-----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, BFWHKNzLGsLKsxmz7KDiybwyLuOZQeq9kjRYSWFKbSTuBjyrBdlrav3hxHqvQVDR v+FesloFIopmVt89IbKS9Q== 0000276889-97-000004.txt : 19970612 0000276889-97-000004.hdr.sgml : 19970612 ACCESSION NUMBER: 0000276889-97-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970430 FILED AS OF DATE: 19970611 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: 97622326 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 04/30/97 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 April 30, 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 April 30, 1997 - --------------------------------------- ------------------------------- Common Stock, par value $0.50 per share 13,728,987 QUANEX CORPORATION INDEX
Page No. Part I. Financial Information: Item 1: Financial Statements Consolidated Balance Sheets - April 30, 1997 and October 31, 1996 ................................... 1 Consolidated Statements of Income - Three and Six Months Ended April 30, 1997 and 1996................ 2 Consolidated Statements of Cash Flow - Six Months Ended April 30, 1997 and 1996 ...................... 3 Notes to Consolidated Financial Statements ............ 4-6 Item 2: Management's Discussion and Analysis of Results of Operations and Financial Condition .................... 7-12 Part II. Other Information Item 5: Other Information ..................................... 13 Item 6: Exhibits and Reports on Form 8-K ...................... 13
PART I. FINANCIAL INFORMATION Item 1. Financial Statements QUANEX CORPORATION CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
April 30, October 31, 1997 1996 ---------- ---------- (Unaudited) (Audited) ASSETS Current assets: Cash and equivalents ............................$ 34,809 $ 35,975 Accounts and notes receivable, net .............. 93,782 90,583 Inventories ..................................... 89,852 89,938 Deferred income taxes ........................... 9,971 10,019 Prepaid expenses ................................ 1,915 121 ---------- ---------- Total current assets .................... 230,329 226,636 Property, plant and equipment ..................... 656,500 620,058 Less accumulated depreciation and amortization ....(302,650) (284,723) ---------- ---------- Property, plant and equipment, net ................ 353,850 335,335 Goodwill, net ..................................... 82,793 84,343 Net assets of discontinued operations ............. - 7,217 Other assets ...................................... 17,314 17,152 ---------- ---------- $684,286 $670,683 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable ................................... $ - $ 5,575 Accounts payable ................................ 74,206 73,958 Income taxes payable ............................ 14,827 3,807 Accrued expenses ................................ 44,139 44,286 Current maturities of long-term debt ............ 402 - ---------- ---------- Total current liabilities ............... 133,574 127,626 Long-term debt .................................... 214,163 253,513 Deferred pension credits .......................... 11,839 11,827 Deferred postretirement welfare benefits .......... 28,509 28,033 Deferred income taxes ............................. 31,571 33,743 Other liabilities ................................. 19,812 20,000 ---------- ---------- Total liabilities ....................... 439,468 474,742 Stockholders' equity: Preferred stock, no par value ................... - - Common stock, $.50 par value .................... 6,863 6,795 Additional paid-in capital ...................... 97,464 94,251 Retained earnings ............................... 142,219 96,623 Unearned compensation ........................... (185) (185) Adjustment for minimum pension liability ........ (1,543) (1,543) ---------- ---------- Total stockholders' equity .............. 244,818 195,941 ---------- ---------- $684,286 $670,683 ========== ==========
(1) QUANEX CORPORATION CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts)
Three Months Ended Six Months Ended April 30 April 30 ---------------- ---------------- 1997 1996 1997 1996 ------- ------- ------ ------- (Unaudited) Net sales............................ $217,058 $174,316 $411,992 $325,463 Cost and expenses: Cost of sales...................... 187,451 150,994 360,464 284,087 Selling, general and administrative expense.......... 12,504 10,950 24,818 21,999 ------- ------- ------- ------- Operating income..................... 17,103 12,372 26,710 19,377 Other income (expense): Interest expense................... (4,917) (2,260) (9,768) (5,140) Capitalized interest............... 764 78 1,382 127 Other, net......................... 85 1,031 (299) 1,163 Income from continuing operations ------- ------- ------- ------- before income taxes............... 13,035 11,221 18,025 15,527 Income tax expense................... (4,561) (4,713) (6,308) (6,522) ------- ------- ------- ------- Income from continuing operations.... 8,474 6,508 11,717 9,005 Income from discontinued operations, net of income taxes............... 616 1,624 1,699 3,174 Gain on sale of discontinued operations, net of income taxes... 36,290 - 36,290 - ------- ------- ------- ------- Income before extraordinary charge... 45,380 8,132 49,706 12,179 Extraordinary charge - early extinguishment of debt.......... - - - (2,522) ------- ------- ------- ------- Net income........................... $ 45,380 8,132 $ 49,706 9,657 ======= ======= ======= ======= Earnings per common share: Primary: Continuing operations.......... $ 0.61 $ 0.48 $ 0.84 $ 0.67 Discontinued operations........ 0.04 0.12 0.12 0.23 Gain on sale of discontinued operations.................. 2.60 - 2.60 - Extraordinary charge........... - - - (0.19) ------- ------- ------- ------- Total primary net earnings..... $ 3.25 $ 0.60 $ 3.56 $ 0.71 ======= ======= ======= ======= Fully diluted: Continuing operations.......... $ 0.57 $ 0.45 $ 0.83 $ 0.66 Discontinued operations........ 0.03 0.10 0.10 0.19 Gain on sale of discontinued operations.................. 2.18 - 2.18 - Extraordinary charge........... - - - (0.15) ------- ------- ------- ------- Total assuming full dilution... $ 2.78 $ 0.55 $ 3.11 $ 0.70 ======= ======= ======= ======= Weighted average shares outstanding: Primary........................... 13,965 13,641 13,939 13,614 ======= ======= ======= ======= Assuming full dilution............ 16,661 16,360 16,635 16,353 ======= ======= ======= =======
(2) QUANEX CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOW (In thousands)
Six Months Ended April 30, -------------------- 1997 1996 ------ ------ (Unaudited) Operating activities: Net income..............................................$49,706 $ 9,657 Adjustments to reconcile net income to cash provided by operating activities: Income from discontinued operations.................. (1,699) (3,174) Gain on sale of discontinued operations..............(36,290) - Depreciation and amortization........................ 20,437 17,656 Deferred income taxes................................ (2,172) (4,237) Deferred pension costs............................... 12 (486) Deferred postretirement welfare benefits............. 476 584 ------ ------ 30,470 20,000 Changes in assets and liabilities net of effects from acquisitions and dispositions: Decrease (increase) in accounts and notes receivable (3,199) 4,512 Decrease (increase) in inventory.................... 86 (9,190) Increase (decrease) in accounts payable............. 248 (7,812) Increase (decrease) in accrued expenses............. (147) 515 Other, net.......................................... (4,072) 2,326 ------ ------ Cash provided by continuing operations............ 23,386 10,351 Cash provided by (used in) discontinued operations (4,630) 5,500 ------ ------ Cash provided by operating activities............. 18,756 15,851 Investment activities: Proceeds from the sale of discontinued operations...... 63,900 - Capital expenditures of continuing operations net of retirements.................................. (36,970) (8,298) Capital expenditures of discontinued operations........ (685) (3,673) Other, net............................................. (6,169) (2,781) ------ ------ Cash provided by (used in) investment activities 20,076 (14,752) Cash provided by operating and ------ ------ investment activities..................... 38,832 1,099 Financing activities: Notes payable borrowings (repayments).................. - (10,000) Purchase of Senior Notes............................... - (44,667) Bank borrowings (repayments)........................... (40,000) 50,000 Common dividends paid.................................. (4,110) (4,055) Other, net............................................. 4,112 684 ------ ------ Cash used by financing activities.............. (39,998) (8,038) Decrease in cash and equivalents......................... (1,166) (6,939) Cash and equivalents at beginning of period.............. 35,975 45,205 ------ ------ Cash and equivalents at end of period.................... $34,809 $38,266 ====== ====== Supplemental disclosure of cash flow information: Cash paid during the period for: Interest................................................. $10,127 $ 5,369 Income taxes............................................. 11,269 273
(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: April 30, October 31, 1997 1996 ------- ------- (In thousands) Raw materials ......................... $26,307 $28,426 Finished goods and work in process..... 54,776 52,768 ------- ------- 81,083 81,194 Other.................................. 8,769 8,744 ------- ------- $89,852 $89,938 ======= ======= The values of inventories in the consolidated balance sheets are based on the following accounting methods: LIFO...................................... $65,299 $69,234 FIFO...................................... 24,553 20,704 ------- ------- $89,852 $89,938 ======= =======
With respect to inventories valued using the LIFO method, replacement cost exceeded the LIFO value by approximately $18 million at April 30, 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 April 30, 1997, the Company had $120 million outstanding under the Revolver and no outstanding term loans. 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 April 1997, the Company completed the sale of its LaSalle Steel Company ("LaSalle") subsidiary. LaSalle's results of operations 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". Net sales and income from discontinued operations are as follows:
Three Months Ended Six Months Ended April 30, April 30, ------------------- --------------------- 1997 1996 1997 1996 ------ ------ ------ ------ (In thousands) Net sales................... $28,485 $44,025 $66,733 $81,650 Income before income taxes.. 949 2,800 2,615 5,472 Income tax expense.......... (333) (1,176) (916) (2,298) Net income.................. 616 $ 1,624 $ 1,699 $ 3,174
October 31, 1996 -------------- (In thousands) Net Assets of Discontinued Operations Current assets............................. $36,702 Property, plant and equipment, net......... 16,211 Other assets............................... 1,827 Current liabilities........................ (25,440) Deferred pension credits................... (5,466) Deferred postretirement welfare benefits... (27,595) Deferred income taxes...................... 9,710 Adjustment for minimum pension liability... 1,268 ------- Net assets of discontinued operations... $ 7,217 =======
5.Subsequent Event - ------------------ In May 1997, the Company entered into a non-binding letter of intent to purchase Advanced Metal Forming C.V., a Netherlands based manufacturer of impact extruded automotive air bag products. The transaction is subject to various conditions, including the completion of due diligence, the receipt of all regulatory and governmental approvals and the negotiation and execution of a definitive agreement. Although there can be no assurance that the transaction will close, the Company anticipates that the transaction will close in the Company's fiscal fourth quarter. (5) QUANEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 6. Industry Segment Information - -------------------------------- Quanex is principally a specialized metals and metal products producer. The company's continuing operations primarily consist of three segments: hot rolled steel bars, steel tubes and aluminum products.
Corporate Three Months Ended Hot Rolled Steel Aluminum and Consoli- April 30, 1997 Steel Bars Tubes Products(1) Other(2) dated ------------------ ---------- ---------- ---------- ---------- ---------- (in thousands) Units shipped: To unaffiliated companies 145.0 Tons 25.9 Tons 71,946 Lbs. Intersegment............ 6.2 - - ------- ------- ------- Total.................... 151.2 Tons 25.9 Tons 71,946 Lbs. ======= ======= ======= Net Sales: To unaffiliated companies $76,859 $32,231 $107,968 - $217,058 Intersegment(3)......... 3,630 - - $(3,630) - ------- ------- ------- ------- ------- Total.................... $80,489 $32,231 $107,968 $(3,630) $217,058 ======= ======= ======= ======= ======= Operating income (loss).. $12,796 $ 2,151 $ 4,614 $(2,458) $ 17,103 ======= ======= ======= ======= =======
Corporate Three Months Ended Hot Rolled Steel Aluminum and Consoli- April 30, 1996 Steel Bars Tubes Products Other(2) dated ------------------ ---------- ---------- ---------- ---------- ---------- Units shipped: To unaffiliated companies 127.7 Tons 24.2 Tons 59,833 Lbs. Intersegment............ 6.5 - - ------- ------- ------- Total.................... 134.2 Tons 24.2 Tons 59,833 Lbs. ======= ======= ======= Net Sales: To unaffiliated companies $69,375 $31,661 $73,280 - $174,316 Intersegment(3)......... 3,715 - - $(3,715) - ------- ------- ------- ------- ------- Total.................... $73,090 $31,661 $73,280 $(3,715) $174,316 ======= ======= ======= ======= ======= Operating income (loss).. $10,340 $ 2,382 $ 3,766 $(4,116) $ 12,372 ======= ======= ======= ======= =======
Corporate Six Months Ended Hot Rolled Steel Aluminum and Consoli- April 30, 1997 Steel Bars Tubes Products(1) Other(2) dated ---------------- ---------- ---------- ---------- ---------- ---------- Units shipped: To unaffiliated companies 270.5 Tons 49.9 Tons 136,734 Lbs. Intersegment............ 12.5 - - ------- ------- ------- Total.................... 283.0 Tons 49.9 Tons 136,734 Lbs. ======= ======= ======= Net Sales: To unaffiliated companies $143,976 $60,288 $207,728 - $411,992 Intersegment(3)......... 7,367 - - $ (7,367) - ------- ------- ------- ------- ------- Total.................... $151,343 $60,288 $207,728 $ (7,367) $411,992 ======= ======= ======= ======= ======= Operating income (loss).. $ 21,941 $ 2,447 $ 8,603 $ (6,281) $ 26,710 ======= ======= ======= ======= =======
Corporate Six Months Ended Hot Rolled Steel Aluminum and Consoli- April 30, 1996 Steel Bars Tubes Products Other(2) dated ---------------- ---------- ---------- ---------- ---------- ---------- Units shipped: To unaffiliated companies 230.9 Tons 47.1 Tons 109,466 Lbs. Intersegment............ 14.1 - - ------- ------- ------- Total.................... 245.0 Tons 47.1 Tons 109,466 Lbs. ======= ======= ======= Net Sales: To unaffiliated companies $126,483 $61,811 $137,169 - $325,463 Intersegment(3)......... 8,158 - - $ (8,158) - ------- ------- ------- ------- ------- Total.................... $134,641 $61,811 $137,169 $ (8,158) $325,463 ======= ======= ======= ======= ======= Operating income (loss).. $ 17,675 $ 4,337 $ 5,417 $ (8,052) $ 19,377 ======= ======= ======= ======= =======
(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 April 1997, the Company completed the sale of its LaSalle Steel Company ("LaSalle") subsidiary. LaSalle's results of operations 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 and second quarters of fiscal 1997 as compared to the same periods 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 Impact") 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 Impact in August 1996 is expected to result in higher fiscal 1997 sales through the third fiscal quarter and, assuming no material declines in the markets in which it serves, be accretive to fiscal 1997 earnings. The sale of LaSalle in April 1997 will affect income for the remainder of fiscal 1997 by the difference between the amount LaSalle would have earned and the reduction in interest expense as a result of the repayment of debt with the net 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 four businesses:
Three Months Ended Six Months Ended April 30, April 30, ------------------ ------------------ 1997 1996 1997 1996 ------ ------- ------ ------- (In thousands) Hot Rolled Steel Bars: Units shipped (Tons)............ 151.2 134.2 283.0 245.0 Net Sales....................... $ 80,489 $ 73,090 $151,343 $134,641 Operating income................ $ 12,796 $ 10,340 $ 21,941 $ 17,675 Depreciation and amortization... $ 3,405 $ 4,590 $ 6,810 $ 9,180 Identifiable assets............. $175,381 $170,779 $175,381 $170,779 Steel Tubes: Units shipped (Tons)............ 25.9 24.2 49.9 47.1 Net Sales....................... $ 32,231 $ 31,661 $ 60,288 $ 61,811 Operating income................ $ 2,151 $ 2,382 $ 2,447 $ 4,337 Depreciation and amortization... $ 617 $ 583 $ 1,244 $ 1,178 Identifiable assets............. $ 47,336 $ 43,839 $ 47,336 $ 43,839 Aluminum Products: Units shipped (Pounds).......... 71,946 59,833 136,734 109,466 Net Sales....................... $107,968 $ 73,280 $207,728 $137,169 Operating income................ $ 4,614 $ 3,766 $ 8,603 $ 5,417 Depreciation and amortization... $ 5,968 $ 3,454 $ 12,038 $ 6,937 Identifiable assets............. $417,078 $227,862 $417,078 $227,862
Consolidated net sales for the three and six months ended April 30, 1997, were $217.1 million and $412.0 million, respectively, representing increases of $42.7 million, or 25%, and $86.5 million, or 27%, respectively, when compared to the same periods last year. The improvement principally reflects the inclusion of Piper Impact sales and improved sales volume in the Company's hot rolled steel bar business. Net sales from the Company's hot rolled steel bar business for the three and six months ended April 30, 1997, were $80.5 million and $151.3 million, respectively, representing increases of $7.4 million, or 10%, and $16.7 million, or 12%, respectively, when compared to the same periods last year. The improvements were primarily due to sales volume increases of 13% and 16%, respectively, for the three and six months ended April 30, 1997, as compared to the same prior year periods. The hot rolled steel bar business sales volume increase is principally due to the continued market strength in the durable goods market, particularly transportation and capital goods, and to the Company's product quality and delivery performance. Net sales from the Company's steel tube business for the three and six months ended April 30, 1997, were $32.2 million and $60.3 million, respectively, representing an increase of $570 thousand and a decrease of $1.5 million, respectively, when compared to the same periods last year. Product pricing pressure continued, however, demand for mechanical, pipe and heat exchanger products was improved during the second fiscal quarter of 1997. (8) Item 2 - Management's Discussion and Analysis of Results of Operations and Financial Condition (Continued) Net sales from the Company's aluminum products business for the three and six months ended April 30, 1997, were $108.0 million and $207.7 million, respectively, representing increases of $34.7 million, or 47%, and $70.6 million, or 51%, respectively, when compared to the same periods last year. These increases are principally due to the acquisition of Piper Impact in August 1996 and were partially offset by substantially lower aluminum prices. Net sales were also higher for the three and six months ended April 30, 1997, compared to the same periods last year, due to increased sales volume of aluminum flat roll. Consolidated operating income for the three and six months ended April 30, 1997, was $17.1 million and $26.7 million, respectively, representing increases of $4.7 million, or 38%, and $7.3 million, or 38%, respectively, when compared to the same periods last year. This increase was primarily due to the inclusion of Piper Impact's results and improved operating income in the hot rolled steel bar business. Operating income from the Company's hot rolled steel bar business for the three and six months ended April 30, 1997, was $12.8 million and $21.9 million, respectively, representing increases of $2.5 million, or 24%, and $4.3 million, or 24%, respectively, when compared to the same periods last year. These improvements were attributable to higher sales for both the quarter and year-to-date due to increased capacity and strong demand. Operating income from the Company's steel tube business for the three and six months ended April 30, 1997, was $2.2 million and $2.4 million, respectively, representing decreases of $231,000, or 10%, and $1.9 million, or 44%, respectively, when compared to the same periods last year. Profitability improved during the second quarter of fiscal 1997 compared to the first quarter but still remained below prior year levels primarily due to weaker selling prices and a depressed boiler tube market. Operating income from the Company's aluminum products business for the three and six months ended April 30, 1997, was $4.6 million and $8.6 million, respectively, representing increases of $848,000, or 23%, and $3.2 million, or 59%, respectively, when compared to the same periods last year. Improvement in this segment reflects the acquisition of Piper Impact and were offset by lower aluminum prices. Selling, general and administrative expenses increased by $1.6 million, or 14%, and $2.8 million, or 13%, respectively, for the three and six months ended April 30, 1997, as compared to the same periods of last year, primarily due to the inclusion of Piper Impact's selling, general and administrative expenses. However, as a percentage of net sales, selling, general and administrative expenses were 5.8% and 6.0%, respectively, for the three and six months ended April 30, 1997, compared to 6.3% and 6.8%, respectively, in the same prior year periods. Interest expense increased by $2.7 million and $4.6 million, respectively, for the three and six months ended April 30, 1997, as compared to the same periods of 1996 primarily as a result of increased bank borrowings associated with the Piper Impact acquisition. This increased interest expense was 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. (9) Item 2 - Management's Discussion and Analysis of Results of Operations and Financial Condition (Continued) Income from continuing operations for the three and six months ended April 30, 1997, was $8.5 million and $11.7 million, respectively, as compared to $6.5 million and $9.0 million for the same prior year periods. The improvements were principally attributable to the inclusion of the results of Piper Impact and improved results at the Company's MacSteel division. Included in "Other, net" for the three months ended April 30, 1997 was a life insurance gain of approximately $400,000. Included in "Other, net" for the three months ended April 30, 1996, was a $2.3 million pretax gain related to the final recovery of a business interruption claim. Also included in "Other, net" for the three months ended April 30, 1996, was $1.5 million resulting from a loss on abandonment of idle assets. Capitalized interest increased to $764,000 and $1.4 million, respectively, for the three and six months ended April 30, 1997, compared to $78,000 and $127,000 for the same periods last year due to ongoing construction related to the expansion programs at MacSteel and Piper Impact. Income taxes were applied at the Company's expected annual effective rate. The Company's effective income tax rate was 35% for the first and second quarters of fiscal 1997 compared to 42% in both prior year periods. Income from discontinued operations, net of income taxes, for the three and six months ended April 30, 1997, was $616,000 and $1.7 million, respectively, as compared to $1.6 million and $3.2 million for the same periods in 1996. The decrease was primarily attributable to lower margins between selling prices and raw material costs, partly offset by higher sales volume. Included in net income for the three and six months ended April 30, 1997, is an after-tax gain of $36.3 million on the sale of discontinued operations. 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 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. New borrowings under the Bank Agreement may not be made after July 23, 2001. The Bank Agreement also 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 April 30, 1997). Differentials to be paid or received under the agreements are recognized as interest expense. Payments under the swap agreements are tied to the interest periods for the borrowings under the Bank Agreement. The swap 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 April 30, 1997, there were $120 million of outstanding Revolver borrowings and no term loans outstanding. (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 bank borrowings. 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 Impact. 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. On April 18, 1997, the Company completed the sale of LaSalle for approximately $65 million in cash. The proceeds were used to pay down the Company's Revolver. At April 30, 1997, the Company had commitments of $22 million for the purchase or construction of capital assets, primarily relating to the Company's continued expansions at MacSteel and Piper Impact. The Company plans to fund these capital expenditures 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 provided by operating activities during the six months ended April 30, 1997, was $18.8 million as compared to $15.9 million during the six months ended April 30, 1996. The increase was principally due to improved income and higher depreciation, partially offset by increased cash used by discontinued operations. Investment Activities Net cash provided by investment activities during the six months ended April 30, 1997, was $20.1 million as compared to cash used in investment activities of $14.8 million for the same 1996 period. The increase in cash provided by investment activities was principally due to proceeds from the sale of LaSalle, and was partly offset by increased capital expenditures and payment of the remaining notes related to the Piper Impact acquisition. The Company estimates that fiscal 1997 capital expenditures will be approximately $70 to $80 million. (11) Item 2 - Management's Discussion and Analysis of Results of Operations and Financial Condition (Continued) Financing Activities Cash used in financing activities for the six months ended April 30, 1997, was $40.0 million, principally consisting of $40.0 million of repayments of bank borrowings from proceeds of the LaSalle sale. Cash used in 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 the payment of $4.1 million in common dividends and was offset by long-term bank borrowings of $50.0 million. 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 Impact, 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. (12) PART II. OTHER INFORMATION Item 4 - Submission of Matters to a Vote of Security Holders. On February 27, 1997, the Company held its regular Annual Meeting of Stockholders (the "Annual Meeting"). At the Annual Meeting, John D. O'Connell, Robert C. Snyder, and Vernon E. Oechsle 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 of each of such persons: For Withheld John D. O'Connell 11,005,824 858,396 Robert C. Snyder 11,008,316 855,902 Vernon E. Oechsle 11,006,057 858,162 In addition, at the Annual Meeting, the stockholders of the Company ratified the appointment of Deloitte & Touche LLP as the Company's independent auditors and approved to amend the Company's Restated Certificate of Incorporation to increase the number of authorized shares of the Company's common stock, $.50 par value, from 25,000,000 shares to 50,000,000 shares. The ratification of Deloitte & Touche LLP as the Company's independent auditors was approved with 11,776,615 votes cast for approval, 25,008 votes cast against, and 62,594 abstentions. The amendment to the Company's Restated Certificate of Incorporation was approved with 10,718,920 votes cast for approval, 1,078,157 votes cast against, and 67,137 abstentions. Item 5 - Other Information. None Item 6 - Exhibits and Reports on Form 8-K. Exhibit 11 - Statement re computation of earnings per share. Exhibit 27 - Financial Data Schedule A Report on Form 8-K was filed by the Company on May 5, 1997, regarding the completion of the sale of its LaSalle Steel subsidiary and containing certain pro forma financial statements of the Company and notes thereto regarding the sale. (13) 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 12, 1997 - ------------------- (14) 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 from continuing operations................. $ 8,474 $ 6,508 $ 11,717 $ 9,005 Income from discontinued operations, net of income taxes................................... 616 1,624 1,699 3,174 Gain on sale of discontinued operations, net of income taxes................................ 36,290 - 36,290 - ------ ------ ------ ------ Income before extraordinary charge................ 45,380 8,132 49,706 12,179 Extraordinary charge - early extinguishment of debt - - - (2,522) ------ ------ ------ ------ Net income........................................ $45,380 $ 8,132 $ 49,706 $ 9,657 ====== ====== ====== ====== Weighted average shares outstanding-primary............................. 13,965 13,641 13,939 13,614 ====== ====== ====== ====== Earnings per common share: Primary: Income from continuing operations.............. $ 0.61 $ 0.48 $ 0.84 $ 0.67 Income from discontinued operations............ 0.04 0.12 0.12 0.23 Gain on sale of discontinued operations........ 2.60 - 2.60 - Extraordinary charge........................... - - - (0.19) ------ ------ ------ ------ Earnings per common share.................... $ 3.25 $ 0.60 $ 3.56 $ 0.71 ====== ====== ====== ====== Income from continuing operations.................$ 8,474 $ 6,508 $ 11,717 $ 9,005 Income from discontinued operations, net of income taxes................................... 616 1,624 1,699 3,174 Gain on sale of discontinued operations, net of income taxes................................ 36,290 - 36,290 - ------ ------ ------ ------ Income before extraordinary charge................ 45,380 8,132 49,706 12,179 Extraordinary charge - early extinguishment of debt - - - (2,522) ------ ------ ------ ------ Net income........................................ 45,380 8,132 49,706 9,657 Interest on 6.88% convertible subordinated debentures and amortization of related issuance costs, net of applicable income taxes.......... 999 891 1,998 1,784 ------ ------ ------ ------ Adjusted net income...............................$ 46,379 $ 9,023 $ 51,704 $ 11,441 Weighted average shares outstanding-primary............................. 13,965 13,641 13,939 13,614 Effect of common stock equivalents arising from stock options...................... - 23 - 43 Subordinated debentures assumed converted to common stock................................. 2,696 2,696 2,696 2,696 Weighted average shares ------ ------ ------ ------ outstanding-fully diluted....................... 16,661 16,360 16,635 16,353 ====== ====== ====== ====== Earnings per common share: Assuming full dilution: Income from continuing operations.............. $ 0.57 $ 0.45 $ 0.83 $ 0.66 Income from discontinued operations............ 0.03 0.10 0.10 0.19 Gain on sale of discontinued operations........ 2.18 - 2.18 - Extraordinary charge........................... - - - (0.15) ------ ------ ------ ------ Earnings per common share.................... $ 2.78 $ 0.55 $ 3.11 $ 0.70 ====== ====== ====== ======
EX-27 3 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the balance sheet as of April 30, 1997 and the income statement for the three and six months ended April 30, 1997 and is qualified in its entirety by reference to such financial statements. 1,000 6-MOS OCT-31-1997 NOV-01-1996 APR-30-1997 34,809 0 93,782 0 89,852 230,329 656,500 302,650 684,286 133,574 214,163 0 0 6,863 237,955 684,286 411,992 411,992 360,464 360,464 0 0 9,768 18,025 6,308 11,717 1,699 36,290 0 49,706 3.560 3.110
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