, general and administrative expense increased $1.3 million in the three
month period ended August 31, 1997, compared to the prior year period primarily
due to increases in employee incentive programs which are based on
profitability.
Interest expense decreased $.7 million in the three month period ended August
31, 1997, compared to the same period in the prior year. Interest expense in
the current period was reduced due to repayments of long-term debt which is
principally at fixed rates.
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The provision for income taxes has been calculated on the basis of an estimated
annual rate. Goodwill amortization contributed to the difference between
provision amounts and income tax amounts computed by applying the statutory
federal income tax rates.
CAPITAL RESOURCES AND LIQUIDITY
Working capital decreased $20.3 million to $135 million at August 31, 1997. At
August 31, 1997, the Company's inventories had decreased $16.1 million or 12%
from their level at May 31, 1997. Throughout its history, the Company has taken
a planned production outage during its first quarter; typically in either July
or August. During this time, inventories decrease due to a lack of production
for approximately two weeks. The decrease in the first quarter of 1998 was
exaggerated by the increased demand for structural steel products. The Company,
in months subsequent to August, has maintained shipment volume at levels that
are greater than the same period in the previous year. Chaparral expects that
trend to continue as the result of increasing production, purchased
semi-finished material (billets) and purchased finished products (primarily
reinforcing bar) for resale. Prepaid expenses increased $6.4 million due to
shutdown spending completed in August 1997. Trade accounts payable increased
$6.9 million due to summer shutdown spending. Other accrued expenses increased
$4.4 million to $25 million due to an increase in the accrual for federal
income tax. The other components of working capital were virtually unchanged
from the previous fiscal year-end. As a result, cash and cash equivalents
increased $.6 million after the Company bought $37.6 million of capital
additions and paid cash dividends of $1.4 million.
Capital expenditures for the three months ended August 31, 1997, totaled $37.6
million and are expected to be in the range of $70-$80 million in fiscal 1998.
Total anticipated spending includes upgrades for the Recycled Products and Bar
Products business units of approximately $30 million.
The Company's capitalization of $387.2 million at August 31, 1997, consisted of
$52.5 million of long-term debt and $334.7 million of stockholders' equity. The
current portion of long-term debt totaled $12.4 million at August 31, 1997. The
Company's average interest rate on long-term debt is 11%. The Company's
payments of principal and interest are expected to be approximately $22 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.
Effective January 1, 1997, the Company has a short-term credit facility with a
bank totaling $10 million which will expire December 31, 1997 if not renewed by
the bank or the Company. The Company believes that it will be able to renew
this credit facility 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
1998 will be sufficient to provide funds for capital expenditures, meet
scheduled debt payments and satisfy other known working capital needs for
fiscal 1998. If additional funds are required to support the short-term
operations or to accomplish long-term expansion of its productive capabilities,
the Company believes that funding can be obtained to meet such requirements.
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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 20, 1997 /s/ RICHARD M. FOWLER
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Richard M. Fowler
Vice President - Finance
and Treasurer
