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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MAY 31, 1997
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-9944
CHAPARRAL STEEL COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 75-1424624
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 WARD ROAD, MIDLOTHIAN, TEXAS 76065
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: A/C 972 775-8241
Securities registered pursuant to Section 12(b) of the Act:
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NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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COMMON STOCK, PAR VALUE $.10 NEW YORK STOCK EXCHANGE
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Securities registered pursuant to Section 12(g) of the Act:
NONE
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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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ].
Aggregate market value of the voting stock (which consists solely of
shares of Common Stock) held by non-affiliates of the registrant as of July 14,
1997, computed by reference to the closing sale price of the registrant's
Common Stock on the New York Stock Exchange on such date: $66,531,072.
Indicate the number of shares outstanding of each of the Registrant's
classes of Common Stock, as of the latest practicable date.
COMMON STOCK - $.10 PAR VALUE
28,453,963 SHARES AS OF JULY 14, 1997
DOCUMENTS INCORPORATED BY REFERENCE
NONE
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PART I
ITEM 1. BUSINESS
(a) General development of business
Chaparral Steel Company (the "Company") was organized as a Delaware
corporation in July 1973 by Texas Industries, Inc. ("TXI") and Co-Steel
Inc.("Co-Steel"), a Canadian corporation, which owns steel mills in New Jersey,
Canada and the United Kingdom. TXI is a New York Stock Exchange listed company
which produces cement and concrete. At the time of the Company's organization,
TXI and Co-Steel each owned a 50% interest in the Company. 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, until July 1988 when
approximately 19.8% of the outstanding securities were sold in an initial
public offering of common stock by the Company. In April 1997, the Company
announced plans to construct a new structural steel mill in the eastern United
States. The new mill's annual capacity is planned to exceed one million tons
and incorporate various technologies developed at the Texas facility. The
consolidated financial statements include the operations of Chaparral Steel
Company, America Steel Transport, and Castelite Steel Products, Inc.
(b) Financial information about industry segments
The Company operates in the steel industry only; therefore, no industry
segment information is presented.
(c) Narrative description of business
The Company's original steel mill facility was completed in 1975 and
consisted of an electric arc furnace and a rolling mill, which produced rebar
used in concrete construction, and small size angles, channels, rounds and
flats.
In 1982, a major expansion of the steel mill, at a cost of approximately
$180 million, added an additional electric arc furnace and rolling mill to
produce medium-sized structural products. The expansion enabled the Company to
produce beams up to 8" wide. Additional modifications to the medium section
mill now enable the Company to produce beams up to 14" wide, in addition to
large channels and angles.
During fiscal 1992, commissioning was completed on a large beam mill which
has expanded the existing product range up to include 24" wide flange beams.
The expansion was financed with long-term senior unsecured notes of $80
million.
PRODUCTS
The Company's products are sold generally to steel service centers and
steel fabricators for use in the construction industry, as well as to cold
finishers, forgers and original equipment manufacturers for use in the
railroad, defense, automotive, mobile home and energy industries.
The Company designed its bar and structural mills to efficiently produce
bar mill products (33% of 1997 sales on a tonnage basis), structural mill
products (42% of 1997 sales on a tonnage basis) and large beam mill products
(25% of 1997 sales on a tonnage basis). The bar and structural mills can be
modified, without substantial cost or delay, to change current product mix in
order to comply with customer needs or changes in market conditions.
After inspection, bundling and strapping, finished products are delivered
by common carrier, customer-owned truck, rail or barge. The Company maintains
an inventory of finished products based on anticipated short-term usage to
provide prompt shipments to customers when possible.
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STRUCTURAL PRODUCTS BUSINESS UNIT:
BEAMS
Beams are used for building construction and the non-building fabrication
industries. Sales of beams currently constitute approximately 67% of the
Company's sales on a tonnage basis. Beams produced by the Company's medium
section mill include wide-flange beams (ranging in size from 4" x 4" to 14" x
6-3/4"), certain sizes of standard "I" beams and Bantam(TM) beams. Those beams
are used in low-rise construction (up to five stories) and in various
fabrication operations for industrial machinery and mobile home frames. The
large beam mill has enabled the Company to produce wide-flange beams from 8" to
24" in diameter that are used in multi-story buildings, short-span bridges and
other heavy industrial applications.
BAR PRODUCTS BUSINESS UNIT:
REINFORCING BAR
The Company produces all commercial sizes of rebar from 3/8" diameter to
1-3/8" diameter for use in construction applications ranging from highway and
public works projects to residential and high-rise construction.
SPECIAL BAR AND MERCHANT QUALITY ROUNDS
Special Bar Quality ("SBQ") rounds are produced in a large variety of
carbon and alloy grades primarily for use in the forging, machining and cold
drawing industries for production of automotive gears and hand tools. SBQ
rounds are also used as sucker rod material in the oil industry.
Merchant quality rounds are cylindrical steel bars used in construction
and fabrication operations. Common uses include roof joists, anchor bolts and
truss supports.
STRUCTURAL MERCHANT SHAPES AND OTHER PRODUCTS
These products consist of structural channels, flat bars and squares used
in the equipment manufacturing and construction industries, particularly in
low-rise structures.
The Company's products are predominately marketed in North America
exclusively by Company salespersons. Approximately 52% of the Company's
products are sold in Texas, Oklahoma, Louisiana and Arkansas. Other regional
sales of the Company's products are approximately 15% in the midwest United
States and approximately 12% in the southeastern United States. Rebar, merchant
shapes and other products are sold principally to customers located in the
southwestern United States. Rebar, merchant shapes and other products are sold
principally to customers located in the southwestern United States. The Free
Trade Agreements between the United States, Canada and Mexico may continue to
favorably affect the Company's position as a supplier of certain steel products
in the Canadian and Mexican markets. Export sales accounted for 3% of 1997
shipments.
EXPANDING CAPACITY
Historically, the Company's philosophy was to operate its mill at full
production capacity. Recently, the Company refocused on serving customer
requirements and specific markets while striving to achieve the lowest possible
unit cost of production. The Company's strategy is to continually increase its
melting capacity through productivity improvements, the utilization of new
technology and capital expenditures. Continuing increases in melting capacity
have dictated further capital spending for increases in rolling capacity to
allow maximum use of the Company's facilities to take advantage of marketplace
opportunities.
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RAW MATERIALS AND ENERGY
The Company's primary raw material is scrap steel, which includes shredded
steel. The Company produces a major portion of its shredded steel requirements
from its own shredder operation at the site of the steel mill. Shredded
material, which constitutes approximately 41% of the Company's raw material
mix, is produced by the Company at its facility and is primarily composed of
crushed auto bodies purchased on the open market. Another grade of scrap steel
is #1 Heavy, which constitutes approximately 28% of the Company's scrap steel
requirements and is also purchased on the open market. Historically, the
Company has had an adequate supply of scrap steel for its operations, and the
Company believes that the supply of scrap steel will be adequate to meet future
requirements. The purchase price of scrap steel is subject to market forces
largely beyond the control of the Company. The Company has historically
maintained a scrap inventory commensurate with market conditions.
The Company's steel mill consumes large amounts of electricity and natural
gas. Electricity is obtained from a local electric utility under an
interruptible supply contract with price adjustments which reflect increases or
decreases in the utility's fuel costs. The Company believes that the savings in
the cost of electricity resulting from the interruption provisions of the
contract offsets any loss which might result from interruptions. Natural gas is
purchased in the open market generally under a one year supply contract. The
Company believes that adequate supplies of both electricity and natural gas are
readily available.
SEASONALITY
While there is generally no seasonality in demand for the Company's
products, production at the mill is normally shut down for up to two weeks each
summer and up to one week in December, in order to conduct comprehensive
maintenance (in addition to normal maintenance performed throughout the year)
and to install capital improvements. During these periods, much of the
equipment in the plant is dismantled, inspected and overhauled. The resulting
lower production during the three month periods ending August and February
affect the Company's financial results for those periods.
MARKETING AND BACKLOG
At present, the Company has approximately 762 customers. One customer,
Paco Steel & Engineering Corporation, accounted for approximately 12% of the
Company's sales in 1997. The commodity nature of certain of the Company's
products is generally not characteristic of a long lead time order cycle. The
Company does not believe that backlog is a significant factor in its business.
While the Company has a small number of long-term customer contracts, most
contracts are for quarterly customer requirements or for immediate shipment.
Orders are generally filled within 45 days and are cancelable.
COMPETITION AND OTHER MARKET FACTORS
The Company competes with steel producers, including foreign producers, on
the basis of price, quality and service. Intense sales competition exists for
substantially all of the Company's products. A substantial portion of the
Company's products is sold to the construction industry.
Steel producers in the United States have faced strong competition from
producers around the world. The Company believes that its success in increasing
productivity, reducing production costs and shifting into higher margin product
lines should continue to enable it to compete effectively with both foreign and
domestic producers.
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ENVIRONMENTAL MATTERS
The operations of the Company and its subsidiaries are subject to various
federal and state environmental laws and regulations. Under these laws the U.S.
Environmental Protection Agency ("EPA") and agencies of state government have
the authority to promulgate regulations which could result in substantial
expenditures for pollution control and solid waste treatment. Three major areas
regulated by these authorities are air quality, water quality and hazardous
waste management. Pursuant to these laws and regulations emission sources at
the Company's facilities are regulated by a combination of permit limitations
and emission standards of statewide application, and the Company believes that
it is in substantial compliance with its permit limitations and applicable laws
and regulations.
The Company's steel mill generates, in the same manner as other similar
steel mills in the industry, electric arc furnace ("EAF") dust that contains
lead, chromium and cadmium. The EPA has listed this EAF dust, which is
collected in baghouses, as a hazardous waste. The Company has contracts with
reclamation facilities in the United States and Mexico pursuant to which such
facilities receive the EAF dust generated by the Company and recover the metals
from the dust for reuse, thus rendering the dust non-hazardous. In addition,
the Company is continually investigating alternative reclamation technologies
and has implemented processes for diminishing the amount of EAF dust generated.
In March 1991, the EPA issued an Administrative Order for Removal Action
requiring the Company, along with several other companies, to undertake final
removal activities (the "Final Activities") at a site to which it had shipped
EAF dust. The Company had participated earlier in preliminary remedial
activities at the site under an Administrative Order on Consent entered into in
January 1986 among the EPA, Chaparral and the other companies. Chaparral's
share of the costs associated with the Final Activities did not have a material
adverse effect on its competitive position, operations or financial condition.
The Company intends to comply with all legal requirements regarding the
environment, but since many of them are not fixed, presently determinable, or
are likely to be affected by future legislation or rule making by government
agencies, it is not possible to accurately predict the aggregate future costs
of compliance and their effect on the Company's operations, future net income
or financial condition.
EMPLOYEES
At May 31, 1997, the Company had 1,318 employees.
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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
