-----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, UThaI6Rm/uVdQ+6WwM0sueHz+JZVzEh4Vw1zSVXTwDO846C0+t+oJE6MFfBP6XTm F15ePeJCAnWtuVJ/OhXS7w== 0000276889-97-000002.txt : 19970312 0000276889-97-000002.hdr.sgml : 19970312 ACCESSION NUMBER: 0000276889-97-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970131 FILED AS OF DATE: 19970311 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: 97554614 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 01/31/97 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 January 31, 1997 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 January 31, 1997 - --------------------------------------- ------------------------------- Common Stock, par value $0.50 per share 13,677,576 QUANEX CORPORATION INDEX
Page No. Part I. Financial Information: Item 1: Financial Statements Consolidated Balance Sheets - January 31, 1997 and October 31, 1996 .................................. 1 Consolidated Statements of Income - Three Months Ended January 31, 1997 and 1996 ................... 2 Consolidated Statements of Cash Flow - Three Months Ended January 31, 1997 and 1996 ................... 3 Notes to Consolidated Financial Statements ............ 4-6 Item 2: Management's Discussion and Analysis of Results of Operations and Financial Condition .................... 7-11 Part II. Other Information Item 5: Other Information ..................................... 12 Item 6: Exhibits and Reports on Form 8-K ...................... 12
PART I. FINANCIAL INFORMATION Item 1. Financial Statements QUANEX CORPORATION CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
January 31, October 31, 1997 1996 ---------- ---------- (Unaudited) (Audited) ASSETS Current assets: Cash and equivalents ............................$ 37,192 $ 35,975 Accounts and notes receivable, net .............. 82,736 90,583 Inventories ..................................... 89,845 89,938 Deferred income taxes ........................... 9,988 10,019 Prepaid expenses ................................ 2,113 121 ---------- ---------- Total current assets .................... 221,874 226,636 Property, plant and equipment ..................... 638,273 620,058 Less accumulated depreciation and amortization ....(294,006) (284,723) ---------- ---------- Property, plant and equipment, net ................ 344,267 335,335 Goodwill, net ..................................... 83,568 84,343 Net assets of discontinued operations ............. 17,822 7,217 Other assets ...................................... 17,140 17,152 ---------- ---------- $684,671 $670,683 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable ................................... $ - $ 5,575 Accounts payable ................................ 66,309 73,958 Income taxes payable ............................ 5,991 3,807 Accrued expenses ................................ 34,788 44,286 Current maturities of long-term debt ............ 402 - ---------- ---------- Total current liabilities ............... 107,490 127,626 Long-term debt .................................... 284,052 253,513 Deferred pension credits .......................... 11,931 11,827 Deferred postretirement welfare benefits .......... 28,391 28,033 Deferred income taxes ............................. 32,441 33,743 Other liabilities ................................. 19,861 20,000 ---------- ---------- Total liabilities ....................... 484,166 474,742 Stockholders' equity: Preferred stock, no par value ................... - - Common stock, $.50 par value .................... 6,839 6,795 Additional paid-in capital ...................... 96,496 94,251 Retained earnings ............................... 98,898 96,623 Unearned compensation ........................... (185) (185) Adjustment for minimum pension liability ........ (1,543) (1,543) ---------- ---------- Total stockholders' equity .............. 200,505 195,941 ---------- ---------- $684,671 $670,683 ========== ==========
(1) QUANEX CORPORATION CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts)
Three Months Ended January 31, ----------------------------- 1997 1996 ----------- ---------- (Unaudited) Net sales ............................................. $194,934 $151,147 Cost and expenses: Cost of sales ....................................... 173,013 133,093 Selling, general and administrative expense ......... 12,314 11,049 ----------- ---------- Operating income ...................................... 9,607 7,005 Other income (expense): Interest expense .................................... (4,851) (2,880) Capitalized interest ................................ 618 49 Other, net .......................................... (384) 132 ----------- ---------- Income from continuing operations before income taxes.. 4,990 4,306 Income tax expense .................................... (1,747) (1,809) ----------- ---------- Income from continuing operations ..................... 3,243 2,497 Income from discontinued operations, net of income taxes ....................................... 1,083 1,550 ----------- ---------- Income before extraordinary charge .................... 4,326 4,047 Extraordinary charge - early extinguishment of debt ... - (2,522) ----------- ---------- Net income ............................................ $ 4,326 $ 1,525 =========== ========== Earnings per common share: Continuing operations .............................. $ 0.23 $ 0.18 Discontinued operations ............................ 0.08 0.12 Extraordinary charge ............................... - (0.19) ----------- ---------- Net earnings per share .......................... $ 0.31 $ 0.11 =========== ========== Weighted average shares outstanding ................... 13,932 13,595 =========== ==========
(2) QUANEX CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOW (In thousands)
Three Months Ended January 31, ------------------------------ 1997 1996 --------- --------- (Unaudited) Operating activities: Net income ................................................... $ 4,326 $ 1,525 Adjustments to reconcile net income to cash provided by continuing operations: Income from discontinued operations ..................... (1,083) (1,550) Depreciation and amortization ........................... 10,275 8,927 Deferred income taxes ................................... (1,302) (1,730) Deferred pension costs .................................. 104 (485) Deferred postretirement welfare benefits ................ 358 277 --------- --------- 12,678 6,964 Changes in assets and liabilities net of effects from acquisitions and dispositions: Decrease in accounts and notes receivable ............... 7,847 8,181 Decrease (increase) in inventory ........................ 93 (11,884) Decrease in accounts payable ............................ (7,649) (13,254) Decrease in accrued expenses ............................ (9,498) (5,237) Other, net .............................................. 84 1,323 --------- --------- Cash provided by (used in) continuing operations ..... 3,555 (13,907) Cash used in discontinued operations ................. (9,414) (3,192) --------- --------- Cash used in operating activities .................... (5,859) (17,099) Investment activities: Capital expenditures, net of retirements ..................... (18,215) (3,573) Capital expenditures of discontinued operations .............. (108) (929) Other, net ................................................... (5,780) 15 --------- --------- Cash used in investment activities ................. (24,103) (4,487) Cash used in operating and --------- --------- investment activities ........................... (29,962) (21,586) Financing activities: Notes payable repayments ..................................... - (10,000) Purchase of Senior Notes ..................................... - (44,667) Bank borrowings .............................................. 30,000 50,000 Common dividends paid ........................................ (2,051) (2,028) Other, net ................................................... 3,230 631 --------- --------- Cash provided by (used in) financing activities .... 31,179 (6,064) Increase (decrease) in cash and equivalents .................... 1,217 (27,650) Cash and equivalents at beginning of period .................... 35,975 45,205 --------- --------- Cash and equivalents at end of period .......................... $37,192 $17,555 ========= ========= Supplemental disclosure of cash flow information: Cash paid during the period for: Interest ....................................................... $ 6,448 $ 5,369 Income taxes ................................................... $ 1,140 $ 273
(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 1996 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 1997 classifications. 2. Inventories - --------------
Inventories consist of the following: January 31, October 31, 1997 1996 ---------- ---------- (In thousands) Raw materials .......................... $26,839 $28,426 Finished goods and work in process...... 54,619 52,768 ---------- --------- 81,458 81,194 Other................................... 8,387 8,744 ---------- --------- $89,845 $89,938 ========== ========= The values of inventories in the consolidated balance sheets are based on the following accounting methods: LIFO ................................... $67,442 $69,234 FIFO ................................... 22,403 20,704 ---------- ---------- $89,845 $89,938 ========== ==========
With respect to inventories valued using the LIFO method, replacement cost exceeded the LIFO value by approximately $16 million at January 31, 1997, and $15 million at October 31, 1996. 3. Long-Term Debt and Financing Arrangements - -------------------------------------------- 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 (i) the prime rate or the federal funds rate plus one percent, whichever is higher, or (ii) a Eurodollar based rate. At January 31, 1997, the Company had $190 million outstanding under the Revolver and no term loans outstanding. In December 1995, the Company acquired the remaining $44.7 million principal amount of its 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. (4) QUANEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 4. Discontinued Operations - --------------------------- In January 1997, the Company entered into a non-binding letter of intent to sell its LaSalle Steel Company ("LaSalle") subsidiary. Completion of the sale is expected to occur during the Company's second fiscal quarter. Accordingly, effective with the issuance of the first quarter 1997 financial statements, LaSalle's results of operations and net assets have been classified as discontinued operations and prior periods have been restated. For business segment reporting purposes, LaSalle's data was previously reported as the segment "Cold Finished Steel Bars". Income from discontinued operations for the three months ended January 31, 1997 and 1996, included revenues of $38.2 million and $37.6 million, respectively. Income from discontinued operations for the three months ended January 31, 1997 and 1996, is reported net of income taxes of $583,000 and $1.1 million, respectively. January 31, October 31, 1997 1996 ---------- ----------- (In thousands) Net Assets of Discontinued Operations ------------------------------------- Current assets............................. $42,607 $36,702 Property, plant and equipment, net......... 15,876 16,211 Other assets............................... 1,827 1,827 Current liabilities........................ (20,696) (25,440) Deferred pension credits................... (5,456) (5,466) Deferred postretirement welfare benefits... (27,743) (27,595) Deferred income taxes...................... 10,139 9,710 Adjustment for minimum pension liability... 1,268 1,268 ------- ------- Net assets of discontinued operations... $17,822 $ 7,217 ======= ======= (5) QUANEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 5. Industry Segment Information - ------------------------------- Quanex is principally a specialized metals and metal products producer. The Company's operations primarily consist of three segments: hot rolled steel bars, bars, steel tubes, and aluminum products.
Corporate Three Months Ended Hot Rolled Steel Aluminum and Consoli- January 31, 1997 Steel Bars Tubes Products(1) Other(2) dated ------------------ ---------- ---------- ---------- ---------- ---------- (in thousands) Units shipped: To unaffiliated companies 125.5 Tons 24.0 Tons 64,788 Lbs. Intersegment............ 6.3 - - ------- ------- ------- Total.................... 131.8 Tons 24.0 Tons 64,788 Lbs. ======= ======= ======= Net Sales: To unaffiliated companies $67,117 $28,057 $99,760 - $194,934 Intersegment(3)......... 3,737 - - $(3,737) - ------- ------- ------- ------- ------- Total.................... $70,854 $28,057 $99,760 $(3,737) $194,934 ======= ======= ======= ======= ======= Operating income (loss).. $ 9,145 $ 296 $ 3,989 $(3,823) $ 9,607 ======= ======= ======= ======= =======
Corporate Three Months Ended Hot Rolled Steel Aluminum and Consoli- January 31, 1996 Steel Bars Tubes Products Other(2) dated ------------------ ---------- ---------- ---------- ---------- ---------- Units shipped: To unaffiliated companies 103.2 Tons 22.9 Tons 49,633 Lbs. Intersegment............ 7.6 - - ------- ------- ------- Total.................... 110.8 Tons 22.9 Tons 49,633 Lbs. ======= ======= ======= Net Sales: To unaffiliated companies $57,108 $30,150 $63,889 - $151,147 Intersegment(3)......... 4,443 - - $(4,443) - ------- ------- ------- ------- ------- Total.................... $61,551 $30,150 $63,889 $(4,443) $151,147 ======= ======= ======= ======= ======= Operating income (loss).. $ 7,335 $ 1,955 $ 1,651 $(3,936) $ 7,005 ======= ======= ======= ======= =======
(1) 1997 includes Piper Impact, Inc. (2) Included in "Corporate and Other" are intersegment eliminations and corporate expenses. (3) Intersegment sales are conducted on an arm's-length basis. (6) Item 2 - Management's Discussion and Analysis of Results of Operations and Financial Condition RESULTS OF OPERATIONS - --------------------- The Company classifies its operations into three business segments: hot rolled 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 residential and commercial building industries. In January 1997, the Company entered into a non-binding letter of intent to sell its LaSalle Steel Company ("LaSalle") subsidiary. Completion of the sale is expected to occur during the Company's second fiscal quarter. Accordingly, effective with the issuance of the first quarter 1997 financial statements, LaSalle's results of operations and net assets have been classified as discontinued operations and prior periods have been restated. For business segment reporting purposes, LaSalle's data was previously classified as "Cold Finished Steel Bars". The Company's hot rolled steel business reflected improvements in net sales and operating income for the first quarter of fiscal 1997 as compared to the first quarter of fiscal 1996. The improvements were due primarily to higher sales volume. The improved results in the Company's hot rolled steel business reflect the benefits realized from the Company's capital improvement programs, which have allowed the Company to increase production, improve quality and manage manufacturing costs. The Company's aluminum products business achieved higher sales and operating income primarily due to the acquisition in August 1996 of Piper Impact, Inc. ("Piper") and its higher margin operations. The Company's Nichols-Homeshield Division 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 Company currently expects that overall business levels for the remainder of fiscal 1997 should be similar to those experienced during 1996. However, domestic and global market factors will impact the Company and any slowdown in the U.S. economy could affect demand and pricing for many of the Company's products. The acquisition of Piper is expected to result in higher fiscal 1997 sales and, assuming no material declines in the markets in which it serves, be accretive to earnings. Upon completion of the sale of LaSalle, income for the remainder of fiscal 1997 will be affected by the difference between the amount LaSalle would have earned and the income resulting from reinvestment of the proceeds from the sale. Improved financial results will be dependent upon, among other things, whether the continued strength of the economy can be sustained, improvements in the markets which the Company serves and improvement in the price spreads of aluminum products. (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 three business segments: Three Months Ended January 31, ----------------------- 1997 1996 ------- ------- (In thousands) Hot Rolled Steel Bars: Units shipped (Tons)...................... 131.8 110.8 Net Sales................................. $ 70,854 $ 61,551 Operating income.......................... $ 9,145 $ 7,335 Depreciation and amortization............. $ 3,405 $ 4,590 Identifiable assets....................... $169,444 $168,405 Steel Tubes: Units shipped (Tons)...................... 24.0 22.9 Net Sales................................. $ 28,057 $ 30,150 Operating income.......................... $ 296 $ 1,955 Depreciation and amortization............. $ 627 $ 595 Identifiable assets....................... $ 48,021 $ 43,857 Aluminum Products: Units shipped (Pounds).................... 64,788 49,633 Net Sales................................. $ 99,760 $ 63,889 Operating income.......................... $ 3,989 $ 1,651 Depreciation and amortization............. $ 6,070 $ 3,483 Identifiable assets....................... $405,124 $232,616 Consolidated net sales for the three months ended January 31, 1997, were $194.9 million representing an increase of $43.8 million, or 29% when compared to the same period last year. The increase was due principally to the inclusion of Piper's sales in 1997 and higher sales volumes in the hot rolled steel bar business. Net sales from the Company's hot rolled steel bar business for the three months ended January 31, 1997, were $70.9 million as compared to $61.6 million for the same 1996 period. This increase of $9.3 million, or 15% was attributable to a 19% increase in volume and was partially offset by a 3% decrease in average selling prices. The volume increase is principally due to continued market strength in durable goods, particularly transportation and capital goods. Net sales from the Company's steel tube business for the three months ended January 31, 1997, decreased 7% from $30.2 million in 1996 to $28.1 million for the first fiscal quarter of 1997. The decrease was attributable to 11% lower average selling prices partly offset by 5% higher volume. Lower selling prices were primarily attributable to price pressure in the welded tube market and a lower priced product mix. Net sales from the Company's aluminum products business for the three months ended January 31, 1997, were $99.8 million as compared to $63.9 million for the same 1996 period. This increase of $35.9 million, or 56%, was principally attributable to the inclusion of Piper's sales. Volume at the Company's Nichols-Homeshield division was up 20% for the first quarter of fiscal 1997 compared to same prior year period, while average selling prices were down 10% compared to last year. Aluminum prices were beginning to increase during the first quarter of fiscal 1997. (8) Item 2 - Management's Discussion and Analysis of Results of Operations and Financial Condition (Continued) Consolidated operating income for the three months ended January 31, 1997, was $9.6 million, representing an increase of $2.6 million, or 37%, when compared to the same period last year. This increase was primarily due to the inclusion of Piper's results and improved operating income in the hot rolled steel bar business, partly offset by lower operating income in the steel tubes business. Operating income from the Company's hot rolled steel bar business for the three months ended January 31, 1997, was $9.1 million as compared to $7.3 million for the same 1996 period. This increase of approximately 25% was due to higher volume and lower depreciation charges. Operating income from the Company's steel tube business for the three months ended January 31, 1997, was $296,000 as compared to $2.0 million for the same period last year. The decrease in operating income resulted from lower selling prices and a less profitable sales mix. Operating income from the Company's aluminum products business for the three months ended January 31, 1997, was $4.0 million as compared to $1.7 million for the same 1996 period. This increase resulted principally from the inclusion of Piper's results, partially offset by lower spreads at Nichols-Homeshield. Piper's results for the first quarter were affected by increased training and development costs associated with several new products. Selling, general and administrative expenses increased by $1.3 million, or 11%, for the three months ended January 31, 1997, as compared to the same period of 1996, primarily due to the inclusion of Piper's selling, general and administrative expenses. However, as a percentage of net sales, selling, general and administrative expenses were 6.3% in the first quarter of fiscal 1997 compared to 7.3% in the prior year period. Interest expense increased by $2.0 million, to $4.9 million, for the three months ended January 31, 1997, as compared to the same period of 1996 primarily as a result of increased bank borrowings associated with the Piper acquisition, partly offset by decreased expense due to the early extinguishment of the Company's remaining senior notes late in the first quarter of fiscal 1996. Net income for the three months ended January 31, 1997, was $4.3 million as compared to $1.5 million for the same 1996 period. The improvement was principally attributable to the inclusion of the results of Piper. Capitalized interest increased to $618,000 in the first quarter of fiscal 1997 compared to $49,000 for the same period last year due to ongoing construction related to the expansion programs at MacSteel and Piper. Income taxes were applied at the Company's expected annual effective rate. The Company's effective income tax rate was 35% for the first quarter of fiscal 1997 compared to 42% in the prior year period. Income from discontinued operations, net of income taxes, for the three months ended January 31, 1997, was $1.1 million as compared to $1.6 million for the same 1996 period. The decrease was primarily attributable to lower margins between selling prices and raw material costs, partly offset by higher sales volume. (9) Item 2 - Management's Discussion and Analysis of Results of Operations and Financial Condition (Continued) 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 (the "Old Bank 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 (i) the prime rate or the federal funds rate plus one percent, whichever is higher, or (ii) a Eurodollar based rate. In the fourth quarter of fiscal 1996, the Company entered into interest rate swap agreements, which effectively converted $100 million of its variable rate debt under the Bank Agreement to fixed rate. Under these agreements, payments are made based on a fixed rate ($50 million at 7.025%, and $50 million at 6.755%) and payments are received on a LIBOR based variable rate (5.53125% at January 31, 1997). Differentials to be paid or received under the agreements are recognized as interest expense. The agreements mature in 2003. 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 January 31, 1997, there were $190 million of outstanding Revolver borrowings. 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 Old Bank Agreement. 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. On August 9, 1996, the Company completed the acquisition of substantially all of the assets of Piper. Piper's assets, net of various liabilities, were acquired for approximately $130 million in cash, cash equivalents, and notes. This acquisition was financed with existing cash and bank borrowings. Subsequent to the acquisition, the Company's Board of Directors approved additional capital expenditures at Piper totaling approximately $55 million. These expenditures are expected to provide the capacity needed to supply major new customer programs phasing in over the next two years. (10) Item 2 - Management's Discussion and Analysis of Results of Operations and Financial Condition (Continued) At January 31, 1997, the Company had commitments of $27 million for the purchase or construction of capital assets, primarily relating to the Company's continued expansion at MacSteel and the expansion at Piper. The capital project at MacSteel also includes significant upgrades to pollution control systems to ensure compliance with EPA standards under the Clean Air Act. The MacSteel expansion is expected to cost approximately $60 million and is expected to be completed during fiscal year 1998. The Company plans to fund this capital investment through cash flow from operations and, if necessary, additional borrowings. The Company believes that it has sufficient funds and adequate financial sources available to meet its anticipated liquidity needs. The Company also believes that cash flow from operations, cash balances and available borrowings will be sufficient for the foreseeable future to finance anticipated working capital requirements, capital expenditures, debt service requirements, environmental expenditures and dividends. Operating Activities Cash used in operating activities during the three months ended January 31, 1997, was $5.9 million as compared to $17.1 million during the three months ended January 31, 1996. The decrease in cash used by operating activities was principally due to improved income and decreased working capital requirements, partially offset by increased cash used by discontinued operations. Investment Activities Net cash used in investment activities during the three months ended January 31, 1997, was $24.1 million as compared to $4.5 million for the same 1996 period. The increase in cash used by investment activities was principally due to increased capital expenditures and payment of the remaining notes related to the Piper acquisition. The Company estimates that fiscal 1997 capital expenditures will be approximately $70 to $80 million. Financing Activities Cash provided by financing activities for the three months ended January 31, 1997, was $31.2 million, principally consisting of $30.0 million of bank borrowings, offset by $2.1 million in common dividends paid. Private Securities Litigation Reform Act Certain forward looking information contained herein is being provided in accordance with the provisions of the Private Securities Litigation Reform Act. Such information is subject to certain assumptions and beliefs based on current information known to the Company and is subject to factors that could result in actual results differing materially from those anticipated in the forward looking statements contained in this report. Such factors include domestic and international economic activity, prevailing prices of steel and aluminum scrap and other raw material costs, interest rates, the continuation of countervailing import duties on certain of the Company's competitors, construction delays, market conditions for the Company's customers, any material changes in purchases by the principal customers of AMSCO and Piper, environmental regulations and changes in estimates of costs for known environmental remediation projects and situations, world-wide political stability and economic growth, the Company's successful implementation of its internal operating plans, performance issues with key customers, suppliers and subcontractors, and regulatory changes and legal proceedings. Accordingly, there can be no assurance that the forward-looking statements contained herein will occur or that objectives will be achieved. (11) PART II. OTHER INFORMATION Item 5 - Other Information - -------------------------- None Item 6 - Exhibits and Reports on Form 8-K. - ----------------------------------------- Exhibit 11 Statement re computation of per share earnings. Exhibit 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. 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 March 11, 1997 -------------- (12) 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 January 31, ------------------------------ 1997 1996 -------- --------- (Unaudited) Income from continuing operations .................... $3,243 $2,497 Income from discontinued operations, net of income taxes ...................................... 1,083 1,550 -------- --------- Income before extraordinary charge ................... 4,326 4,047 Extraordinary charge - early extinguishment of debt .. - (2,522) -------- --------- Net income ........................................... $4,326 $1,525 ======== ========= Weighted average shares outstanding-primary ................................ 13,932 13,595 ======== ========= Earnings per common share: Primary: Income from continuing operations ................ $ 0.23 $ 0.18 Income from discontinued operations .............. 0.08 0.12 Extraordinary charge ............................. - (0.19) -------- --------- Earnings per common share ...................... $ 0.31 $ 0.11 ======== ========= Income from continuing operations .................... $3,243 $2,497 Income from discontinued operations, net of income taxes ...................................... 1,083 1,550 -------- --------- Income before extraordinary charge ................... 4,326 4,047 Extraordinary charge - early extinguishment of debt .. - (2,522) -------- --------- Net income ........................................... $4,326 $1,525 ======== ========= Interest on 6.88% convertible subordinated debentures and amortization of related issuance costs, net of applicable income taxes .............. 999 893 -------- --------- Adjusted net income .................................. $5,325 $ 2,418 ======== ========= Weighted average shares outstanding-primary ................................ 13,932 13,595 Effect of common stock equivalents arising from stock options ......................... - 18 Subordinated debentures assumed converted to common stock .......................... 2,696 2,696 -------- --------- Weighted average shares outstanding-fully diluted .......................... 16,628 16,309 ======== ========= Earnings per common share: Assuming full dilution: Income from continuing operations ................ $ 0.26 $ 0.21 Income from discontinued operations .............. 0.07 0.10 Extraordinary charge ............................. - (0.15) -------- --------- Earnings per common share ...................... $ 0.33 $ 0.16 ======== =========
EX-27 3 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the balance sheet as of January 31, 1997 and the income statement for the three months ended January 31, 1997 and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS OCT-31-1997 NOV-01-1996 JAN-31-1997 37,192 0 82,736 0 89,845 221,874 638,273 294,006 684,671 107,490 284,052 0 0 6,839 193,666 684,671 194,934 194,934 173,013 173,013 0 0 4,851 4,990 1,747 3,243 1,083 0 0 4,326 0.310 0.330
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