-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H7JDckYt7hX+K1A2+YVELV8n+/21qaGTB8Yden9cgWJgut2k4yVC+SE/q17fw63x KdirbUtV0Q/uJz1SroKdfA== 0000276889-96-000006.txt : 19960913 0000276889-96-000006.hdr.sgml : 19960913 ACCESSION NUMBER: 0000276889-96-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960731 FILED AS OF DATE: 19960912 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: QUANEX CORP CENTRAL INDEX KEY: 0000276889 STANDARD INDUSTRIAL CLASSIFICATION: STEEL WORKS, BLAST FURNACES ROLLING MILLS (COKE OVENS) [3312] IRS NUMBER: 381872178 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05725 FILM NUMBER: 96629048 BUSINESS ADDRESS: STREET 1: 1900 W LOOP SOUTH STE 1500 STREET 2: ATTN THOMAS M BEWLEY CITY: HOUSTON STATE: TX ZIP: 77027 BUSINESS PHONE: 7139614600 MAIL ADDRESS: STREET 1: 1900 WEST LOOP SOUTH STREET 2: SUITE 1500 CITY: HOUSTON STATE: TX ZIP: 77027 10-Q 1 QUANEX CORP. 10-Q DATED 07/31/96 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to ___________. Commission File Number 1-5725 QUANEX CORPORATION ------------------ (Exact name of registrant as specified in its charter) DELAWARE 38-1872178 ------------------------------ ------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1900 West Loop South, Suite 1500, Houston, Texas 77027 ------------------------------------------------------ (Address of principal executive offices and zip code) Registrant's telephone number, including area code: (713) 961-4600 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 period 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 Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at July 31, 1996 - --------------------------------------- ------------------------------- Common Stock, par value $0.50 per share 13,526,891 QUANEX CORPORATION INDEX
Page No. Part I. Financial Information: Item 1: Financial Statements Consolidated Balance Sheets - July 31, 1996 and October 31, 1995 .................................. 1 Consolidated Statements of Income - Three and Nine Months Ended July 31, 1996 and 1995................ 2 Consolidated Statements of Cash Flow - Nine Months Ended July 31, 1996 and 1995 ...................... 3 Notes to Consolidated Financial Statements ............ 4-6 Item 2: Management's Discussion and Analysis of Results of Operations and Financial Condition .................... 7-12 Part II. Other Information Item 5: Other Information ..................................... 13 Item 6: Exhibits and Reports on Form 8-K ...................... 13
PART I. FINANCIAL INFORMATION Item 1. Financial Statements QUANEX CORPORATION CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
July 31, October 31, 1996 1995 ---------- ---------- (Unaudited) (Audited) ASSETS Current assets: Cash and equivalents ............................$ 31,533 $ 45,213 Accounts and notes receivable, net .............. 89,214 104,240 Inventories ..................................... 94,104 84,676 Deferred income taxes ........................... 6,779 6,848 Prepaid expenses ................................ 1,061 1,398 ---------- ---------- Total current assets .................... 222,691 242,375 Property, plant and equipment ..................... 548,324 525,325 Less accumulated depreciation and amortization ....(293,488) (266,761) ---------- ---------- Property, plant and equipment, net ................ 254,836 258,564 Goodwill, net ..................................... 31,349 32,064 Other assets ...................................... 16,929 13,744 ---------- ---------- $525,805 $546,747 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable ................................... $ - $ 10,000 Accounts payable ................................ 84,438 91,730 Income taxes payable ............................ 3,127 423 Accrued expenses ................................ 37,578 42,087 Current maturities of long-term debt ............ - 20,968 ---------- ---------- Total current liabilities ............... 125,143 165,208 Long-term debt .................................... 118,195 111,894 Deferred pension credits .......................... 16,110 16,656 Deferred postretirement welfare benefits .......... 54,833 53,185 Deferred income taxes ............................. 27,461 29,278 ---------- ---------- Total liabilities ....................... 341,742 376,221 Stockholders' equity: Common stock, $.50 par value .................... 6,763 6,743 Additional paid-in capital ...................... 93,165 92,406 Retained earnings ............................... 87,144 74,426 Unearned compensation ........................... (277) (317) Adjustment for minimum pension liability ........ (2,732) (2,732) ---------- ---------- Total stockholders' equity .............. 184,063 170,526 ---------- ---------- $525,805 $546,747 ========== ==========
(1) QUANEX CORPORATION CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts)
Three Months Ended Nine Months Ended July 31 July 31 ---------------- ---------------- 1996 1995 1996 1995 ------- ------- ------ ------- (Unaudited) Net sales............................ $225,463 $228,172 $632,576 $662,405 Cost and expenses: Cost of sales...................... 193,109 198,016 551,209 579,805 Selling, general and administrative expense.......... 15,422 11,130 39,586 35,996 ------- ------- ------- ------- Operating income..................... 16,932 19,026 41,781 46,604 Other income (expense): Interest expense................... (2,313) (2,522) (7,453) (7,672) Capitalized interest............... 160 - 287 1,867 Other, net......................... 988 52 2,151 714 Income before income taxes and ------- ------- ------- ------- extraordinary charge............ 15,767 16,556 36,766 41,513 Income tax expense................... (6,622) (6,953) (15,442) (17,435) ------- ------- ------- ------- Income before extraordinary charge... 9,145 9,603 21,324 24,078 Extraordinary charge - early extinguishment of debt.......... - - (2,522) (2,021) ------- ------- ------- ------- Net income........................... 9,145 9,603 18,802 22,057 Preferred dividends.................. - (990) - (3,957) Net income attributable to ------- ------- ------- ------- common stockholders............. $ 9,145 $ 8,613 $ 18,802 $ 18,100 ======= ======= ======= ======= Earnings per common share: Primary before extraordinary charge........... $ 0.67 $ 0.63 $ 1.57 $ 1.48 Extraordinary charge.............. - - (0.19) (0.15) ------- ------- ------- ------- Total primary net earnings..... $ 0.67 $ 0.63 $ 1.38 $ 1.33 ======= ======= ======= ======= Fully diluted before extraordinary charge........... $ 0.61 $ 0.59 $ 1.47 $ 1.48 Extraordinary charge.............. - - (0.15) (0.15) ------- ------- ------- ------- Total assuming full dilution... $ 0.61 $ 0.59 $ 1.32 $ 1.33 ======= ======= ======= ======= Weighted average shares outstanding: Primary........................... 13,659 13,642 13,630 13,598 ======= ======= ======= ======= Assuming full dilution............ 16,355 16,382 16,326 13,598 ======= ======= ======= =======
(2) QUANEX CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOW (In thousands)
Nine Months Ended July 31, -------------------- 1996 1995 ------ ------ (Unaudited) Operating activities: Net income..............................................$18,802 $22,057 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization........................ 27,800 24,672 Deferred income taxes................................ (1,817) 3,953 Deferred pension costs............................... (546) (921) Deferred postretirement welfare benefits............. 1,648 1,936 ------ ------ 45,887 51,697 Changes in assets and liabilities net of effects from acquisitions and dispositions: Decrease (increase) in accounts and notes receivable 15,283 (12,336) Increase in inventory............................... (9,428) (8,074) Increase (decrease) in accounts payable............. (7,292) 3,940 Increase (decrease) in accrued expenses............. (4,509) 3,693 Other, net.......................................... 3,110 (765) ------ ------ Cash provided by operating activities.......... 43,051 38,155 Investment activities: Capital expenditures, net of retirements............... (22,715) (21,052) Decrease in short-term investments..................... - 54,070 Other, net............................................. (4,084) (672) ------ ------ Cash provided (used) by investment activities.. (26,799) 32,346 Cash provided by operating and ------ ------ investment activities..................... 16,252 70,501 Financing activities: Notes payable borrowings (repayments).................. (10,000) 10,000 Purchase of Senior Notes............................... (44,667) (59,500) Bank borrowings (repayments), net. .................... 30,000 - Common dividends paid.................................. (6,084) (5,908) Preferred dividends paid............................... - (4,451) Other, net............................................. 819 1,043 ------ ------ Cash used by financing activities.............. (29,932) (58,816) Decrease in cash and equivalents......................... (13,680) 11,685 Cash and equivalents at beginning of period.............. 45,213 34,041 ------ ------ Cash and equivalents at end of period.................... $31,533 $45,726 ====== ====== Supplemental disclosure of cash flow information: Cash paid during the period for: Interest................................................. $ 9,941 $ 6,518 Income taxes............................................. $12,651 $12,209
(3) QUANEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Accounting Policies - ---------------------- The interim consolidated financial statements of Quanex Corporation and subsidiaries are unaudited, but include all adjustments which the Company deems necessary for a fair presentation of its financial position and results of operations. All such adjustments are of a normal recurring nature. Results of operations for interim periods are not necessarily indicative of results to be expected for the full year. All significant accounting policies conform to those previously set forth in the Company's fiscal 1995 Annual Report on Form 10-K, which is incorporated by reference. Certain amounts for prior periods have been reclassified in the accompanying consolidated financial statements to conform to 1996 classifications. 2. Inventories - -------------- Inventories consist of the following: July 31, October 31, 1996 1995 ------- ------- (In thousands) Inventories valued at lower of cost (principally LIFO method) or market: Raw materials .................................. $29,498 $27,655 Finished goods and work in process ............. 55,195 48,071 ------- ------- 84,693 75,726 Other ............................................. 9,411 8,950 -------- ------- $94,104 $84,676 ======== ======= With respect to inventories valued using the LIFO method, replacement cost exceeded the LIFO value by approximately $19 million at July 31, 1996 and $24 million at October 31, 1995 3. Long-Term Debt and Financing Arrangements - -------------------------------------------- On June 30, 1995, the Company exercised its right under the terms of its Cumulative Convertible Exchangeable Preferred Stock to exchange such stock for an aggregate of $84,920,000 of its 6.88% Convertible Subordinated Debentures due June 30, 2007 ("Debentures"). Interest is payable semi-annually on June 30 and December 31 of each year. The Debentures are subject to mandatory annual sinking fund payments sufficient to redeem 25% of the Debentures issued on each of June 30, 2005 and June 30, 2006, to retire a total of 50% of the Debentures before maturity. The Debentures are subordinate to all senior indebtedness of the Company and are convertible, at the option of the holder, into shares of the Company's common stock at a conversion price of $31.50 per share. In December 1995, the Company acquired all of its outstanding 10.77% Senior Notes for a purchase price equal to 107.5% of the principal amount plus accrued interest. The acquisition and related expenses resulted in an after-tax extraordinary charge of approximately $2.5 million ($4.3 million before tax) in the first quarter of 1996. On July 23, 1996, the Company replaced its $75 million Revolving Credit and Letter of Credit Agreement with an unsecured $250 million Revolving Credit and Term Loan Agreement ("Bank Agreement"). The Bank Agreement consists of a revolving line of credit ("Revolver") and up to two term loans not to exceed $100 million in the aggregate and repayable at a time selected by the Company to be no later than July 23, 2004. Any term loan elections reduce the amount available under the Revolver. The Bank Agreement expires July 23, 2001, and provides for up to $25 million for standby letters of credit, limited to the undrawn amount available under the Revolver. All borrowings under the Revolver bear interest, at the option of the Company, at either a) the prime rate or the federal funds rate plus one percent, whichever is higher, or b) a Eurodollar based rate. At July 31, 1996, the Company had $30.0 million outstanding under the Revolver and no term loans outstanding. (4) QUANEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 4. Industry Segment Information - -------------------------------- Quanex is principally a specialty metals producer. The Company's operations primarily consist of four segments: hot rolled steel bars, cold finished steel bars, steel tubes, and aluminum products.
Cold Corporate Three Months Ended Hot Rolled Finished Steel Aluminum and Consoli- July 31, 1996 Steel Bars Steel Bars Tubes Products Other(1) dated ------------------ ---------- ---------- ---------- ---------- ---------- ---------- (in thousands) Units shipped: To unaffiliated companies 129.2 Tons 45.1 Tons 21.2 Tons 70,293 Lbs. Intersegment............ 5.6 - - - ------- ------- ------- ------- Total.................... 134.8 Tons 45.1 Tons 21.2 Tons 70,293 Lbs. ======= ======= ======= ======= Net Sales: To unaffiliated companies $70,142 $39,179 $26,704 $89,438 - $225,463 Intersegment(2)......... 3,028 - - - $(3,028) - ------- ------- ------- ------- ------- ------- Total.................... $73,170 $39,179 $26,704 $89,438 $(3,028) $225,463 ======= ======= ======= ======= ======= ======= Operating income (loss).. $ 9,324 $ 2,404 $ 597 $ 7,807 $(3,200) $ 16,932 ======= ======= ======= ======= ======= =======
Cold Corporate Three Months Ended Hot Rolled Finished Steel Aluminum and Consoli- July 31, 1995 Steel Bars Steel Bars Tubes Products Other(1) dated ------------------ ---------- ---------- ---------- ---------- ---------- ---------- Units shipped: To unaffiliated companies 120.8 Tons 44.1 Tons 21.5 Tons 59,824 Lbs. Intersegment............ 5.1 - - - ------- ------- ------- ------- Total.................... 125.9 Tons 44.1 Tons 21.5 Tons 59,824 Lbs. ======= ======= ======= ======= Net Sales: To unaffiliated companies $70,244 $41,198 $27,478 $89,252 - $228,172 Intersegment(2)......... 2,982 - -1 - $(2,981) - ------- ------- ------- ------- ------- ------- Total.................... $73,226 $41,198 $27,477 $89,252 $(2,981) $228,172 ======= ======= ======= ======= ======= ======= Operating income (loss).. $11,980 $ 2,685 $ 1,212 $ 6,264 $(3,115) $ 19,026 ======= ======= ======= ======= ======= =======
Cold Corporate Nine Months Ended Hot Rolled Finished Steel Aluminum and Consoli- July 31, 1996 Steel Bars Steel Bars Tubes Products Other(1) dated ---------------- ---------- ---------- ---------- ---------- ---------- ---------- Units shipped: To unaffiliated companies 360.1 Tons 132.9 Tons 68.3 Tons 179,759 Lbs. Intersegment............ 19.7 - - - ------- ------- ------- ------- Total.................... 379.8 Tons 132.9 Tons 68.3 Tons 179,759 Lbs. ======= ======= ======= ======= Net Sales: To unaffiliated companies $196,625 $120,829 $88,515 $226,607 - $632,576 Intersegment(2)......... 11,186 - - - $(11,186) - ------- ------- ------- ------- ------- ------- Total.................... $207,811 $120,829 $88,515 $226,607 $(11,186) $632,576 ======= ======= ======= ======= ======= ======= Operating income (loss).. $ 26,999 $ 7,876 $ 4,934 $ 13,224 $(11,252) $ 41,781 ======= ======= ======= ======= ======= =======
Cold Corporate Nine Months Ended Hot Rolled Finished Steel Aluminum and Consoli- July 31, 1995 Steel Bars Steel Bars Tubes Products Other(1) dated ---------------- ---------- ---------- ---------- ---------- ---------- ---------- Units shipped: To unaffiliated companies 352.9 Tons 145.1 Tons 69.5 Tons 169,333 Lbs. Intersegment............ 17.7 - - - ------- ------- ------- ------- Total.................... 370.6 Tons 145.1 Tons 69.5 Tons 169,333 Lbs. ======= ======= ======= ======= Net Sales: To unaffiliated companies $196,895 $134,152 $87,814 $243,544 - $662,405 Intersegment(2)......... 10,158 - - - $(10,158) - ------- ------- ------- ------- ------- ------- Total.................... $207,053 $134,152 $87,814 $243,544 $(10,158) $662,405 ======= ======= ======= ======= ======= ======= Operating income (loss).. $ 29,014 $ 9,424 $ 6,076 $ 15,711 $(13,621) $ 46,604 ======= ======= ======= ======= ======= =======
(1) Included in "Corporate and Other" are intersegment eliminations and corporate expenses. (2) Intersegment sales are conducted on an arm's-length basis. (5) QUANEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 5. Subsequent Event - ------------------- On August 9, 1996, the Company completed the acquisition of substantially all of the assets of Piper Impact, Inc. ("Piper"). Piper is a manufacturer of custom-designed, impact-extruded aluminum and steel parts for the transportation, electronics and defense markets. Piper Impact's net sales for the years ended December 31, 1995 and 1994, were $106.9 million and $95.3 million, respectively. Piper Impact has production facilities in New Albany, Mississippi and Park City, Utah. Piper Impact assets, net of various liabilities, were acquired for approximately $130 million in cash, cash equivalents, and notes. To finance the acquisition, the Company entered into an unsecured revolving credit/term loan facility with a group of five banks which provides for the borrowing of up to $250 million. This agreement replaced the Company's $75 million revolving credit facility (See Note 3). (6) Item 2 - Management's Discussion and Analysis of Results of Operations and Financial Condition RESULTS OF OPERATIONS The Company classifies its operations into four business segments: hot rolled steel bars, cold finished steel bars, steel tubes and aluminum products. The Company's products are marketed to the industrial machinery and capital equipment industries, the transportation industry, the energy processing industry and the home building and remodeling industries. A record-breaking performance by the Company's aluminum products group contributed to record third quarter earnings attributable to common shareholders of $9.1 million, or 67 cents per common share, on net sales of $225.5 million. These results compare with prior year third quarter earnings attributable to common shareholders of $8.6 million, or 63 cents per common share, on net sales of $228.2 million. With higher volumes and lower conversion costs at its aluminum mini-mill, the Company's aluminum products group capitalized on improved building products markets and stronger overall demand to achieve its best-ever quarterly operating earnings and shipping volumes during the three month period ended July 31, 1996. The Company's hot rolled steel bar business experienced lower operating income for the third quarter of fiscal 1996 compared to the record third quarter of fiscal 1995. The results for the third quarter of 1995 reflect unusually high surcharges for molybdenum, chrome and scrap, which did not apply in the third quarter of 1996. Also, operating income was impacted in the third quarter of 1996 by increased depreciation related to the completed Phase II expansion project, an extended summer maintenance shutdown taken during the third quarter of 1996 for preliminary work on the Phase III expansion project, and by higher accruals to the allowance for doubtful accounts. The Company's cold finished steel bar business results for the third quarter were affected by lower average selling prices as compared to the third quarter of fiscal 1995. Slightly higher volume, resulting from improved market share, helped to offset lower selling prices. The Company's steel tube business results for the third quarter were affected by higher conversion costs as compared to the third quarter of fiscal 1995. The third quarter is seasonally the weakest quarter in the Company's steel tube business. The Company's aluminum products business was affected in the third quarter by improved demand and lower conversion costs. The aluminum business achieved record operating income in the third quarter of fiscal 1996. Year-to-date results have been affected by weaker margins between selling prices and raw material costs. These margins, referred to herein as "price spreads", are a key financial performance indicator in the aluminum products business. The Company currently expects that overall business levels for the fourth quarter of fiscal 1996 should be similar to those experienced during the same period of fiscal 1995. However, the acquisition of Piper Impact (see note 5) will affect the fourth quarter and is expected to result in higher sales and be accretive to earnings. Improved financial results will be dependent upon, among other things, the strength of the economy, improvements in the markets which the Company serves and improvement in the price spreads of aluminum products. During the first quarter of fiscal 1996, the Company acquired its remaining 10.77% Senior Notes for a purchase price equal to 107.5% of the principal amount plus accrued interest. The purchase resulted in an extraordinary charge of $2.5 million. (7) Item 2 - Management's Discussion and Analysis of Results of Operations and Financial Condition (Continued) The following table sets forth selected operating data for the Company's four businesses: Three Months Ended Nine Months Ended July 31, July 31, 1996 1995 1996 1995 (In thousands) Hot Rolled Steel Bars: Units shipped (Tons)............ 134.8 125.9 379.8 370.6 Net Sales....................... $ 73,170 $ 73,226 $207,811 $207,053 Operating income................ $ 9,324 $ 11,980 $ 26,999 $ 29,014 Depreciation and amortization... $ 4,590 $ 3,870 $ 13,770 $ 11,610 Identifiable assets............. $164,209 $167,424 $164,209 $167,424 Cold Finished Steel Bars: Units shipped (Tons)............ 45.1 44.1 132.9 145.1 Net Sales....................... $ 39,179 $ 41,198 $120,829 $134,152 Operating income................ $ 2,404 $ 2,685 $ 7,876 $ 9,424 Depreciation and amortization... $ 400 $ 346 $ 1,239 $ 1,039 Identifiable assets............. $ 54,957 $ 49,705 $ 54,957 $ 49,705 Steel Tubes: Units shipped (Tons)............ 21.2 21.5 68.3 69.5 Net Sales....................... $ 26,704 $ 27,477 $ 88,515 $ 87,814 Operating income................ $ 597 $ 1,212 $ 4,934 $ 6,076 Depreciation and amortization... $ 552 $ 490 $ 1,730 $ 1,525 Identifiable assets............. $ 41,675 $ 40,850 $ 41,675 $ 40,850 Aluminum Products: Units shipped (Pounds).......... 70,293 59,824 179,759 169,333 Net Sales....................... $ 89,438 $ 89,252 $226,607 $243,544 Operating income................ $ 7,807 $ 6,264 $ 13,224 $ 15,711 Depreciation and amortization... $ 3,621 $ 3,199 $ 10,558 $ 9,916 Identifiable assets............. $225,143 $242,816 $225,143 $242,816 Consolidated net sales for the three and nine months ended July 31, 1996, were $225.5 million and $632.6 million, respectively, representing decreases of $2.7 million, or 1%, and $29.8 million, or 5%, respectively, when compared to the same periods last year. The reduction in net sales was primarily attributable to lower selling prices compared to fiscal 1995. Net sales from the Company's hot rolled steel bar business for the three and nine months ended July 31, 1996, were $73.2 million and $207.8 million, respectively, representing a decrease of $56 thousand and an increase of $758 thousand, respectively, when compared to the same periods last year. Average selling price for the third quarter declined approximately 7% which is attributable to unusually high molybdenum, chrome and scrap surcharges in the prior year period. The sales decrease resulting from lower average selling prices was offset by higher volume resulting from improved market share and the additional capacity added during fiscal year 1995. Net sales from the Company's cold finished steel bar business for the three and nine months ended July 31, 1996, were $39.2 million and $120.8 million, respectively, representing decreases of $2.0 million, or 5%, and $13.3 million, or 10%, respectively, when compared to the same periods last year. The decrease is principally attributable to lower selling prices for the three month period and a combination of lower volume and lower selling prices for the nine month period. Cold finished steel bar business remained below the all-time record levels experienced during fiscal 1995. (8) Item 2 - Management's Discussion and Analysis of Results of Operations and Financial Condition (Continued) Net sales from the Company's steel tube business for the three and nine months ended July 31, 1996, were $26.7 million and $88.5 million, respectively, representing a decrease of $773 thousand and an increase of $701 thousand, respectively, when compared to the same periods last year. Typically the third fiscal quarter is seasonally the weakest. Net sales from the Company's aluminum products business for the three and nine months ended July 31, 1996, were $89.4 million and $226.6 million, respectively, representing an increase of $186 thousand and a decrease of $16.9 million, or 7%, respectively, when compared to the same periods last year. Average selling price for the third quarter of fiscal 1996 was down approximately 15% as compared to the third quarter of fiscal 1995. Year-to-date average selling prices decreased by approximately 12% as compared to the same prior year period. Record volume in the third quarter offset the lower selling prices. Consolidated operating income for the three and nine months ended July 31, 1996, was $16.9 million and $41.8 million, respectively, representing decreases of $2.1 million, or 11%, and $4.8 million, or 10%, respectively, when compared to the same periods last year. Operating income from the Company's hot rolled steel bar business for the three and nine months ended July 31, 1996, was $9.3 million and $27.0 million, respectively, representing decreases of $2.7 million, or 22%, and $2.0 million, or 7%, respectively, when compared to the same periods last year. The decreases resulted principally from unusually high surcharges last year for molybdenum, chrome and scrap, which did not apply in the third quarter of 1996. Also, operating income was impacted in the third quarter of 1996 by increased depreciation related to the completed Phase II expansion project, an extended summer maintenance shutdown taken during the third quarter of 1996 for preliminary work on the Phase III expansion project, and by higher accruals to the allowance for doubtful accounts.. Operating income from the Company's cold finished steel bar business for the three and nine months ended July 31, 1996, was $2.4 million and $7.9 million, respectively, representing decreases of $281 thousand, or 10%, and $1.5 million, or 16%, respectively, when compared to the same periods last year. The decrease is attributable to lower volume and net sales. However, 1995 represented a record for third quarter operating income. Operating income from the Company's steel tube business for the three and nine months ended July 31, 1996, was $597 thousand and $4.9 million, respectively, representing decreases of $615 thousand and $1.1 million, respectively, when compared to the same periods last year. The decrease resulted primarily from higher conversion costs and slightly lower volume. The quarter and year-to-date were also marginally affected by start-up costs at the NitroSteel division which is a small division acquired by the Company in early fiscal 1995. Operating income from the Company's aluminum products business for the three and nine months ended July 31, 1996, was $7.8 million and $13.2 million, respectively, representing an increase of $1.5 million, or 25%, and a decrease of $2.5 million, or 16%, respectively, when compared to the same periods last year. Higher volume and lower conversion costs contributed to a record third quarter in fiscal 1996. Year-to-date results have been negatively affected by lower price spreads. (9) Item 2 - Management's Discussion and Analysis of Results of Operations and Financial Condition (Continued) Selling, general and administrative expenses increased by $4.3 million, or 39%, and $3.6 million, or 10%, respectively, for the three and nine months ended July 31, 1996, as compared to the same periods of 1995. The increase is primarily due to higher accruals to the allowance for doubtful accounts in the hot rolled steel bar and the aluminum products businesses. Interest expense was relatively flat as compared to the same periods of 1995. Increased interest related to the Company's $84.9 million of 6.88% Convertible Subordinated Debentures that were issued in June 1995 in exchange for the Company's outstanding preferred stock was offset by the early extinguishment of a portion of the Company's senior debt in the first quarter of fiscal 1995 and the early extinguishment of the remaining senior debt in the first fiscal quarter of 1996. Capitalized interest increased by $160 thousand and decreased by $1.6 million, respectively, as compared to the quarter and year-to-date of fiscal 1995. The increase in the quarter reflects ongoing construction related to the Phase III MacSteel Expansion Project. The year-to-date decrease is associated with the completion in March 1995 of the Phase II MacSteel Ultra Clean Steel Program. Net income attributable to common shareholders for the three and nine months ended July 31, 1996, was $9.1 million and $18.8 million, respectively, as compared to $8.6 million and $18.1 million, respectively, for the same 1995 periods, after deducting preferred dividends of $990 thousand from the three month period and $4.0 million from the nine month period of fiscal 1995. Included in the nine months ended July 31, 1996 and 1995, were extraordinary charges of $2.5 million and $2.0 million, respectively, relating to early extinguishment of debt. Included in "Other, net" for the nine months ended July 31, 1996, was a $2.3 million pretax gain which represents the final recovery of a business interruption claim related to a fire at the Company's Lincolnshire, Illinois facility that occurred in 1993. Also included in "Other, net" for the nine months ended July 31, 1996, was $1.5 million resulting from a loss on abandonment of idle assets. Included in "Other, net" for the nine months ended July 31, 1995 was a $1.1 million pretax gain related to a life insurance policy on a deceased former officer. Also included in "Other, net" was investment income of $605 thousand and $1.2 million, respectively, for the three and nine months ended July 31, 1996, as compared to investment income of $416 thousand and $336 thousand, respectively, for the same 1995 periods. LIQUIDITY AND CAPITAL RESOURCES The Company's principal sources of funds are cash on hand, cash flow from operations, and borrowings under an unsecured $250 million Revolving Credit and Term Loan Agreement ("Bank Agreement"). The Bank Agreement replaced the Company's former $75 million Revolving Credit and Letter of Credit Agreement, effective July 23, 1996. The Bank Agreement consists of a revolving line of credit ("Revolver") and up to two term loans not to exceed $100 million in the aggregate and repayable at a date selected by the Company to be no later than July 23, 2004. Any term loan elections reduce the amount available under the Revolver. The Bank Agreement expires July 23, 2001, and provides for up to $25 million for standby letters of credit, limited to the undrawn amount available under the Revolver. All borrowings under the Revolver bear interest, at the option of the Company, at either a) the prime rate or the federal funds rate plus one percent, whichever is higher, or b) a Eurodollar based rate. The Bank Agreement contains customary affirmative and negative covenants and requirements to maintain a minimum consolidated tangible net worth, as defined. The Bank Agreement limits the payment of dividends and certain restricted investments. Under the Bank Agreement, at July 31, 1996, there were $30.0 million of outstanding borrowings. Additional borrowings under the Bank Agreement will be used to fund the acquisition of Piper Impact (See Note 5). (10) Item 2 - Management's Discussion and Analysis of Results of Operations and Financial Condition (Continued) In December 1995, the Company acquired all of its outstanding 10.77% Senior Notes for a purchase price equal to 107.5% of the principal amount plus accrued interest. The acquisition and related expenses resulted in an after-tax extraordinary charge of approximately $2.5 million in the first quarter of 1996. The acquisition was funded with cash and additional borrowings under the Bank Agreement. On June 30, 1995, the Company exercised its right under the terms of the Preferred Stock to exchange such stock for $84,920,000 principal amount of Debentures. Interest on the Debentures is payable semi-annually on June 30 and December 31 of each year. The Debentures are subject to mandatory annual sinking fund payments sufficient to redeem 25% of the Debentures issued on each of June 30, 2005 and June 30, 2006, to retire a total of 50% of the Debentures before maturity. The Debentures are subordinate to all senior indebtedness of the Company and are convertible, at the option of the holder, into shares of the Company's common stock at a conversion price of $31.50 per share. At July 31, 1996, the Company had commitments of $15 million for the purchase or construction of capital assets. The Company's $52 million (not including approximately $9 million in capitalized interest) Phase II MacSteel Ultra Clean Steel Program, which increased capacity by approximately 50,000 tons, was completed in fiscal 1995. In December 1995, the Company's Board of Directors approved Phase III of the MacSteel expansion project. Phase III is designed to improve melting and casting capabilities and is expected to increase capacity by approximately 70,000 tons. The project also includes significant upgrades to pollution control systems to ensure compliance with new EPA standards under the Clean Air Act. Phase III is expected to cost approximately $60 million and should be completed during fiscal year 1998. The Company plans to fund this capital investment through cash flow from operations and, if necessary, additional borrowings. On August 9, 1996, the Company completed the acquisition of substantially all of the assets of Piper Impact, Inc. ("Piper"). Piper's assets, net of various liabilities, were acquired for approximately $130 million in cash, cash equivalents, and notes. To finance the acquisition, the Company entered into an unsecured revolving credit/term loan facility with a group of five banks which provides for the borrowing of up to $250 million. This agreement replaced the Company's $75 million revolving credit facility (See Note 3). Subsequent to the acquisition, the Company's Board of Directors approved additional capital expenditures at Piper totalling approximately $55 million. These expenditures will provide the capacity needed to supply major new customer programs phasing in over the next two years. In management's opinion, the Company currently has sufficient funds and adequate financial sources available to meet its anticipated liquidity needs. Management believes that cash flow from operations, cash balances and available borrowings, including the above referenced anticipated increase in the revolving credit facility, should be sufficient for the foreseeable future to finance anticipated working capital requirements, capital expenditures, debt service requirements and dividends. Operating Activities Cash provided by operating activities during the nine months ended July 31, 1996, was $43.1 million as compared to $38.2 million during the nine months ended July 31, 1995. The increase was principally due to lower working capital requirements. Investment Activities Net cash used by investment activities during the nine months ended July 31, 1996, was $26.8 million as compared to net cash provided by investment activities of $32.3 million for the same 1995 period. The decrease in cash provided by investment activities was principally due to decreases in short-term investments during the nine months ended July 31, 1995. Capital expenditures, net of retirements, for the nine months ended July 31, 1996, were $22.7 million as compared to $21.1 million for the same 1995 period. The Company estimates that fiscal 1996 capital expenditures will approximate $50 to $60 million, exclusive of the Piper assets purchased. (11) Item 2 - Management's Discussion and Analysis of Results of Operations and Financial Condition (Continued) Financing Activities Cash used by financing activities for the nine months ended July 31, 1996, was $29.9 million, principally consisting of $44.7 million for the early extinguishment of long-term debt, a $10.0 million reduction in notes payable and $6.1 million in common dividends. These uses of funds were partly offset by long-term bank borrowings under the Revolver of $30.0 million. (12) Item 5 - Other Information. - --------------------------- None Item 6 - Exhibits and Reports on Form 8-K. 11 Statement re computation of per share earnings. 27 Financial Data Schedule. A current report on Form 8-K, dated August 9, 1996, was filed by the Company on August 21, 1996, reporting under Item 2 thereof the acquisition of Piper Impact, Inc. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. QUANEX CORPORATION /s/ Viren M. Parikh ------------------- Viren M. Parikh Controller (Chief Accounting Officer) Date September 12, 1996 - ------------------------ (13) EX-11 2 STATEMENT RE COMPUTATION OF EARNINGS PER SHARE EXHIBIT 11 QUANEX CORPORATION COMPUTATION OF EARNINGS PER COMMON SHARE (In thousands, except per share amounts)
Three Months Ended Nine Months Ended July 31, July 31, ----------------- ----------------- 1996 1995 1996 1995 ------ ------ ------ ------ (Unaudited) (Unaudited) Income before extraordinary charge................$ 9,145 $ 9,603 $ 21,324 $ 24,078 Extraordinary charge - early extinguishment of debt - - (2,522) (2,021) ------ ------ ------ ------ Net income........................................ 9,145 9,603 18,802 22,057 Preferred dividend requirements................... - (990) - (3,957) Net income attributable to ------ ------ ------ ------ common stockholders.............................$ 9,145 $ 8,613 $ 18,802 $ 18,100 ====== ====== ====== ====== Weighted average shares outstanding-primary............................. 13,659 13,642 13,630 13,598 ====== ====== ====== ====== Earnings per common share: Primary: Earnings before extraordinary charge........... 0.67 0.63 1.57 1.48 Extraordinary charge........................... - - (0.19) (0.15) ------ ------ ------ ------ Earnings per common share.................... 0.67 0.63 1.38 1.33 ====== ====== ====== ====== Income before extraordinary charge................$ 9,145 $ 9,603 $ 21,324 $ 24,078 Interest on 6.88% convertible subordinated debentures and amortization of related issuance costs, net of applicable income taxes.......... 892 302 2,676 302 ------ ------ ------ ------ Adjusted income before extraordinary charge 10,037 9,905 24,000 24,380 Extraordinary charge - early extinguishment of debt - - (2,522) (2,021) ------ ------ ------ ------ Adjusted net income after extraordinary charge.... 10,037 9,905 21,478 22,359 ====== ====== ====== ====== Weighted average shares outstanding-primary............................. 13,659 13,642 13,630 13,598 Effect of common stock equivalents arising from stock options...................... - 2 - 39 Preferred stock assumed converted to common stock................................. - 2,738 - 2,738 Subordinated debentures assumed converted to common stock................................. 2,696 - 2,696 - Weighted average shares ------ ------ ------ ------ outstanding-fully diluted....................... 16,355 16,382 16,326 16,375 ====== ====== ====== ====== Earnings per common share: Assuming full dilution: Earnings before extraordinary charge........... 0.61 0.59 1.47 1.49 Extraordinary charge........................... - - (0.15) (0.12) ------ ------ ------ ------ Earnings per common share.................... 0.61 0.59 1.32 1.37 ====== ====== ====== ======
EX-27 3 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the balance sheet as of July 31, 1996 and the income statement for the three and nine months ended July 31, 1996 and is qualified in its entirety by reference to such financial statements. 1,000 9-MOS OCT-31-1996 NOV-01-1995 JUL-31-1996 31,533 0 89,214 0 94,104 222,691 548,324 293,488 525,805 125,143 118,195 0 0 6,763 177,300 525,805 632,576 632,576 551,209 551,209 0 0 7,453 36,766 15,442 21,324 0 2,522 0 18,802 1.380 1.320
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