-----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, TE8RZ+OLdhFLwdJoRs7xhcuxgAuOD9CegxvMFmMN4tvP0Vkab5IMNjntAuVuHhDQ N909hPsB+pzTHIklAr8Xuw== 0000276889-96-000004.txt : 19960613 0000276889-96-000004.hdr.sgml : 19960613 ACCESSION NUMBER: 0000276889-96-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960430 FILED AS OF DATE: 19960610 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: 96578759 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 04/30/96 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 April 30, 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 April 30, 1996 - --------------------------------------- ------------------------------- Common Stock, par value $0.50 per share 13,520,825 QUANEX CORPORATION INDEX
Page No. Part I. Financial Information: Item 1: Financial Statements Consolidated Balance Sheets - April 30, 1996 and October 31, 1995 .................................. 1 Consolidated Statements of Income - Three and Six Months Ended April 30, 1996 and 1995............... 2 Consolidated Statements of Cash Flow - Six Months Ended April 30, 1996 and 1995 ..................... 3 Notes to Consolidated Financial Statements ............ 4-6 Item 2: Management's Discussion and Analysis of Results of Operations and Financial Condition .................... 7-11 Part II. Other Information Item 4: Submission of Matters to a Vote of Security Holders ... 12 Item 5: Other Information ..................................... 12 Item 6: Exhibits and Reports on Form 8-K ...................... 12
PART I. FINANCIAL INFORMATION Item 1. Financial Statements QUANEX CORPORATION CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
April 30, October 31, 1996 1995 ---------- ---------- (Unaudited) (Audited) ASSETS Current assets: Cash and equivalents ............................$ 38,276 $ 45,213 Accounts and notes receivable, net .............. 100,193 104,240 Inventories ..................................... 94,188 84,676 Deferred income taxes ........................... 6,804 6,848 Prepaid expenses ................................ 1,458 1,398 ---------- ---------- Total current assets .................... 240,919 242,375 Property, plant and equipment ..................... 538,721 525,325 Less accumulated depreciation and amortization ....(285,749) (266,761) ---------- ---------- Property, plant and equipment, net ................ 252,972 258,564 Goodwill, net ..................................... 31,588 32,064 Other assets ...................................... 15,812 13,744 ---------- ---------- $541,291 $546,747 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable ................................... $ - $ 10,000 Accounts payable ................................ 85,959 91,730 Income taxes payable ............................ 2,696 423 Accrued expenses ................................ 42,071 42,087 Current maturities of long-term debt ............ - 20,968 ---------- ---------- Total current liabilities ............... 130,726 165,208 Long-term debt .................................... 138,195 111,894 Deferred pension credits .......................... 16,258 16,656 Deferred postretirement welfare benefits .......... 54,261 53,185 Deferred income taxes ............................. 25,039 29,278 ---------- ---------- Total liabilities ....................... 364,479 376,221 Stockholders' equity: Common stock, $.50 par value .................... 6,760 6,743 Additional paid-in capital ...................... 93,046 92,406 Retained earnings ............................... 80,028 74,426 Unearned compensation ........................... (290) (317) Adjustment for minimum pension liability ........ (2,732) (2,732) ---------- ---------- Total stockholders' equity .............. 176,812 170,526 ---------- ---------- $541,291 $546,747 ========== ==========
(1) QUANEX CORPORATION CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts)
Three Months Ended Six Months Ended April 30 April 30 ---------------- ---------------- 1996 1995 1996 1995 ------- ------- ------ ------- (Unaudited) Net sales............................ $218,341 $234,347 $407,113 $434,233 Cost and expenses: Cost of sales...................... 191,614 204,600 359,100 381,789 Selling, general and administrative expense.......... 11,555 12,580 23,164 24,866 ------- ------- ------- ------- Operating income..................... 15,172 17,167 24,849 27,578 Other income (expense): Interest expense................... (2,260) (2,034) (5,140) (5,150) Capitalized interest............... 78 837 127 1,867 Other, net......................... 1,031 965 1,163 662 Income before income taxes and ------- ------- ------- ------- extraordinary charge............ 14,021 16,935 20,999 24,957 Income tax expense................... (5,889) (7,113) (8,820) (10,482) ------- ------- ------- ------- Income before extraordinary charge... 8,132 9,822 12,179 14,475 Extraordinary charge - early extinguishment of debt.......... - - (2,522) (2,021) ------- ------- ------- ------- Net income........................... 8,132 9,822 9,657 12,454 Preferred dividends.................. - (1,483) - (2,967) Net income attributable to ------- ------- ------- ------- common stockholders............. $ 8,132 $ 8,339 $ 9,657 $ 9,487 ======= ======= ======= ======= Earnings per common share: Primary before extraordinary charge........... $ 0.60 $ 0.62 $ .90 $ 0.85 Extraordinary charge.............. - - (0.19) (0.15) ------- ------- ------- ------- Total primary net earnings..... $ 0.60 $ 0.62 $ .71 $ 0.70 ======= ======= ======= ======= Fully diluted before extraordinary charge........... $ 0.55 $ 0.60 $ .85 $ 0.85 Extraordinary charge.............. - - (0.15) (0.15) ------- ------- ------- ------- Total assuming full dilution... $ 0.55 $ 0.60 $ .70 $ 0.70 ======= ======= ======= ======= Weighted average shares outstanding: Primary........................... 13,641 13,601 13,614 13,580 ======= ======= ======= ======= Assuming full dilution............ 16,360 16,351 16,353 13,580 ======= ======= ======= =======
(2) QUANEX CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOW (In thousands)
Six Months Ended April 30, -------------------- 1996 1995 ------ ------ (Unaudited) Operating activities: Net income..............................................$ 9,657 $12,454 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization........................ 18,495 16,673 Deferred income taxes................................ (4,239) 2,107 Deferred pension costs............................... (398) (627) Deferred postretirement welfare benefits............. 1,076 1,204 ------ ------ 24,591 31,811 Changes in assets and liabilities net of effects from acquisitions and dispositions: Decrease (increase) in accounts and notes receivable 4,304 (29,850) Increase in inventory............................... (9,512) (11,409) Increase (decrease) in accounts payable............. (5,771) 13,733 Increase (decrease) in accrued expenses............. (16) 2,453 Other, net.......................................... 2,257 (1,189) ------ ------ Cash provided by operating activities.......... 15,853 5,549 Investment activities: Capital expenditures, net of retirements............... (11,971) (14,894) Decrease in short-term investments..................... - 54,070 Other, net............................................. (2,781) (493) ------ ------ Cash provided (used) by investment activities.. (14,752) 38,683 Cash provided by operating and ------ ------ investment activities..................... 1,101 44,232 Financing activities: Notes payable borrowings (repayments).................. (10,000) 10,000 Purchase of Senior Notes............................... (44,667) (59,500) Bank borrowings (repayments), net. .................... 50,000 - Common dividends paid.................................. (4,055) (3,894) Preferred dividends paid............................... - (2,967) Other, net............................................. 684 1,130 ------ ------ Cash used by financing activities.............. (8,038) (55,231) Decrease in cash and equivalents......................... (6,937) (10,999) Cash and equivalents at beginning of period.............. 45,213 34,041 ------ ------ Cash and equivalents at end of period.................... $38,276 $23,042 ====== ====== Supplemental disclosure of cash flow information: Cash paid during the period for: Interest................................................. $ 6,195 $ 6,262 Income taxes............................................. $ 8,907 $ 7,190
(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: April 30, October 31, 1996 1995 -------- --------- (In thousands) Inventories valued at lower of cost (principally LIFO method) or market: Raw materials .................................. $29,344 $27,655 Finished goods and work in process ............. 54,549 48,071 ------- ------- 83,893 75,726 Other ............................................. 10,295 8,950 -------- ------- $94,188 $84,676 ======= ======= With respect to inventories valued using the LIFO method, replacement cost exceeded the LIFO value by approximately $21 million at April 30, 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. At April 30, 1996, the Company had $50.0 million outstanding under its unsecured $75 million Revolving Credit and Letter of Credit Agreement ("Bank Agreement"). The Bank Agreement consists of a revolving line of credit ("Revolver"), which expires March 31, 1999, and up to $20 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 floating prime or a reserve adjusted Eurodollar rate. Borrowings under the Revolver during the first quarter of 1996 were used to fund the repurchase of the Company's 10.77% Senior Notes. (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- April 30, 1996 Steel Bars Steel Bars Tubes Products Other(1) dated ------------------ ---------- ---------- ---------- ---------- ---------- ---------- (in thousands) Units shipped: To unaffiliated companies 127.7 Tons 48.4 Tons 24.2 Tons 59,833 Lbs. Intersegment............ 6.5 - - - ------- ------- ------- ------- Total.................... 134.2 Tons 48.4 Tons 24.2 Tons 59,833 Lbs. ======= ======= ======= ======= Net Sales: To unaffiliated companies $69,375 $44,025 $31,661 $73,280 - $218,341 Intersegment(2)......... 3,715 - - - $(3,715) - ------- ------- ------- ------- ------- ------- Total.................... $73,090 $44,025 $31,661 $73,280 $(3,715) $218,341 ======= ======= ======= ======= ======= ======= Operating income (loss).. $10,340 $ 2,800 $ 2,382 $ 3,766 $(4,116) $ 15,172 ======= ======= ======= ======= ======= =======
Cold Corporate Three Months Ended Hot Rolled Finished Steel Aluminum and Consoli- April 30, 1995 Steel Bars Steel Bars Tubes Products Other(1) dated ------------------ ---------- ---------- ---------- ---------- ---------- ---------- Units shipped: To unaffiliated companies 120.2 Tons 53.0 Tons 25.3 Tons 58,336 Lbs. Intersegment............ 7.4 - - - ------- ------- ------- ------- Total.................... 127.6 Tons 53.0 Tons 25.3 Tons 58,336 Lbs. ======= ======= ======= ======= Net Sales: To unaffiliated companies $67,087 $49,627 $31,541 $86,092 - $234,347 Intersegment(2)......... 4,260 - 1 - $(4,261) - ------- ------- ------- ------- ------- ------- Total.................... $71,347 $49,627 $31,542 $86,092 $(4,261) $234,347 ======= ======= ======= ======= ======= ======= Operating income (loss).. $10,058 $ 4,070 $ 2,985 $ 5,262 $(5,208) $ 17,167 ======= ======= ======= ======= ======= =======
Cold Corporate Six Months Ended Hot Rolled Finished Steel Aluminum and Consoli- April 30, 1996 Steel Bars Steel Bars Tubes Products Other(1) dated ---------------- ---------- ---------- ---------- ---------- ---------- ---------- Units shipped: To unaffiliated companies 230.9 Tons 87.8 Tons 47.1 Tons 109,466 Lbs. Intersegment............ 14.1 - - - ------- ------- ------- ------- Total.................... 245.0 Tons 87.8 Tons 47.1 Tons 109,466 Lbs. ======= ======= ======= ======= Net Sales: To unaffiliated companies $126,483 $ 81,650 $61,811 $137,169 - $407,113 Intersegment(2)......... 8,158 - - - $ (8,158) - ------- ------- ------- ------- ------- ------- Total.................... $134,641 $ 81,650 $61,811 $137,169 $ (8,158) $407,113 ======= ======= ======= ======= ======= ======= Operating income (loss).. $ 17,675 $ 5,472 $ 4,337 $ 5,417 $ (8,052) $ 24,849 ======= ======= ======= ======= ======= =======
Cold Corporate Six Months Ended Hot Rolled Finished Steel Aluminum and Consoli- April 30, 1995 Steel Bars Steel Bars Tubes Products Other(1) dated ---------------- ---------- ---------- ---------- ---------- ---------- ---------- Units shipped: To unaffiliated companies 232.2 Tons 101.0 Tons 48.0 Tons 109,509 Lbs. Intersegment............ 12.5 - - - ------- ------- ------- ------- Total.................... 244.7 Tons 101.0 Tons 48.0 Tons 109,509 Lbs. ======= ======= ======= ======= Net Sales: To unaffiliated companies $126,651 $ 92,954 $60,336 $154,292 - $434,233 Intersegment(2)......... 7,176 - 1 - $ (7,177) - ------- ------- ------- ------- ------- ------- Total.................... $133,827 $ 92,954 $60,337 $154,292 $ (7,177) $434,233 ======= ======= ======= ======= ======= ======= Operating income (loss).. $ 17,034 $ 6,739 $ 4,864 $ 9,447 $(10,506) $ 27,578 ======= ======= ======= ======= ======= =======
(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 June 10, 1996, the Company announced that it had signed a letter of intent to acquire substantially all of the net assets of Piper Impact, Inc. ("Piper"). The ultimate transaction will be consummated pursuant to a definitive agreement to be negotiated between the Company and Piper. The Company intends to increase its present revolving credit facility of $75 million to $250 million in order to finance the Piper acquisition and its related working capital requirements together with the Company's other capital needs. Piper is a privately owned manufacturer of custom-designed, impact-extruded aluminum and steel parts for the transportation, electronics and defense markets. The acquisition is expected to be completed in July 1996. (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. All of the Company's business segments were affected during the three and six month periods ended April 30, 1996, by a general reduction in demand for their products from the record levels experienced in fiscal 1995. This reduction in industry demand has resulted in a softening in prices in certain markets as well as lower sales volumes in the cold finished steel bars and steel tubes segments. The hot rolled steel bar segment offset these pressures through increased sales volumes capitalizing on increased capacity. The aluminum products business was able to maintain its volume and increase its market share although pricing pressures resulted in reduced revenue and operating profit. The Company's hot rolled steel bar business experienced improvement in operating income for the second quarter of fiscal 1996 compared to the record-setting second quarter of fiscal 1995. The results reflect the benefits realized from the Company's capital improvement programs, which have allowed the Company to increase volume, improve quality and better manage manufacturing costs. Hot rolled steel bar volume was up during the second quarter by 5% as compared to the second quarter of fiscal 1995. The Company's cold finished steel bar business results for the second quarter were affected by lower volume and average selling prices as compared to the second quarter of fiscal 1995. However, the second quarter of 1995 represented all-time performance records for volume, net sales, and operating income. The Company's steel tube business results for the second quarter were affected by tighter margins and slightly lower volume as compared to the second quarter of fiscal 1995. The tube business, as with the Company's other segments, experienced a strong second quarter in fiscal 1995. The Company's aluminum products business was 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 second quarter of fiscal 1996 reflected improved results as compared to the first quarter of 1996. The aluminum business achieved record operating income in the second quarter of fiscal 1995. The Company currently expects that business levels for the balance of fiscal 1996 should be similar to those experienced during the same period of fiscal 1995. 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. In December 1995, 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 in the first quarter of fiscal 1996. (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 Six Months Ended April 30, April 30, ------------------ ---------------- 1996 1995 1996 1995 ------ ------ ----- ----- (In thousands) Hot Rolled Steel Bars: Units shipped (Tons)............ 134.2 127.6 245.0 244.7 Net Sales....................... $ 73,090 $ 71,347 $134,641 $133,827 Operating income................ $ 10,340 $ 10,058 $ 17,675 $ 17,034 Depreciation and amortization... $ 4,590 $ 3,870 $ 9,180 $ 7,740 Identifiable assets............. $170,779 $174,055 $170,779 $174,055 Cold Finished Steel Bars: Units shipped (Tons)............ 48.4 53.0 87.8 101.0 Net Sales....................... $ 44,025 $ 49,627 $ 81,650 $ 92,954 Operating income................ $ 2,800 $ 4,070 $ 5,472 $ 6,739 Depreciation and amortization... $ 419 $ 347 $ 839 $ 693 Identifiable assets............. $ 58,420 $ 57,005 $ 58,420 $ 57,005 Steel Tubes: Units shipped (Tons)............ 24.2 25.3 47.1 48.0 Net Sales....................... $ 31,661 $ 31,542 $ 61,811 $ 60,337 Operating income................ $ 2,382 $ 2,985 $ 4,337 $ 4,864 Depreciation and amortization... $ 583 $ 510 $ 1,178 $ 1,035 Identifiable assets............. $ 43,839 $ 42,652 $ 43,839 $ 42,652 Aluminum Products: Units shipped (Pounds).......... 59,833 58,336 109,466 109,509 Net Sales....................... $ 73,280 $ 86,092 $137,169 $154,292 Operating income................ $ 3,766 $ 5,262 $ 5,417 $ 9,447 Depreciation and amortization... $ 3,454 $ 3,386 $ 6,937 $ 6,717 Identifiable assets............. $227,862 $252,886 $227,862 $252,886 Consolidated net sales for the three and six months ended April 30, 1996, were $218.3 million and $407.1 million, respectively, representing decreases of $16.0 million, or 7%, and $27.1 million, or 6%, respectively, when compared to the same periods last year. The reduction in net sales was primarily attributable to lower sales volumes compared to the record levels achieved in fiscal 1995. Net sales from the Company's hot rolled steel bar business for the three and six months ended April 30, 1996, were $73.1 million and $134.6 million, respectively, representing increases of $1.7 million, or 2%, and $814 thousand, or 1%, respectively, when compared to the same periods last year. Average selling price for the second quarter declined approximately 3% which is attributable to slightly weaker conditions in the durable goods markets. 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 six months ended April 30, 1996, were $44.0 million and $81.7 million, respectively, representing decreases of $5.6 million, or 11%, and $11.3 million, or 12%, respectively, when compared to the same periods last year. Business levels improved during the second quarter over the first quarter of fiscal 1996 as steel service centers returned to more normal buying patterns late in the quarter following a period of working down inventories. However, business remained below the all-time record levels experienced during the second quarter of 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 six months ended April 30, 1996, were $31.7 million and $61.8 million, respectively, representing increases of $119 thousand, or less than 1%, and $1.5 million, or 2%, respectively, when compared to the same periods last year. Average selling prices for the second quarter of fiscal 1996 increased by approximately 5% as compared to the second quarter of fiscal 1995 mostly due to product mix. Year-to-date average selling prices increased by approximately 4% as compared to the same prior year period partly due to product mix and continued strength in the seamless heat exchanger/condenser markets. Net sales from the Company's aluminum products business for the three and six months ended April 30, 1996, were $73.3 million and $137.2 million, respectively, representing decreases of $12.8 million, or 15%, and $17.1 million, or 11%, respectively, when compared to the same periods last year. Average selling price for the second quarter of fiscal 1996 was down approximately 18% as compared to the second quarter of fiscal 1995. Year-to-date average selling prices decreased by approximately 11% as compared to the same prior year period. Volumes for both the quarter and year-to-date are comparable to the same periods in fiscal 1995. Consolidated operating income for the three and six months ended April 30, 1996, was $15.2 million and $24.8 million, respectively, representing decreases of $2.0 million, or 12%, and $2.7 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 six months ended April 30, 1996, was $10.3 million and $17.7 million, respectively, representing increases of $282 thousand, or 3%, and $641 thousand, or 4%, respectively, when compared to the same periods last year. The improvement resulted principally from higher volume offset by lower average selling prices. Operating income from the Company's cold finished steel bar business for the three and six months ended April 30, 1996, was $2.8 million and $5.5 million, respectively, representing decreases of $1.3 million, or 31%, and $1.3 million, or 19%, respectively, when compared to the same periods last year. The decrease is attributable to lower volume and net sales. However, the second quarter of 1995 represented all-time performance records for volume, net sales, and operating income. Operating income from the Company's steel tube business for the three and six months ended April 30, 1996, was $2.4 million and $4.3 million, respectively, representing decreases of $603 thousand, or 20%, and $527 thousand, or 11%, respectively, when compared to the same periods last year. The decrease resulted primarily from lower margins. The quarter was also marginally affected by start-up costs at the NitroSteel division. Operating income from the Company's aluminum products business for the three and six months ended April 30, 1996, was $3.8 million and $5.4 million, respectively, representing decreases of $1.5 million, or 28%, and $4.0 million, or 43%, respectively, when compared to the same periods last year. The decreases were principally related to lower price spreads. Selling, general and administrative expenses decreased by $1.0 million, or 8%, and $1.7 million, or 7%, respectively, for the three and six months ended April 30, 1996, as compared to the same periods of 1995. However, as a percentage of net sales, selling, general and administrative expenses are essentially unchanged for both the quarter and year-to-date as compared to the same periods last year. (9) Item 2 - Management's Discussion and Analysis of Results of Operations and Financial Condition (Continued) 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 decreased by $759 thousand and $1.7 million, respectively, as compared to the first and second quarter of fiscal 1995. The 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 six months ended April 30, 1996, was $8.1 million and $9.7 million, respectively, as compared to $8.3 million and $9.5 million, respectively, for the same 1995 periods, after deducting preferred dividends of $1.5 million from the first and second quarters of fiscal 1995. Included in the six months ended April 30, 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 three and six months ended April 30, 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 three and six months ended April 30, 1996, was $1.5 million resulting from a loss on abandonment of idle assets. Included in "Other, net" for the three and six months ended April 30, 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 $342 thousand and $690 thousand, respectively, for the three and six months ended April 30, 1996, as compared to investment income of $213 thousand and an investment loss of $80 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 a $75 million unsecured revolving credit facility with a group of banks (the "Bank Agreement"). All borrowings under the Bank Agreement bear interest, at the option of the Company, at either floating prime or a reserve adjusted Eurodollar 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 April 30, 1996, there were $50.0 million of outstanding borrowings. The amount outstanding under the Bank Agreement increased during the quarter ended January 31, 1996, in order to fund the repurchase of the Company's remaining senior debt. 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. (10) Item 2 - Management's Discussion and Analysis of Results of Operations and Financial Condition (Continued) 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 April 30, 1996, the Company had commitments of $13 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 June 10, 1996, the Company announced that it had signed a letter of intent to acquire substantially all of the net assets of Piper Impact, Inc. ("Piper"). The ultimate transaction will be consummated pursuant to a definitive agreement to be negotiated between the Company and Piper. The Company intends to increase its present revolving credit facility of $75 million to $250 million in order to finance the Piper acquisition and its related working capital requirements together with the Company's other capital needs. The acquisition is expected to be completed in July 1996. 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 six months ended April 30, 1996, was $15.9 million as compared to $5.5 million during the six months ended April 30, 1995. The increase was principally due to lower working capital. INVESTMENT ACTIVITIES Net cash used by investment activities during the six months ended April 30, 1996, was $14.8 million as compared to net cash provided by investment activities of $38.7 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 six months ended April 30, 1995. Capital expenditures, net of retirements, for the six months ended April 30, 1996, were $12.0 million as compared to $14.9 million for the same 1995 period. The Company estimates that fiscal 1996 capital expenditures will approximate $40 to $50 million. FINANCING ACTIVITIES Cash used by financing activities for the six months ended April 30, 1996, was $8.0 million, principally consisting of $44.7 million for the early extinguishment of long-term debt, a $10.0 million reduction in notes payable and $4.1 million in common dividends. These uses of funds were mostly offset by long-term bank borrowings of $50.0 million. (11) PART II. OTHER INFORMATION Item 4 - Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------ On February 22, 1996, the Company held its regular Annual Meeting of Stockholders (the "Annual Meeting"). At the Annual Meeting, Gerald B. Haeckel and Michael J. Sebastian were elected as directors for a three year term. The following sets forth the number of shares that voted for and for which votes were withheld for the election of each of such persons: For Withheld ---------- -------- Gerald B. Haeckel 11,399,916 109,944 Michael J. Sebastian 11,401,598 108,263 In addition, at the Annual Meeting, the stockholders of the Company ratified the appointment of Deloitte & Touche LLP as the Company's independent auditors, approved an amendment to the Company's Deferred Compensation Plan and approved the 1996 Employee Stock Option and Restricted Stock Plan. The ratification of Deloitte & Touche LLP as the Company's independent auditors was approved with 11,410,291 votes cast for approval, 44,408 votes cast against and 55,106 abstentions. The amendment to the Deferred Compensation Plan was approved with 9,151,318 votes cast for approval, 429,961 votes cast against, 145,780 abstentions and 1,782,766 broker non-votes. The 1996 Employee Stock Option and Restricted Stock Plan was approved with 9,174,586 votes cast for approval, 443,801 votes cast against, 110,024 abstentions and 1,781,414 broker non-votes. 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. No reports on Form 8-K were filed by the Company during the quarter for which this report is being filed. (12) 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 June 10, 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 Six Months Ended April 30, April 30, ----------------- ----------------- 1996 1995 1996 1995 ------ ------ ------ ------ (Unaudited) (Unaudited) Income before extraordinary charge................$ 8,132 $ 9,822 $ 12,179 $ 14,475 Extraordinary charge - early extinguishment of debt - - (2,522) (2,021) ------ ------ ------ ------ Net income........................................ 8,132 9,822 9,657 12,454 Preferred dividend requirements................... - (1,483) - (2,967) Net income attributable to ------ ------ ------ ------ common stockholders.............................$ 8,132 $ 8,339 $ 9,657 $ 9,487 ====== ====== ====== ====== Weighted average shares outstanding-primary............................. 13,641 13,601 13,614 13,580 ====== ====== ====== ====== Earnings per common share: Primary: Earnings before extraordinary charge........... 0.60 0.62 0.90 0.85 Extraordinary charge........................... - - (0.19) (0.15) ------ ------ ------ ------ Earnings per common share.................... 0.60 0.62 0.71 0.70 ====== ====== ====== ====== Income before extraordinary charge................$ 8,132 $ 9,822 $ 12,179 $ 14,475 Interest on 6.88% convertible subordinated debentures and amortization of related issuance costs, net of applicable income taxes.......... 891 - 1,784 - ------ ------ ------ ------ Adjusted income before extraordinary charge 9,023 9,822 13,963 14,475 Extraordinary charge - early extinguishment of debt - - (2,522) (2,021) ------ ------ ------ ------ Adjusted net income after extraordinary charge.... 9,023 9,822 11,441 12,454 ====== ====== ====== ====== Weighted average shares outstanding-primary............................. 13,641 13,601 13,614 13,580 Effect of common stock equivalents arising from stock options...................... 23 12 43 23 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....................... 16,360 16,351 16,353 16,341 ====== ====== ====== ====== Earnings per common share: Assuming full dilution: Earnings before extraordinary charge........... 0.55 0.60 0.85 0.88 Extraordinary charge........................... - - (0.15) (0.12) ------ ------ ------ ------ Earnings per common share.................... 0.55 0.60 0.70 0.76 ====== ====== ====== ======
EX-27 3 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the balance sheet as of April 30, 1996 and the income statement for the three and six months ended April 30, 1996 and is qualified in its entirety by reference to such financial statements. 1,000 6-MOS OCT-31-1996 NOV-01-1995 APR-30-1996 38,276 0 100,193 0 94,188 240,919 538,721 285,749 541,291 130,726 138,195 6,760 0 0 170,052 541,291 407,113 407,113 359,100 359,100 0 0 5,140 20,999 8,820 12,179 0 2,522 0 9,657 0.710 0.700
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