-----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, JsdCOY1mB7/gy+Mxh1q/ZS4t5iqCXHo1f8Y7nA1A5cxw3TfEkuwln/TAcDiy4o5V 2t+CCmQYZlCBMYKjeeRTrg== 0000276889-97-000008.txt : 19970912 0000276889-97-000008.hdr.sgml : 19970912 ACCESSION NUMBER: 0000276889-97-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970731 FILED AS OF DATE: 19970829 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: SEC FILE NUMBER: 001-05725 FILM NUMBER: 97672633 BUSINESS ADDRESS: STREET 1: 1900 W LOOP SOUTH STE 1500 STREET 2: ATTN THOMAS M BEWLEY CITY: HOUSTON STATE: TX ZIP: 77027 BUSINESS PHONE: 7139614600 MAIL ADDRESS: STREET 1: 1900 WEST LOOP SOUTH STREET 2: SUITE 1500 CITY: HOUSTON STATE: TX ZIP: 77027 10-Q 1 QUANEX CORP. 10-Q DATED 07/31/97 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 July 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 July 31, 1997 - --------------------------------------- ------------------------------- Common Stock, par value $0.50 per share 14,006,398 QUANEX CORPORATION INDEX
Page No. Part I. Financial Information: Item 1: Financial Statements Consolidated Balance Sheets - July 31, 1997 and October 31, 1996 ................................... 1 Consolidated Statements of Income - Three and Nine Months Ended July 31, 1997 and 1996................ 2 Consolidated Statements of Cash Flow - Nine Months Ended July 31, 1997 and 1996 ...................... 3 Notes to Consolidated Financial Statements ............ 4-7 Item 2: Management's Discussion and Analysis of Results of Operations and Financial Condition .................... 8-13 Part II. Other Information Item 6: Exhibits and Reports on Form 8-K ...................... 14
PART I. FINANCIAL INFORMATION Item 1. Financial Statements QUANEX CORPORATION CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
July 31, October 31, 1997 1996 ---------- ---------- (Unaudited) (Audited) ASSETS Current assets: Cash and equivalents ............................$ 25,672 $ 35,975 Accounts and notes receivable, net .............. 88,469 90,583 Inventories ..................................... 89,106 89,938 Deferred income taxes ........................... 10,014 10,019 Prepaid expenses ................................ 1,422 121 ---------- ---------- Total current assets .................... 214,683 226,636 Property, plant and equipment ..................... 674,000 620,058 Less accumulated depreciation and amortization ....(310,561) (284,723) ---------- ---------- Property, plant and equipment, net ................ 363,439 335,335 Goodwill, net ..................................... 82,017 84,343 Net assets of discontinued operations ............. - 7,217 Other assets ...................................... 17,061 17,152 ---------- ---------- $677,200 $670,683 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable ................................... $ - $ 5,575 Accounts payable ................................ 72,091 73,958 Income taxes payable ............................ 15,540 3,807 Accrued expenses ................................ 42,147 44,286 Current maturities of long-term debt ............ 402 - ---------- ---------- Total current liabilities ............... 130,180 127,626 Long-term debt .................................... 194,273 253,513 Deferred pension credits .......................... 11,746 11,827 Deferred postretirement welfare benefits .......... 28,875 28,033 Deferred income taxes ............................. 33,951 33,743 Other liabilities ................................. 19,569 20,000 ---------- ---------- Total liabilities ....................... 418,594 474,742 Stockholders' equity: Preferred stock, no par value ................... - - Common stock, $.50 par value .................... 7,002 6,795 Additional paid-in capital ...................... 103,574 94,251 Retained earnings ............................... 149,573 96,623 Unearned compensation ........................... - (185) Adjustment for minimum pension liability ........ (1,543) (1,543) ---------- ---------- Total stockholders' equity .............. 258,606 195,941 ---------- ---------- $677,200 $670,683 ========== ==========
(1) QUANEX CORPORATION CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts)
Three Months Ended Nine Months Ended July 31 July 31 ---------------- ---------------- 1997 1996 1997 1996 ------- ------- ------ ------- (Unaudited) Net sales............................ $225,076 $186,284 $637,068 $511,747 Cost and expenses: Cost of sales...................... 193,368 157,836 553,832 441,923 Selling, general and administrative expense.......... 13,436 13,920 38,254 35,919 ------- ------- ------- ------- Operating income..................... 18,272 14,528 44,982 33,905 Other income (expense): Interest expense................... (4,040) (2,313) (13,808) (7,453) Capitalized interest............... 849 160 2,231 287 Other, net......................... (587) 988 (886) 2,151 Income from continuing operations ------- ------- ------- ------- before income taxes............... 14,494 13,363 32,519 28,890 Income tax expense................... (5,074) (5,612) (11,382) (12,134) ------- ------- ------- ------- Income from continuing operations.... 9,420 7,751 21,137 16,756 Income from discontinued operations, net of income taxes............... - 1,394 1,699 4,568 Gain on sale of discontinued operations, net of income taxes... - - 36,290 - ------- ------- ------- ------- Income before extraordinary charge... 9,420 9,145 59,126 21,324 Extraordinary charge - early extinguishment of debt.......... - - - (2,522) ------- ------- ------- ------- Net income........................... $ 9,420 $ 9,145 $ 59,126 $ 18,802 ======= ======= ======= ======= Earnings per common share: Primary: Continuing operations.......... $ 0.67 $ 0.57 $ 1.52 $ 1.23 Discontinued operations........ - 0.10 0.12 0.34 Gain on sale of discontinued operations.................. - - 2.60 - Extraordinary charge........... - - - (0.19) ------- ------- ------- ------- Total primary net earnings..... $ 0.67 $ 0.67 $ 4.24 $ 1.38 ======= ======= ======= ======= Fully diluted: Continuing operations.......... $ 0.62 $ 0.53 $ 1.44 $ 1.19 Discontinued operations........ - 0.08 0.10 0.28 Gain on sale of discontinued operations.................. - - 2.17 - Extraordinary charge........... - - - (0.15) ------- ------- ------- ------- Total assuming full dilution... $ 0.62 $ 0.61 $ 3.71 $ 1.32 ======= ======= ======= ======= Weighted average shares outstanding: Primary........................... 14,105 13,659 13,933 13,630 ======= ======= ======= ======= Assuming full dilution............ 16,842 16,355 16,737 16,326 ======= ======= ======= =======
(2) QUANEX CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOW (In thousands)
Nine Months Ended July 31, -------------------- 1997 1996 ------ ------ (Unaudited) Operating activities: Net income..............................................$59,126 $18,802 Adjustments to reconcile net income to cash provided by continuing operations: Income from discontinued operations.................. (1,699) (4,568) Gain on sale of discontinued operations..............(36,290) - Depreciation and amortization........................ 30,711 26,561 Deferred income taxes................................ 208 (1,815) Deferred pension costs............................... (81) 580 Deferred postretirement welfare benefits............. 842 924 ------ ------ 52,817 40,484 Changes in assets and liabilities net of effects from acquisitions and dispositions: Decrease in accounts and notes receivable........... 2,114 12,878 Decrease (increase) in inventory.................... 832 (11,413) Decrease in accounts payable........................ (1,867) (4,821) Dcrease in accrued expenses......................... (2,139) (3,439) Other, net.......................................... (3,042) 3,135 ------ ------ Cash provided by continuing operations............ 48,715 36,824 Cash provided by (used in) discontinued operations (4,630) 6,225 ------ ------ Cash provided by operating activities............. 44,085 43,049 Investment activities: Proceeds from the sale of discontinued operations...... 63,900 - Capital expenditures of continuing operations net of retirements.................................. (55,847) (17,142) Capital expenditures of discontinued operations........ (685) (5,573) Other, net............................................. (6,126) (4,084) ------ ------ Cash provided by (used in) investment activities 1,242 (26,799) Cash provided by operating and ------ ------ investment activities..................... 45,327 16,250 Financing activities: Notes payable repayments............................... - (10,000) Purchase of Senior Notes............................... - (44,667) Bank borrowings (repayments)........................... (60,000) 30,000 Common dividends paid.................................. (6,176) (6,084) Other, net............................................. 10,546 819 ------ ------ Cash used by financing activities.............. (55,630) (29,932) Decrease in cash and equivalents......................... (10,303) (13,682) Cash and equivalents at beginning of period.............. 35,975 45,205 ------ ------ Cash and equivalents at end of period.................... $25,672 $31,523 ====== ====== Supplemental disclosure of cash flow information: Cash paid during the period for: Interest................................................. $15,662 $ 9,941 Income taxes............................................. 12,105 12,651
(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: July 31, October 31, 1997 1996 ------- ------- (In thousands) Raw materials ........................ $27,156 $28,426 Finished goods and work in process.... 53,514 52,768 ------- ------- 80,670 81,194 Other................................. 8,436 8,744 ------- ------- $89,106 $89,938 ======= ======= The values of inventories in the consolidated balance sheets are based on the following accounting methods: LIFO..................................... $65,008 $69,234 FIFO..................................... 24,098 20,704 ------- ------- $89,106 $89,938 ======= =======
With respect to inventories valued using the LIFO method, replacement cost exceeded the LIFO value by approximately $19 million at July 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"). As of July 1997, the Bank Agreement consisted solely of a revolving line of credit ("Revolver") as the term loan provisions of the Bank Agreement expired as of such date. Additionally, the maturity date of the Bank Agreement was extended by one year to July 23, 2002. The Bank Agreement also provides for up to $25 million for 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 July 31, 1997, the Company had $100 million outstanding under the Revolver. In December 1995, the Company acquired the remaining $44.7 million principal amount of its 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. (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 Nine months Ended Ended July 31, July 31, ---------------------- 1996 1997 1996 ------- ------ ------ Net sales........................ $39,179 $66,733 $120,829 Income before income taxes....... 2,404 2,615 7,876 Income tax expense............... (1,010) (916) (3,308) Net income....................... $ 1,394 $ 1,699 $ 4,568
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) QUANEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 5. Earnings Per Share - --------------------- In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 "Earnings per Share" ("SFAS 128") which specifies the computation, presentation and disclosure requirements for Earnings Per Share ("EPS"). SFAS 128 replaces the presentation of primary and fully diluted EPS pursuant to Accounting Principles Board Opinion No. 15 - "Earnings per Share"("APB 15") with the presentation of basic and diluted EPS. Basic EPS excludes dilution and is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. The Company is required to adopt SFAS 128 with its January 31, 1998 financial statements and restate all prior-period EPS data. The Company will continue to account for EPS under APB 15 until that time. Under SFAS 128, the Company's basic and diluted EPS would have been:
Three Months Ended Nine Months Ended July 31, July 31, --------------------- ---------------------- Basic EPS: 1997 1996 1997 1996 ------ ------ ------ ------ Continuing operations..................... $0.68 $0.57 $1.54 $1.24 Discontinued operations................... - 0.10 0.12 0.34 Gain on sale of discontinued operations... - - 2.64 - Extraordinary charge...................... - - - (0.19) ----- ----- ----- ----- Total Basic EPS...................... $0.68 $0.67 $4.30 $1.39 ===== ===== ===== ===== Diluted EPS: Continuing operations..................... $0.62 $0.53 $1.45 $1.19 Discontinued operations................... - 0.08 0.10 0.28 Gain on sale of discontinued operations... - - 2.18 - Extraordinary charge...................... - - - (0.15) ----- ----- ----- ----- Total Diluted EPS.................... $0.62 $0.61 $3.73 $1.32 ===== ===== ===== =====
6.Subsequent Event - ------------------ In August 1997, the Company entered into a non-binding letter of intent to purchase Decatur Aluminum Corp., a Decatur, Alabama based manufacturer of aluminum sheet. The transaction is subject to various conditions, including the completion of due diligence, the negotiation and execution of a definitive agreement, and other necessary approvals. (6) QUANEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 7. 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- July 31, 1997 Steel Bars Tubes Products(1) Other(2) dated ------------------ ---------- ---------- ---------- ---------- ---------- (in thousands) Units shipped: To unaffiliated companies 141.0 Tons 23.3 Tons 74,615 Lbs. Intersegment............ 6.9 - - ------- ------- ------- Total.................... 147.9 Tons 23.3 Tons 74,615 Lbs. ======= ======= ======= Net Sales: To unaffiliated companies $75,216 $29,625 $120,235 - $225,076 Intersegment(3)......... 4,465 - - $(4,465) - ------- ------- ------- ------- ------- Total.................... $79,681 $29,625 $120,235 $(4,465) $225,076 ======= ======= ======= ======= ======= Operating income (loss).. $12,874 $ 1,612 $ 8,125 $(4,339) $ 18,272 ======= ======= ======= ======= =======
Corporate Three Months Ended Hot Rolled Steel Aluminum and Consoli- July 31, 1996 Steel Bars Tubes Products Other(2) dated ------------------ ---------- ---------- ---------- ---------- ---------- Units shipped: To unaffiliated companies 129.2 Tons 21.2 Tons 70,293 Lbs. Intersegment............ 5.6 - - ------- ------- ------- Total.................... 134.8 Tons 21.2 Tons 70,293 Lbs. ======= ======= ======= Net Sales: To unaffiliated companies $70,142 $26,704 $89,438 - $186,284 Intersegment(3)......... 3,028 - - $(3,028) - ------- ------- ------- ------- ------- Total.................... $73,170 $26,704 $89,438 $(3,028) $186,284 ======= ======= ======= ======= ======= Operating income (loss).. $ 9,324 $ 597 $ 7,807 $(3,200) $ 14,528 ======= ======= ======= ======= =======
Corporate Nine Months Ended Hot Rolled Steel Aluminum and Consoli- July 31, 1997 Steel Bars Tubes Products(1) Other(2) dated ---------------- ---------- ---------- ---------- ---------- ---------- Units shipped: To unaffiliated companies 411.6 Tons 73.1 Tons 211,349 Lbs. Intersegment............ 19.4 - - ------- ------- ------- Total.................... 431.0 Tons 73.1 Tons 211,349 Lbs. ======= ======= ======= Net Sales: To unaffiliated companies $219,192 $89,913 $327,963 - $637,068 Intersegment(3)......... 11,832 - - $(11,832) - ------- ------- ------- ------- ------- Total.................... $231,024 $89,913 $327,963 $(11,832) $637,068 ======= ======= ======= ======= ======= Operating income (loss).. $ 34,815 $ 4,059 $ 16,728 $(10,620) $ 44,982 ======= ======= ======= ======= =======
Corporate Nine Months Ended Hot Rolled Steel Aluminum and Consoli- July 31, 1996 Steel Bars Tubes Products Other(2) dated ---------------- ---------- ---------- ---------- ---------- ---------- Units shipped: To unaffiliated companies 360.1 Tons 68.3 Tons 179,759 Lbs. Intersegment............ 19.7 - - ------- ------- ------- Total.................... 379.8 Tons 68.3 Tons 179,759 Lbs. ======= ======= ======= Net Sales: To unaffiliated companies $196,625 $88,515 $226,607 - $511,747 Intersegment(3)......... 11,186 - - $(11,186) - ------- ------- ------- ------- ------- Total.................... $207,811 $88,515 $226,607 $(11,186) $511,747 ======= ======= ======= ======= ======= Operating income (loss).. $ 26,999 $ 4,934 $ 13,224 $(11,252) $ 33,905 ======= ======= ======= ======= =======
(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. (7) 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 three quarters of fiscal 1997 as compared to the same periods of fiscal 1996. The improved results were due primarily to higher sales volume, but also 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 in August 1996 will result in higher fiscal 1997 sales and operating income, assuming no material declines in the markets in which it serves. 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. (8) Item 2 - Management's Discussion and Analysis of Results of Operations and Financial Condition (Continued) The following table sets forth selected operating data for the Company's four businesses:
Three Months Ended Nine Months Ended July 31, July 31, ------------------ ------------------ 1997 1996 1997 1996 ------ ------- ------ ------- (In thousands) Hot Rolled Steel Bars: Units shipped (Tons)............ 147.9 134.8 431.0 379.8 Net Sales....................... $ 79,681 $ 73,170 $231,024 $207,811 Operating income................ $ 12,874 $ 9,324 $ 34,815 $ 26,999 Depreciation and amortization... $ 3,405 $ 4,590 $ 10,215 $ 13,770 Identifiable assets............. $179,235 $164,209 $179,235 $164,209 Steel Tubes: Units shipped (Tons)............ 23.3 21.2 73.1 68.3 Net Sales....................... $ 29,625 $ 26,704 $ 89,913 $ 88,515 Operating income................ $ 1,612 $ 597 $ 4,059 $ 4,934 Depreciation and amortization... $ 607 $ 552 $ 1,851 $ 1,730 Identifiable assets............. $ 45,996 $ 41,675 $ 45,996 $ 41,675 Aluminum Products: Units shipped (Pounds).......... 74,615 70,293 211,349 179,759 Net Sales....................... $120,235 $ 89,438 $327,963 $226,607 Operating income................ $ 8,125 $ 7,807 $ 16,728 $ 13,224 Depreciation and amortization... $ 5,312 $ 3,621 $ 18,126 $ 10,558 Identifiable assets............. $414,179 $225,143 $414,179 $225,143
Consolidated net sales for the three and nine months ended July 31, 1997, were $225.1 million and $637.1 million, respectively, representing increases of $38.8 million, or 21%, and $125.3 million, or 24%, respectively, when compared to the same periods last year. The improvement principally reflects the inclusion of Piper 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 nine months ended July 31, 1997, were $79.7 million and $231.0 million, respectively, representing increases of $6.5 million, or 9%, and $23.2 million, or 11%, respectively, when compared to the same periods last year. The improvements were primarily due to sales volume increases of 10% and 13%, respectively, for the three and nine months ended July 31, 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 increased market penetration. Net sales from the Company's steel tube business for the three and nine months ended July 31, 1997, were $29.6 million and $89.9 million, respectively, representing increases of $2.9 million, or 11%, and $1.4 million, or 2%, respectively, when compared to the same periods last year. The improvements were primarily due to sales volume increases of 10% and 7%, respectively, for the three and nine months ended July 31, 1997, as compared to the same prior year periods. The volume improvement reflects ongoing strength in the mechanical tube market. Pricing pressure continued, however, despite the higher demand. (9) 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 nine months ended July 31, 1997, were $120.2 million and $328.0 million, respectively, representing increases of $30.8 million, or 34%, and $101.4 million, or 45%, respectively, when compared to the same periods last year. These increases are principally due to the acquisition of Piper in August 1996. Net sales were also higher for the nine months ended July 31, 1997, compared to the same period last year, due to higher sales volume of aluminum flat roll. Consolidated operating income for the three and nine months ended July 31, 1997, was $18.3 million and $45.0 million, respectively, representing increases of $3.7 million, or 26%, and $11.1 million, or 33%, respectively, when compared to the same periods last year. The improvements were primarily due to the inclusion of Piper'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 nine months ended July 31, 1997, was $12.9 million and $34.8 million, respectively, representing increases of $3.6 million, or 38%, and $7.8 million, or 29%, respectively, when compared to the same periods last year. These improvements were attributable to higher sales due to increased capacity and strong demand. Operating income from the Company's steel tube business for the three and nine months ended July 31, 1997, was $1.6 million and $4.1 million, respectively, representing an increase of $1.0 million and a decrease of $875 thousand, respectively, when compared to the same periods last year. Profitability improved during the third quarter of fiscal 1997 reflecting strength in most of this segment's product lines, but, on a year-to-date basis, remained below fiscal 1996 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 nine months ended July 31, 1997, was $8.1 million and $16.7 million, respectively, representing increases of $318,000, or 4%, and $3.5 million, or 26%, respectively, when compared to the same periods last year. Improvement in this segment reflects the acquisition of Piper, partially offset by lower margins at Nichols Aluminum. Selling, general and administrative expenses decreased by $484,000, or 3%, and increased by $2.3 million, or 7%, respectively, for the three and nine months ended July 31, 1997, as compared to the same periods of last year. These changes principally reflect the inclusion of Piper in 1997, offset by higher accruals to the allowance for doubtful accounts during the third quarter of fiscal 1996. Interest expense increased by $1.7 million and $6.4 million, respectively, for the three and nine months ended July 31, 1997, as compared to the same periods of 1996 primarily as a result of increased bank borrowings associated with the Piper acquisition. (10) Item 2 - Management's Discussion and Analysis of Results of Operations and Financial Condition (Continued) Income from continuing operations for the three and nine months ended July 31, 1997, was $9.4 million and $21.1 million, respectively, as compared to $7.8 million and $16.8 million for the same prior year periods. The improvements were principally attributable to improved results at the Company's MacSteel division and the inclusion of Piper. Included in "Other, net" for the nine months ended July 31, 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 nine months ended July 31, 1996, was $1.5 million resulting from a loss on abandonment of idle assets. Capitalized interest increased to $849,000 and $2.2 million, respectively, for the three and nine months ended July 31, 1997, compared to $160,000 and $287,000 for the same periods 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 three quarters of fiscal 1997 compared to 42% in the prior year periods. Income from discontinued operations, net of income taxes, for the nine months ended July 31, 1997, was $1.7 million, as compared to $4.6 million for the same period in 1996. Included in net income for the nine months ended July 31, 1997, is an after-tax gain of $36.3 million on the sale of these 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"). In July 1997, the term loan provisions of the Bank Agreement expired. The maturity date of the Bank Agreement, however, was extended by one year to July 23, 2002. The Bank Agreement also provides for up to $25 million for 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 (5.71875% at July 31, 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 July 29, 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 July 31, 1997, there were $100 million of Revolver borrowings outstanding. (11) 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. 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 July 31, 1997, the Company had commitments of $21 million for the purchase or construction of capital assets, primarily relating to the Company's continued expansions at MacSteel and Piper. 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 nine months ended July 31, 1997, was $44.1 million as compared to $43.0 million during the nine months ended July 31, 1996. The increase was principally due to improved income and higher depreciation, mostly offset by increased cash used by discontinued operations. Investment Activities Net cash provided by investment activities during the nine months ended July 31, 1997, was $1.2 million as compared to cash used in investment activities of $26.8 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 acquisition. The Company estimates that fiscal 1997 capital expenditures will be approximately $70 to $80 million. (12) Item 2 - Management's Discussion and Analysis of Results of Operations and Financial Condition (Continued) Financing Activities Cash used in financing activities for the nine months ended July 31, 1997, was $55.6 million, primarily consisting of $60.0 million of repayments of bank borrowings, mostly from the proceeds of the LaSalle sale. Cash used in financing activities for the nine months ended July 31, 1996, was $29.9 million, principally consisting of $44.7 million for the early extinguishment of long-term debt, a $10.0 million reduction in notes payable and the payment of $6.2 million in common dividends and was offset by bank borrowings of $30.0 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, 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. (13) PART II. OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K. Exhibit 2.1 - Stock Purchase Agreement dated as of April 18, 1997, by and among Niagara Corporation, Niagara Cold Drawn Corp. and Quanex Corporation filed as Exhibit 2.1 to the Company's Current Report on Form 8-K, dated May 5, 1997, and incorporated herein by reference. Exhibit 3.1 - Restated Certificate of Incorporation of Quanex Corporation, as amended on February 27, 1997, as filed as Exhibit 4.1 to the Company's Registration Statement on Form S-8, Registration No. 333-22977, and incorporated herein by reference. 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. 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 August 29, 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 Nine Months Ended July 31, July 31, ----------------- ----------------- 1997 1996 1997 1996 ------ ------ ------ ------ (Unaudited) (Unaudited) Income from continuing operations................. $ 9,420 $ 7,751 $ 21,137 $ 16,756 Income from discontinued operations, net of income taxes................................... - 1,394 1,699 4,568 Gain on sale of discontinued operations, net of income taxes................................ - - 36,290 - ------ ------ ------ ------ Income before extraordinary charge................ 9,420 9,145 59,126 21,324 Extraordinary charge - early extinguishment of debt - - - (2,522) ------ ------ ------ ------ Net income........................................ $ 9,420 $ 9,145 $ 59,126 $ 18,802 ====== ====== ====== ====== Weighted average shares outstanding-primary............................. 14,105 13,659 13,933 13,630 ====== ====== ====== ====== Earnings per common share: Primary: Income from continuing operations.............. $ 0.67 $ 0.57 $ 1.52 $ 1.23 Income from discontinued operations............ - 0.10 0.12 0.34 Gain on sale of discontinued operations........ - - 2.60 - Extraordinary charge........................... - - - (0.19) ------ ------ ------ ------ Earnings per common share.................... $ 0.67 $ 0.67 $ 4.24 $ 1.38 ====== ====== ====== ====== Income from continuing operations.................$ 9,420 $ 7,751 $ 21,137 $ 16,756 Income from discontinued operations, net of income taxes................................... - 1,394 1,699 4,568 Gain on sale of discontinued operations, net of income taxes................................ - - 36,290 - ------ ------ ------ ------ Income before extraordinary charge................ 9,420 9,145 59,126 21,324 Extraordinary charge - early extinguishment of debt - - - (2,522) ------ ------ ------ ------ Net income........................................ 9,420 9,145 59,126 18,802 Interest on 6.88% convertible subordinated debentures and amortization of related issuance costs, net of applicable income taxes.......... 999 892 2,997 2,676 ------ ------ ------ ------ Adjusted net income...............................$ 10,419 $ 10,037 $ 62,123 $ 21,478 ====== ====== ====== ====== Weighted average shares outstanding-primary............................. 14,105 13,659 13,933 13,630 Effect of common stock equivalents arising from stock options...................... 41 - 108 - Subordinated debentures assumed converted to common stock................................. 2,696 2,696 2,696 2,696 Weighted average shares ------ ------ ------ ------ outstanding-fully diluted....................... 16,842 16,355 16,737 16,326 ====== ====== ====== ====== Earnings per common share: Assuming full dilution: Income from continuing operations.............. $ 0.62 $ 0.53 $ 1.44 $ 1.19 Income from discontinued operations............ - 0.08 0.10 0.28 Gain on sale of discontinued operations........ - - 2.17 - Extraordinary charge........................... - - - (0.15) ------ ------ ------ ------ Earnings per common share.................... $ 0.62 $ 0.61 $ 3.71 $ 1.32 ====== ====== ====== ======
EX-27 3 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the balance sheet as of July 31, 1997 and the income statement for the three and nine months ended July 31, 1997 and is qualified in its entirety by reference to such financial statements. 1,000 9-MOS OCT-31-1997 NOV-01-1996 JUL-31-1997 25,672 0 88,469 0 89,106 214,683 674,000 310,561 677,200 130,180 194,273 0 0 7,002 251,604 677,200 637,068 637,068 553,832 553,832 0 0 13,808 32,519 11,382 21,137 1,699 36,290 0 59,126 4.240 3.710
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