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EXHIBIT 13
CHAPARRAL STEEL
1995
ANNUAL REPORT
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FINANCIAL HIGHLIGHTS 1995 1994 1993
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IN THOUSANDS EXCEPT PER SHARE
RESULTS OF OPERATIONS
Tons shipped:
Bar mill 475 424 422
Structural mills 1,036 938 962
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Total 1,511 1,362 1,384
Net sales:
Bar mill $167,962 $138,353 $126,830
Structural mills 359,845 320,210 289,862
Transportation service 4,004 3,712 3,518
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Total 531,811 462,275 420,210
Net income (loss) 19,607 11,919 (2,051)
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PER SHARE INFORMATION
Net income (loss) .67 .41 (.06)
Dividends .20 .20 .20
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FOR THE YEAR
Net cash provided by operating activities 72,723 10,603 25,087
Capital expenditures 16,234 7,805 7,424
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YEAR END POSITION
Total assets 469,827 488,307 480,811
Net working capital 113,745 95,225 80,901
Stockholders' equity $269,868 $265,623 $259,598
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MISSION STATEMENT
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To be the leader in costs, quality and service in the markets we serve.
1994 Annual Report 1993 Annual Report 1992 Annual Report
1991 Annual Report 1990 Annual Report 1989 Annual Report
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CHAPARRAL STEEL COMPANY STOCKHOLDER INFORMATION
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DIRECTORS OFFICERS TRANSFER AGENT AND REGISTRAR OF STOCK
Chemical Bank
ROBERT D. ROGERS GORDON E. FORWARD Common Stock
Chairman of the Board President and Chief Executive Officer Stockholder Inquiries
1-800-635-9270
GORDON E. FORWARD KENNETH R. ALLEN
President and Chief Executive Officer Director-Investor Relations STOCK EXCHANGE LISTING
New York Stock Exchange
ROBERT ALPERT DENNIS E. BEACH
Chairman of the Board Vice President-Administration FORM 10-K AND 10-Q REQUESTS
Alpert Companies Stockholders may obtain, without
Dallas, Texas LARRY L. CLARK charge, a copy of the Company's Form
Vice President-Controller and 10-K for the year ended May 31, 1995,
JOHN M. BELK Assistant Treasurer and Form 10-Q for the quarters ended
Chairman of the Board August 31, 1994, November 30, 1994
Belk Stores Services, Inc. DAVID A. FOURNIE and February 28, 1995, as filed with
Charlotte, North Carolina Vice President-Operations the Securities and Exchange
Commission. Written requests should
LIC. EUGENIO CLARIOND REYES RICHARD M. FOWLER be addressed to the Director-Investor
Director General and Chief Senior Vice President-Finance and Relations.
Executive Officer Treasurer
Grupo IMSA, S.A. The information contained herein is
Monterrey RICHARD T. JAFFRE not given in connection with any sale
Vice President-Raw Materials or offer of, or solicitation of any
GERALD R. HEFFERNAN offer to buy, any securities.
President ROBERT C. MOORE
G.R. Heffernan & Associates, Ltd. Vice President-General Counsel and ANNUAL MEETING
Toronto, Ontario Secretary The Annual Meeting of Stockholders of
Chaparral Steel Company will be held
DR. GERHARD LIENER LIBOR F. ROSTIK Wednesday, October 18, 1995, at 9:30
Kobellstrasse, Germany Senior Vice President-Engineering a.m., CDT, at KERA-KDTN, 3000 Harry
Hines Boulevard, Dallas, Texas.
JEFFRY A. WERNER
Senior Vice President-Commercial and
Transportation
PETER H. WRIGHT
Vice President-Quality Engineering
and SBQ Sales
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CHAPARRAL STEEL COMPANY AND SUBSIDIARIES 1
C O R P O R A T E P R O F I L E
CHAPARRAL STEEL COMPANY, LOCATED IN MIDLOTHIAN, TEXAS, OWNS AND OPERATES A
TECHNOLOGICALLY ADVANCED STEEL MILL WHICH PRODUCES BAR AND STRUCTURAL STEEL
PRODUCTS BY RECYCLING SCRAP STEEL. THE PLANT COMMENCED OPERATIONS IN 1975 AND
MORE THAN DOUBLED IN CAPACITY IN 1982. IN 1992, A LARGE BEAM MILL WAS COMPLETED
WHICH FURTHER EXPANDED CHAPARRAL'S CAPACITY AND PRODUCT RANGE. THE COMPANY NOW
HAS TWO ELECTRIC ARC FURNACES WITH CONTINUOUS CASTERS, A BAR MILL, STRUCTURAL
MILL AND A LARGE BEAM MILL WHICH ENABLE IT TO PRODUCE A BROADER ARRAY OF STEEL
PRODUCTS THAN TRADITIONAL MINI MILLS. CHAPARRAL FOLLOWS A MARKET MILL CONCEPT
WHICH ENTAILS THE PRODUCTION OF A WIDE VARIETY OF PRODUCTS RANGING FROM
REINFORCING BAR AND SPECIALTY PRODUCTS TO LARGE-SIZED STRUCTURAL BEAMS AT LOW
COST AND IS ABLE TO CHANGE ITS PRODUCT MIX TO RECOGNIZE CHANGING MARKET
CONDITIONS OR CUSTOMER REQUIREMENTS. THE COMPANY'S STEEL PRODUCTS INCLUDE
BEAMS, REINFORCING BARS, SPECIAL BAR QUALITY ROUNDS, CHANNELS AND MERCHANT
QUALITY ROUNDS. THESE PRODUCTS ARE SOLD PRINCIPALLY TO THE CONSTRUCTION
INDUSTRY AND TO THE RAILROAD, DEFENSE, AUTOMOTIVE, MOBILE HOME AND ENERGY
INDUSTRIES. CHAPARRAL'S PRINCIPAL CUSTOMERS ARE STEEL SERVICE CENTERS, STEEL
FABRICATORS, COLD FINISHERS, FORGERS AND ORIGINAL EQUIPMENT MANUFACTURERS. THE
COMPANY DISTRIBUTES ITS PRODUCTS PRIMARILY TO MARKETS IN NORTH AMERICA, AND
UNDER CERTAIN MARKET CONDITIONS, TO EUROPE AND ASIA. CHAPARRAL IS LISTED ON THE
NEW YORK STOCK EXCHANGE AND IS 81 PERCENT OWNED BY TEXAS INDUSTRIES, INC.
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2 CHAPARRAL STEEL COMPANY AND SUBSIDIARIES
T O O U R S T O C K H O L D E R S
Fiscal year 1995 saw earnings improve for the second straight year. More
importantly, the year saw U.S. nonresidential construction recover. As a
result, demand for structural products increased, leading to higher beam
shipments for the year and to a recovery in beam prices towards the end of the
year. The Company is managing its structural and bar operations as separate
strategic business units and each has established an enviable record in
customer satisfaction. All of these factors lead to the expectation for
further earnings improvement.
Net income for 1995 equaled $19.6 million or $.67 per share, a 65% increase
over the previous year's earnings of $11.9 million or $.41 per share. Record
shipments of 1.5 million tons were 11% higher than last year; average selling
prices improved 4%.
STRUCTURAL MILLS
Shipments from the structural mills were just over one million tons during the
year, a 10% increase from the last year. Average selling prices increased 2%.
Demand for wide flange beams, the largest single product in the structural mix,
improved throughout the year as U.S. nonresidential building finally
recovered. The market for manufactured homes remained strong, generating strong
shipments of Chaparral's Bantam BeamTM product.
Four price increases were announced during the spring, marking the end of an
extended shake out period among beam producers in the United States. Older,
less efficient producers have exited the market and imports are no longer a
factor. The price increases, which should have a total impact of approximately
10% compared to pre-announcement levels, should be fully realized during the
first quarter of fiscal year 1996.
Chaparral's competitive advantage in beams is centered in the very lightweight
ranges. Our goal is to aggressively market and develop new applications for
lighter weight beam products in order to further expand consumption.
BAR MILL
Shipments of bar mill products were 475,000 tons in 1995, a 12% increase
compared to the prior year. Average selling prices improved 8%.
The primary strategy of the bar mill business unit has been to increase the
Special Bar Quality (SBQ) portion of its business. This strategy, along with
strong demand in the many niche markets served by our SBQ line, resulted in a
26% increase in SBQ shipments for the year. In addition, the rebar product line
was repositioned to serve those markets which consume the smaller sizes of
rebar in which Chaparral has a competitive advantage.
Customers of SBQ products demand an almost continuous improvement in product
quality and capabilities. To meet customer requirements, Chaparral is
reconfiguring the continuous caster that supplies the bar mill in order to
increase the mill's ability to upgrade its product line.
OUTLOOK
Although net income showed improvement for the year, there is still opportunity
for much better results. The positive trend in earnings is expected to continue
as the wide flange beam market benefits from further recovery in nonresidential
building and as Chaparral continues to focus on products which play to its
competitive strengths.
Gordon E. Forward, Ph.D.
President and Chief Executive Officer
July 14, 1995
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CHAPARRAL STEEL COMPANY AND SUBSIDIARIES 3
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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GENERAL
The Company's steel plant is a market mill with the flexibility to produce a
wide range of steel products. The ability to produce a variety of products at
low cost has enabled the Company to penetrate markets throughout the United
States and overseas. The principal components of the Company's cost of sales
are raw material and conversion costs. Scrap steel, the cost of which
fluctuates with market conditions, is the Company's primary raw material.
Conversion costs are comprised principally of energy, maintenance and labor.
RESULTS OF OPERATIONS
NET SALES Net sales in 1995 increased $69.5 million from the previous year as
shipments increased 149,000 to a record level of 1,511,000 tons. Export sales
were 7% of total shipments in 1995. The supply/demand balance for structural
products has continued to improve from the winter months helped by a stronger
United States economy. Special Bar Quality shipments increased 26% during
fiscal 1995 reflecting the Company's expanded penetration in this market. The
Company's average net selling price increased $13 per ton from the prior year.
The price of structural products, which had lagged other mini mill products,
continued its improvement in the second half of fiscal 1995, as the Company
announced numerous structural price increases. SBQ and other bar product prices
were improved from the prior year due to increased demand brought about by
better economic conditions.
In 1994, net sales increased $42.1 million from the previous year as a 12% inc
rease in average selling price was offset by a 22,000 ton decrease in
shipments. The change in pricing strategy for certain structural products
announced in the May 1993 quarter and general price increases in fiscal 1994,
intended to offset the continued escalation in scrap prices, have combined to
produce the improvement in selling price. Export sales were 7% of total
shipments in 1994.
COST OF SALES (EXCLUSIVE OF DEPRECIATION AND AMORTIZATION) In 1995, cost of
sales increased $56.6 million due primarily to the 149,000 ton increase in
shipments. Increases in scrap and melt shop conversion costs were offset by
decreases in combined rolling costs.
Higher scrap costs in 1994 accounted for a significant portion of the 7%
increase in average cost per ton. All areas of melt shop conversion costs were
slightly lower than the previous year. Combined rolling conversion costs were
unchanged from 1993.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE Selling, general and administrative
expenses generally fluctuated with the provisions for employee incentive
programs that are based on profitability which amounted to $2.8 million, $(.1)
million and $(2.4) million for 1995, 1994 and 1993, respectively. 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 1994.
INTEREST EXPENSE Payment of scheduled maturities of long-term debt during the
three years ended May 31, 1995 served to reduce the amount of interest expense.
NET INCOME (LOSS) In 1995, net income (loss) improved $7.7 million to $19.6
million due primarily to the 149,000 ton increase in shipments. Depreciation
costs were unchanged as the Company did not incur any major capital
improvements during 1995. Amortization of commissioning costs, that are being
expensed over a five year period, totaled $3 million in 1995. Amortization of
goodwill totaled $2.3 million in 1995.
Net income (loss) improved $14 million in 1994 due primarily to a $36 increase
in average selling price due to the change in pricing strategy and the market
reaction to higher raw material prices. Depreciation costs were unchanged as
the Company did not incur any major capital improvements during 1994.
Amortization of commissioning costs and goodwill totaled $3 million and $2.3
million, respectively, in fiscal 1994.
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4 CHAPARRAL STEEL COMPANY AND SUBSIDIARIES
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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LIQUIDITY AND CAPITAL RESOURCES
Working capital increased $18.5 million to an all-time high of $113.7 million
at May 31, 1995. Cash provided by operations increased by $62.1 million from
the prior year as net income increased by $7.7 million and cash provided by
inventory increased substantially. At May 31, 1994, inventory levels had
increased $24.9 million from May 1993 as the Company anticipated increased
demand for its products during the months of June and July of 1994. As that
increased demand materialized the amount of inventory returned to a more normal
historical level at August 31, 1994. That level of inventory was constant for
the remainder of fiscal year 1995. As a result, at May 31, 1995, cash and cash
equivalents increased $15.9 million to $19.1 million after the Company acquired
$16.2 million of capital additions, repaid $15 million of short-term debt and
$20.5 million of long-term debt and paid cash dividends of $5.9 million.
Capital expenditures for fiscal 1996 are currently estimated to be
approximately $25 - $30 million; which represents normal replacement,
technological upgrades of existing equipment and growth in subsidiaries. The
Company currently does not plan any major capital expenditures requiring
significant capital resources within the next two years.
The Company's capitalization of $350.9 million at May 31, 1995, consisted of
$81.1 million in long-term debt and $269.8 million of stockholders' equity. The
Company's stockholders' equity includes paid-in capital which resulted from the
excess of cost over fair value of net assets acquired, net of amortization. In
1995, paid-in capital and goodwill were decreased by $9.4 million due to an
adjustment to the excess of cost over fair value of net assets acquired. The
long-term debt-to-capitalization ratio was 23% at May 31, 1995 versus 27% at
May 31, 1994. The decrease was caused by the repayment of $20.5 million of
long-term debt and the increase in stockholders' equity which was due to the
net income of $19.6 million minus the payment of cash dividends of $5.9 million
and the $9.4 million reduction of paid-in capital described above.
The Company's earnings improved in 1995 due primarily to the 11% increase in
shipments. Based on the current outlook for steel consumption levels in 1996
and its impact on prices, the Company anticipates its average selling price to
improve modestly, as numerous price increases for structural products announced
in the May 1995 quarter are expected to hold. Cost per ton levels should
stabilize assuming no continued upward pressure of raw material prices that are
currently near all-time highs. Management anticipates further increases in
shipment levels during fiscal 1996 resulting from both increased raw steel
production and purchases of billets and finished products from other mills.
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.
The Company has short-term credit facilities with two banks totaling $20
million which will expire in January 1996, if not renewed by the banks or the
Company. The Company has had similar arrangements with various banks since
January 1990. During fiscal 1995 the Company had maximum borrowings of $15
million at any one time under the current arrangements. At May 31, 1995, there
were no outstanding borrowings under these facilities. 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 the current financial resources and anticipated cash
provided from operations 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.
INFLATION Energy, scrap and labor, which are the principal components of the
Company's manufacturing cost, are generally susceptible to inflationary
pressures, while finished product prices are more readily influenced by
competition within the steel industry. Since May 31, 1992, inflation has not
materially affected the Company's results of operations or financial condition.
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CHAPARRAL STEEL COMPANY AND SUBSIDIARIES 5
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SELECTED FINANCIAL DATA 1995 1994 1993 1992 1991
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In thousands except per share
RESULTS OF OPERATIONS
Net sales $531,811 $ 462,275 $420,210 $416,610 $ 418,311
Gross profit (exclusive of depreciation and
amortization) 94,761 81,777 58,624 66,678 81,478
Employee profit sharing 2,933 1,896 - 1,199 2,699
Interest expense 12,082 13,439 14,650 12,541 10,513
Net income (loss) 19,607 11,919 (2,051) 7,090 19,125
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PER SHARE INFORMATION
Net income (loss) $ .67 $ .41 $ (.06) $ .25 $ .63
Dividends .20 .20 .20 .20 .20
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FOR THE YEAR
Net cash provided by operating activities $ 72,723 $ 10,603 $ 25,087 $ 28,841 $ 45,827
Capital expenditures 16,234 7,805 7,424 12,616 94,099
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YEAR END POSITION
Total assets $469,827 $ 488,307 $480,811 $504,905 $ 499,654
Net working capital 113,745 95,225 80,901 75,252 55,459
Long-term debt 81,065 96,219 113,997 126,714 119,214
Stockholders' equity 269,868 265,623 259,598 267,584 266,429
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6 CHAPARRAL STEEL COMPANY AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEETS May 31 1995 1994
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IN THOUSANDS
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 19,140 $ 3,203
Trade accounts receivable, net of allowance of $2.5 million and
$3.8 million, respectively 51,679 41,734
Inventories 101,377 117,583
Prepaid expenses 8,110 8,914
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TOTAL CURRENT ASSETS 180,306 171,434
PROPERTY, PLANT AND EQUIPMENT
Buildings and improvements 48,689 47,217
Machinery and equipment 447,982 434,041
Land 1,288 1,288
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497,959 482,546
Less allowance for depreciation 275,476 247,660
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222,483 234,886
OTHER ASSETS
Goodwill, commissioning costs and other assets, net of accumulated
amortization of $22.3 million and $16.9 million, respectively 67,038 81,987
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$469,827 $488,307
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ - $ 15,000
Trade accounts payable 37,818 28,667
Accrued interest payable 1,862 2,435
Other accrued expenses 13,236 12,124
Current portion of long-term debt 13,645 17,983
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TOTAL CURRENT LIABILITIES 66,561 76,209
LONG-TERM DEBT 81,065 96,219
DEFERRED INCOME TAXES AND OTHER CREDITS 52,333 50,256
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 500,000 authorized, none outstanding - -
Common stock, $.10 par value, 50,000,000 authorized, 29,679,900 outstanding 2,994 2,994
Paid-in capital 178,611 188,037
Retained earnings 90,767 77,096
Cost of common shares in treasury (2,504) (2,504)
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269,868 265,623
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$469,827 $488,307
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See notes to consolidated financial statements.
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CHAPARRAL STEEL COMPANY AND SUBSIDIARIES 7
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CONSOLIDATED STATEMENTS OF INCOME Year ended may 31 1995 1994 1993
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IN THOUSANDS EXCEPT PER SHARE
Net sales $531,811 $462,275 $420,210
Costs and expenses:
Cost of sales (exclusive of items stated separately below) 437,050 380,498 361,586
Depreciation and amortization 33,887 33,756 33,814
Selling, general and administrative 20,362 15,937 13,992
Interest 12,082 13,439 14,650
Other income (3,116) (3,372) (2,072)
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500,265 440,258 421,970
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INCOME (LOSS) BEFORE INCOME TAXES 31,546 22,017 (1,760)
Provision for income taxes 11,939 10,098 291
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NET INCOME (LOSS) $ 19,607 $ 11,919 $ (2,051)
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NET INCOME (LOSS) PER COMMON SHARE $ .67 $ .41 $ (.06)
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CASH DIVIDENDS PER COMMON SHARE $ .20 $ .20 $ .20
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See notes to consolidated financial statements.
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8 CHAPARRAL STEEL COMPANY AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CASH FLOWS YEAR ended May 31 1995 1994 1993
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IN THOUSANDS
OPERATING ACTIVITIES
Net income (loss) $ 19,607 $ 11,919 $ (2,051)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 33,887 33,756 33,814
Provision for deferred income taxes 1,994 3,101 3,005
Other deferred credits 83 (2,193) (3,044)
Changes in operating assets and liabilities:
Trade accounts receivable, net (9,548) (8,380) 2,362
Inventories 16,206 (24,911) (2,177)
Prepaid expenses 804 (767) (3,472)
Trade accounts payable 9,151 1,465 (6,102)
Accrued interest payable (573) (609) (627)
Other accrued expenses 1,112 (2,778) 3,379
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Net cash provided by operating activities 72,723 10,603 25,087
INVESTING ACTIVITIES
Capital expenditures (16,234) (7,805) (7,424)
Other (124) 93 -
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Net cash used in investing activities (16,358) (7,712) (7,424)
FINANCING ACTIVITIES
Short-term borrowings - 30,000 7,000
Repayments on short-term debt (15,000) (15,000) (7,000)
Long-term borrowings 985 260 -
Repayments on long-term debt (20,477) (12,775) (12,718)
Dividends paid (5,936) (5,936) (5,935)
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Net cash used in financing activities (40,428) (3,451) (18,653)
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Increase (decrease) in cash and cash equivalents 15,937 (560) (990)
Cash and cash equivalents at beginning of year 3,203 3,763 4,753
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Cash and cash equivalents at end of year $ 19,140 $ 3,203 $ 3,763
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See notes to consolidated financial statements.
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CHAPARRAL STEEL COMPANY AND SUBSIDIARIES 9
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PREFERRED COMMON STOCK PAID-IN RETAINED TREASURY STOCK
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY STOCK SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT
===========================================================================================================================
IN THOUSANDS
Balance at May 31, 1992 $ - 29,940 $2,994 $188,050 $79,099 (265) $(2,559)
Net loss for the year ended May 31, 1993 - - - - (2,051) - -
Dividends paid to stockholders ($.20 per share) - - - - (5,935) - -
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Balance at May 31, 1993 - 29,940 2,994 188,050 71,113 (265) (2,559)
Net income for the year ended May 31, 1994 - - - - 11,919 - -
Dividends paid to stockholders ($.20 per share) - - - - (5,936) - -
Treasury stock issued for options - 4,500 shares - - - (13) - 5 55
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Balance at May 31, 1994 - 29,940 2,994 188,037 77,096 (260) (2,504)
Net income for the year ended May 31, 1995 - - - - 19,607 - -
Dividends paid to stockholders ($.20 per share) - - - - (5,936) - -
Adjustment to the excess of cost over fair value
of net assets acquired - - - (9,426) - - -
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Balance at May 31, 1995 $ - 29,940 $2,994 $178,611 $90,767 (260) $(2,504)
===========================================================================================================================
See notes to consolidated financial statements.
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10 CHAPARRAL STEEL COMPANY AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS May 31, 1995
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NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND RELATED MATTERS: The consolidated financial
statements include the operations of Chaparral Steel Company (the "Company")
and its majority owned subsidiaries. The Company is 81% owned by Texas
Industries, Inc. ("TXI").
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS: The Company operates in the
steel industry only; therefore, no industry segment information is presented.
CASH EQUIVALENTS: Cash equivalents consist of highly liquid investments with
original maturities of three months or less.
CREDIT RISK: The Company extends credit to various companies in steel
distribution, fabrication and related industries. Such credit risk is
considered by management to be limited due to the Company's sizable customer
base and the geographical dispersion of the customer base. The Company performs
ongoing credit evaluations of its customers and generally does not require
collateral.
INVENTORIES: 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.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are recorded at
cost. Depreciation is computed using the straight-line method over the
estimated useful lives of the property.
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED: The amount of goodwill,
net of amortization, arising from the purchase of 50% of the outstanding
securities of the Company by TXI, was recorded using the purchase method of
accounting and totaled $61.2 million and $73 million at May 31, 1995 and 1994,
respectively. This goodwill is being amortized over 40 years using the
straight-line method and reduced earnings by $2.3 million in 1995, 1994 and
1993. Due to an adjustment of the original amount, goodwill and paid-in capital
were decreased $9.4 million in 1995.
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.
INCOME TAXES: The Company and TXI have a tax sharing agreement (the
"Agreement") whereby the Company is included in the consolidated income tax
return of TXI. The agreement provides that the Company will account for income
taxes on a stand-alone basis. Accordingly, the Company makes payments to or
receives payments from TXI in amounts equal to the income taxes it would have
otherwise paid or received. Deferred income taxes are determined using the
liability method.
COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE: Net income (loss) per common
share is calculated based upon a weighted average of 29,722,000, 29,721,000 and
29,675,000 shares outstanding (including common stock equivalents that are not
antidilutive) during 1995, 1994 and 1993, respectively.
The calculations of net income (loss) per common share for periods after August
31, 1990, contain an adjustment for the previous amortization of an estimated
amount of goodwill.
NOTE B - INVENTORIES
Inventories consist of the following:
MAY 31 1995 1994
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IN THOUSANDS
Finished goods $ 54,323 $ 72,946
Work in process 9,856 14,477
Raw materials 14,052 10,407
Rolls 18,148 15,602
Supplies 15,487 14,878
LIFO adjustment (10,489) (10,727)
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$101,377 $117,583
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CHAPARRAL STEEL COMPANY AND SUBSIDIARIES 11
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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NOTE C - COMMISSIONING COSTS
In fiscal 1990, the Company began construction of the large beam mill and
commissioning commenced in February 1991. The 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. The amounts of commissioning costs (net of
amortization) were $5 million and $8 million at May 31, 1995 and 1994,
respectively. The amounts of amortization charged to income were $3 million in
1995, 1994 and 1993, based on a five year period.
NOTE D - CONTINGENCIES
The Company and subsidiaries are defendants in lawsuits which arose in the
normal course of business. In management's judgement (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 has no post-retirement health benefits and, therefore, realizes no
effect from accounting requirements under Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Post-retirement Benefits Other
Than Pensions" (SFAS 106).
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 believes 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. At May 31, 1995, the Company had $1.5
million accrued for closure and post closure costs as prescribed by the Texas
Natural Resource Conservation Commission.
NOTE E - LONG-TERM DEBT
Outstanding long-term debt is as follows:
MAY 31 INTEREST RATE 1995 1994
=========================================================================-----------------
IN THOUSANDS
First mortgage notes payable:
$61.4 million note, due in
annual installments through
January 2000 14.2% $ 20,458 $ 26,595
$70.9 million note, due in 1.5% to
semiannual installments 2% over
through June 1995 Libor(1) 1,248 7,257
------------------------------------------------------------------------------------------
21,706 33,852
$80 million senior unsecured notes
due in annual installments from
April 1995 through 2004 10.2% 72,000 80,000
Other notes payable, due through 1999 Various 1,004 350
------------------------------------------------------------------------------------------
94,710 114,202
Less current portion 13,645 17,983
------------------------------------------------------------------------------------------
$ 81,065 $ 96,219
===========================
(1) London Interbank Offered Rate (Libor) (6% at May 31, 1995).
15
12 CHAPARRAL STEEL COMPANY AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
Scheduled maturities of long-term debt at May 31, 1995 for each of the five
succeeding fiscal years are as follows:
================================================================================
IN THOUSANDS
1996 $13,645
1997 12,353
1998 12,331
1999 12,290
2000 12,091
Substantially all of the assets of the Company except accounts receivable,
inventories and certain equipment not forming an integral part of the mill have
been pledged as collateral on the first mortgage notes.
The Company has arrangements for up to $20 million of short-term borrowings
with banks for which it pays quarterly fees at an annual rate of 1/4 of 1% on
the unused portion of the commitment. These short-term credit lines are due to
expire in January 1996, if not renewed by the banks or the Company.
The terms of the loan agreements impose certain restrictions on the Company,
the most significant of which require the Company to maintain minimum amounts
of working capital, limit the incurrence of certain indebtedness and restrict
payments of cash dividends and purchases of treasury stock. The amounts of
earnings available for restricted payments were approximately $37 million and
$33 million at May 31, 1995 and 1994, respectively.
Interest payments were $12.7 million, $14 million and $15.2 million in 1995,
1994 and 1993, respectively.
NOTE F - INCOME TAXES
The provisions for income taxes are comprised of:
YEAR ENDED MAY 31 1995 1994 1993
==============================================----------------------------------
IN THOUSANDS
Current $ 9,451 $ 6,982 $ 3,196
Deferred 2,488 3,116 (2,905)
--------------------------------------------------------------------------------
$11,939 $ 10,098 $ 291
===========================================
The reasons for the differences between the provisions for income taxes and the
amounts computed by applying the statutory federal income tax rates to income
(loss) before income taxes are:
YEAR ENDED MAY 31 1995 1994 1993
==================================================----------------------------------
IN THOUSANDS
Statutory rate applied
to income (loss) before income taxes $11,041 $ 7,706 $ (598)
Increase in taxes resulting from:
Change in statutory federal tax rate - 1,443 -
Goodwill amortization 811 811 787
Other - net 87 138 102
------------------------------------------------------------------------------------
$11,939 $10,098 $ 291
===========================================
16
CHAPARRAL STEEL COMPANY AND SUBSIDIARIES 13
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
The components of the net deferred tax liability as of May 31, 1995 and 1994
are summarized below:
YEAR ENDED MAY 31 1995 1994
=============================================================================-------------------
IN THOUSANDS
Deferred tax assets:
Deferred compensation $ 242 $ 290
Accounts receivable 864 1,347
Uniform capitalization expense 1,117 1,388
Net operating loss carryforwards 15 15
Alternative minimum tax credit carryforwards 1,391 6,491
Expenses not currently tax deductible 1,563 1,302
------------------------------------------------------------------------------------------------
Total deferred tax assets 5,192 10,833
Deferred tax liabilities:
Accelerated tax depreciation (51,010) (53,085)
Commissioning costs (1,760) (2,817)
Other - net (247) (268)
------------------------------------------------------------------------------------------------
Total deferred tax liabilities (53,017) (56,170)
Net deferred tax liability (47,825) (45,337)
Current portion 3,544 4,038
------------------------------------------------------------------------------------------------
Non-current portion of deferred tax liability $(51,369) $(49,375)
================================================================================================
The Company made income tax payments of $9.6 million, $7.2 million and $2.5
million in 1995, 1994 and 1993, respectively.
NOTE G - RETIREMENT PLAN
A non-contributory defined contribution plan provides retirement benefits for
substantially all employees. The Company makes a regular contribution of 1% of
annual compensation for each participant and a variable contribution equal to
1/2 of 1% of pre-tax income, as defined, to this plan. The amounts of expense
charged to income for this plan were $.6 million, $.5 million and $.4 million
in 1995, 1994 and 1993, respectively. The plan is funded to the extent of
charges to income.
NOTE H - INCENTIVE PLANS
The Company has a profit-sharing plan which provides that all personnel
employed as of May 31 share currently in the pre-tax income, as defined, of the
Company for the year then ended based on a predetermined formula. The duration
of the plan is one year and is subject to annual renewal by the Board of
Directors. The provisions for this plan were $2.9 million, $1.9 million and
$-0- for 1995, 1994 and 1993, respectively.
In 1987, the Board of Directors approved a deferred compensation plan for
certain executives of the Company. The plan is based on a five-year average of
earnings. Amounts recorded as expense (income) under this plan were ($.1)
million, ($2) million and ($2.4) million for 1995, 1994 and 1993, respectively.
The amount of deferred compensation currently payable was $.1 million and $.2
million at May 31, 1995 and 1994, respectively.
17
14 CHAPARRAL STEEL COMPANY AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTE I - STOCK OPTION PLAN
================================================================================
In 1989, the stockholders approved a stock option plan whereby options to
purchase Common Stock may be granted to officers and key employees at prices
not less than the market value at the date of grant. Generally, options become
exercisable beginning two years after date of grant and expire ten years after
the date of grant.
A summary of option transactions for the two years ended May 31, 1995, follows:
SHARES UNDER OPTION AGGREGATE
OPTION PRICE OPTION PRICE
=======================================================================================
IN THOUSANDS EXCEPT OPTION PRICE
Outstanding at May 31, 1993 1,070 $8.88 - 12.13 $11,615
Granted 108 10.625 1,148
Terminated (63) 8.88 - 12.13 (677)
Exercised (5) 8.88 (40)
---------------------------------------------------------------------------------------
Outstanding at May 31, 1994 1,110 8.88 - 12.13 12,046
Granted 395 8.34 - 8.38 3,307
Terminated (10) 10.625 - 12.13 (114)
---------------------------------------------------------------------------------------
Outstanding at May 31, 1995 1,495 $8.34 - 12.13 $15,239
=======================================================================================
MAY 31 1995 1994
===========================================================================-----------
IN THOUSANDS
Shares at end of year:
Exercisable 796 682
Available for future grants -0- 390
The options outstanding at May 31, 1995, expire on various dates to January 18,
2005.
NOTE J - FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value amounts of financial instruments at May 31, 1995 and
1994 have been determined using available market information and the following
methodologies:
* Cash and cash equivalents, accounts receivable, accounts payable: The
carrying amounts of these items are a reasonable estimate of their fair
values at May 31, 1995 and 1994.
* Long-term debt: Interest rates that are currently available to the Company
for issuance of the debt with similar terms and remaining maturities are
used to estimate fair value for debt issues using a discounted cash flow
analysis.
MAY 31 1995 1994
=========================================================------------
IN MILLIONS
Long-term debt:
Carrying amount $94.7 $114.2
Estimated fair value 110.0 130.0
18
CHAPARRAL STEEL COMPANY AND SUBSIDIARIES 15
--------------------------------------------------------------------------------
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
================================================================================
The following table is a summary of quarterly financial information for the two
years ended May 31, 1995:
THREE MONTHS ENDED AUG. NOV. FEB. MAY
==========================================================================================================
IN THOUSANDS EXCEPT PER SHARE
1995
Net sales $124,382 $126,273 $ 132,388 $148,768
Gross profit(1) 18,463 23,200 23,382 29,716
Net income 1,753 4,969 5,070 7,815(2)
Net income per common share .06 .17 .17 .27
----------------------------------------------------------------------------------------------------------
1994
Net sales $101,896 $117,225 $ 118,687 $124,467
Gross profit(1) 16,549 22,371 22,403 20,454
Net income (loss) (874) 4,423 4,408 3,962
Net income (loss) per common share (.03) .15 .15 .14
----------------------------------------------------------------------------------------------------------
(1) Gross profit exclusive of depreciation and amortization.
(2) Reflects higher selling prices and shipments.
QUARTERLY STOCK PRICES AND DIVIDENDS (UNAUDITED)
The Company's common stock is listed on the New York Stock Exchange (ticker
symbol CSM). The number of record holders of the Company's common stock at May
31, 1995 was 985. High and low stock prices and dividends for the last two
years were:
STOCK PRICES DIVIDENDS
HIGH LOW
=================================================================
1995
First quarter 9 1/2 8 3/8 $ .05
Second quarter 10 1/8 6 7/8 .05
Third quarter 9 6 1/2 .05
Fourth quarter 10 8 3/8 .05
1994
First quarter 10 1/8 7 7/8 $ .05
Second quarter 10 1/8 8 3/8 .05
Third quarter 11 1/2 9 1/4 .05
Fourth quarter 12 1/4 8 7/8 .05
19
16 CHAPARRAL STEEL COMPANY AND SUBSIDIARIES
--------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
================================================================================
BOARD OF DIRECTORS
CHAPARRAL STEEL COMPANY
MIDLOTHIAN, TEXAS
We have audited the accompanying consolidated balance sheets of Chaparral Steel
Company and subsidiaries as of May 31, 1995 and 1994, and the related
consolidated statements of income, cash flows and stockholders' equity for each
of the three years in the period ended May 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Chaparral Steel
Company and subsidiaries at May 31, 1995 and 1994, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended May 31, 1995, in conformity with generally accepted accounting
principles.
Dallas, Texas
July 14, 1995
20
A New York Stock Exchange Company
300 Ward Road
Midlothian, TX 76065-9651
214-775-8241
Fax: 214-775-1930
Copy Rights1995 Chaparral Steel