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, 1995
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, 1995
--------------------------------------- -----------------------------
Common Stock, par value $0.50 per share 13,430,533
QUANEX CORPORATION
INDEX
Page No.
Part I. Financial Information:
Item 1: Financial Statements
Consolidated Balance Sheets - July 31, 1995 and
October 31, 1994 ................................... 1
Consolidated Statements of Income - Three and Nine
Months Ended July 31, 1995 and 1994 ............... 2
Consolidated Statements of Cash Flow - Nine Months
Ended July 31, 1995 and 1994 ...................... 3
Notes to Consolidated Financial Statements ............ 4-5
Item 2: Management's Discussion and Analysis of Results of
Operations and Financial Condition .................... 6-11
Part II. Other Information
Item 5: Other Information ..................................... 12
Item 6: Exhibits and Reports on Form 8-K ...................... 12
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
QUANEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
July 31, October 31,
1995 1994
---------- ----------
(Unaudited) (Audited)
ASSETS
------
Current assets:
Cash and equivalents...........................$ 45,726 $ 34,041
Short-term investments......................... - 54,070
Accounts and notes receivable, net............. 95,418 83,082
Inventories.................................... 89,874 81,800
Deferred income taxes.......................... 5,849 6,114
Prepaid expenses............................... 800 289
------- -------
Total current assets................... 237,667 259,396
Property, plant and equipment.................... 520,662 499,798
Less accumulated depreciation and amortization...(260,388) (237,537)
------- -------
Net property, plant and equipment................ 260,274 262,261
Goodwill, net.................................... 32,302 33,017
Other assets..................................... 12,538 9,334
------- -------
$542,781 $564,008
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Notes payable..................................$ 10,000 $ -
Accounts payable............................... 79,455 75,515
Income taxes payable........................... 641 1,160
Accrued expenses............................... 40,811 37,118
Current maturities of long-term debt........... 20,958 20,958
------- -------
Total current liabilities.............. 151,865 134,751
Long-term debt................................... 134,192 107,442
Deferred pension credits......................... 14,889 15,810
Deferred postretirement welfare benefits......... 52,678 50,742
Deferred income taxes............................ 26,967 23,014
------- -------
Total liabilities...................... 380,591 331,759
Stockholders' equity:
Preferred stock, no par value.................. - 86,250
Common stock, $.50 par value................... 6,715 6,688
Additional paid-in capital..................... 90,860 86,323
Retained earnings.............................. 66,668 55,081
Unearned compensation.......................... (330) (370)
Adjustment for minimum pension liability....... (1,723) (1,723)
------- -------
Total stockholders' equity............. 162,190 232,249
------- -------
$542,781 $564,008
======= =======
(1)
QUANEX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
July 31 July 31
---------------- ----------------
1995 1994 1995 1994
------- ------- ------ -------
(Unaudited)
Net sales............................ $228,172 $181,088 $662,405 $502,845
Cost and expenses:
Cost of sales...................... 198,016 157,554 579,805 444,598
Selling, general and
administrative expense.......... 11,130 11,453 35,996 32,588
------- ------- ------- -------
Operating income..................... 19,026 12,081 46,604 25,659
Other income (expense):
Interest expense................... (2,522) (3,484) (7,672) (10,461)
Capitalized interest............... - 996 1,867 2,613
Other, net......................... 52 367 714 1,710
Income before income taxes and ------- ------- ------- -------
extraordinary charge............ 16,556 9,960 41,513 19,521
Income tax expense................... (6,953) (4,183) (17,435) (8,199)
------- ------- ------- -------
Income before extraordinary charge... 9,603 5,777 24,078 11,322
Extraordinary charge - early
extinguishment of debt.......... - - (2,021) -
------- ------- ------- -------
Net income........................... 9,603 5,777 22,057 11,322
Preferred dividends.................. (990) (1,484) (3,957) (4,451)
Net income attributable to ------- ------- ------- -------
common stockholders............. $ 8,613 $ 4,293 $ 18,100 $ 6,871
======= ======= ======= =======
Earnings per common share:
Primary before
extraordinary charge........... $ 0.63 $ 0.32 $ 1.48 $ 0.51
Extraordinary charge.............. - - (0.15) -
------- ------- ------- -------
Total primary net earnings..... $ 0.63 $ 0.32 $ 1.33 $ 0.51
======= ======= ======= =======
Fully diluted before
extraordinary charge........... $ 0.59 $ 0.32 $ 1.48 $ 0.51
Extraordinary charge.............. - - (0.15) -
------- ------- ------- -------
Total assuming full dilution... $ 0.59 $ 0.32 $ 1.33 $ 0.51
======= ======= ======= =======
Weighted average shares outstanding:
Primary........................... 13,642 13,465 13,598 13,442
======= ======= ======= =======
Assuming full dilution............ 16,382 13,465 13,598 13,442
======= ======= ======= =======
(2)
QUANEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)
Nine Months Ended
July 31
--------------------
1995 1994
------ ------
(Unaudited)
Operating activities:
Net income..............................................$22,057 $11,322
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation and amortization........................ 24,672 21,885
Facilities realignment accrual....................... - (1,128)
Deferred income taxes................................ 3,953 1,664
Deferred pension costs............................... (921) 1,218
Deferred postretirement welfare benefits............. 1,936 2,375
------ ------
51,697 37,336
Changes in assets and liabilities net of effects from
acquisitions and dispositions:
Increase in accounts and notes receivable........... (12,336) (16,670)
Increase in inventory............................... (8,074) (9,130)
Increase in accounts payable........................ 3,940 4,248
Increase in accrued expenses........................ 3,693 5,076
Other, net.......................................... (765) (65)
------ ------
Cash provided by operating activities.......... 38,155 20,795
Investment activities:
Capital expenditures, net of retirements............... (21,052) (30,213)
Decrease (increase) in short-term investments.......... 54,070 492
Proceeds from the sale of
Viking Metallurgical Subsidiary................... - 6,390
Other, net............................................. (672) 387
------ ------
Cash provided (used) by investment activities.. 32,346 (22,944)
Cash provided (used) by operating and ------ ------
investment activities..................... 70,501 (2,149)
Financing activities:
Notes payable borrowings............................... 10,000 -
Purchase of Senior Notes............................... (59,500) -
Repayments of long-term debt........................... - (180)
Common dividends paid.................................. (5,908) (5,600)
Preferred dividends paid............................... (4,451) (4,451)
Other, net............................................. 1,043 378
------ ------
Cash used by financing activities.............. (58,816) (9,853)
Increase (decrease) in cash and equivalents.............. 11,685 (12,002)
Cash and equivalents at beginning of period.............. 34,041 42,247
------ ------
Cash and equivalents at end of period.................... $45,726 $30,245
====== ======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest................................................. $ 6,518 $ 7,090
Income taxes............................................. $12,209 $ 6,500
(3)
QUANEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. 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 1994 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 1995 classifications.
2. Inventories
-----------
Inventories consist of the following: July 31, October 31,
1995 1994
------- ------
(In thousands)
Inventories valued at lower of cost
(principally LIFO method) or market:
Raw materials ............................. $31,709 $25,946
Finished goods and work in process ........ 49,554 47,684
------- ------
81,263 73,630
Other .......................................... 8,611 8,170
-------- -------
$89,874 $81,800
======= =======
With respect to inventories valued using the LIFO method, replacement cost
exceeded the LIFO value by approximately $23 million at July 31, 1995, and
$15 million at October 31, 1994.
3. Long-Term Debt and Financing Arrangements
-----------------------------------------
On June 30, 1995, the Company exercised its right under the terms of its
Cumulative Convertible Exchangeable Preferred Stock to exchange such stock
for an aggregate of $86,250,000 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.
At July 31, 1995, the Company had $65.5 million in Senior Notes ("Senior
Notes"). The Senior Notes bear interest at the rate of 10.77% per annum,
payable semi-annually. The Senior Notes require annual repayments of $20.8
million beginning on August 23, 1995, with a final payment of $3.0 million on
August 23, 1998. In December 1994, the Company acquired $59.5 million
principal amount of the Senior Notes for a purchase price equal to 105% of
the principal amount plus accrued interest. The Company recorded an
extraordinary charge of $2.0 million ($3.5 million before tax) in the first
quarter of 1995 related to the call premium and write-off of deferred debt
issuance costs for the Senior Notes that were repurchased.
At July 31, 1995, the Company had $10.0 million outstanding under its
unsecured $48 million Revolving Credit and Letter of Credit Agreement ("Bank
Agreement"). The Bank Agreement consists of a revolving line of credit
("Revolver"), renewable annually, which expires March 31, 1999, and up to $20
million for standby letters of credit, limited to the undrawn amount
available under the Revolver. All borrowings under the Revolver bear
interest, at the option of the Company, at either floating prime or a reserve
adjusted Eurodollar rate.
All of the above agreements contain customary affirmative and negative
covenants which the Company must meet. As of July 31, 1995, the Company was
in compliance with all of the covenants.
(4)
QUANEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Industry Segment Information
Quanex is principally a specialty metals producer. The Company's operations
primarily consist of four segments: hot rolled steel bars, cold finished steel
bars, steel tubes, and aluminum products.
Cold Corporate
Three Months Ended Hot Rolled Finished Steel Aluminum and Consoli-
July 31, 1995 Steel Bars Steel Bars Tubes Products Other(1) dated
------------------ ---------- ---------- ---------- ---------- ---------- ----------
(in thousands)
Units shipped:
To unaffiliated companies 120.8 Tons 44.1 Tons 21.5 Tons 59,824 Lbs.
Intersegment............ 5.1 - - -
------- ------- ------- -------
Total.................... 125.9 Tons 44.1 Tons 21.5 Tons 59,824 Lbs.
======= ======= ======= =======
Net Sales:
To unaffiliated companies $70,244 $41,198 $27,478 $89,252 - $228,172
Intersegment(2)......... 2,982 - (1) - $(2,981) -
------- ------- ------- ------- ------- -------
Total.................... $73,226 $41,198 $27,477 $89,252 $(2,981) $228,172
======= ======= ======= ======= ======= =======
Operating income (loss).. $11,980 $ 2,685 $ 1,212 $ 6,264 $(3,115) $ 19,026
======= ======= ======= ======= ======= =======
Cold Corporate
Three Months Ended Hot Rolled Finished Steel Aluminum and Consoli-
July 31, 1994 Steel Bars Steel Bars Tubes Products Other(1) dated
------------------ ---------- ---------- ---------- ---------- ---------- ----------
Units shipped:
To unaffiliated companies 108.9 Tons 45.8 Tons 19.9 Tons 43,994 Lbs.
Intersegment............ 5.0 - - -
------- ------- ------- -------
Total.................... 113.9 Tons 45.8 Tons 19.9 Tons 43,994 Lbs.
======= ======= ======= =======
Net Sales:
To unaffiliated companies $57,167 $40,251 $24,693 $58,977 - $181,088
Intersegment(2)......... 2,681 - - - $(2,681) -
------- ------- ------- ------- ------- -------
Total.................... $59,848 $40,251 $24,693 $58,977 $(2,681) $181,088
======= ======= ======= ======= ======= =======
Operating income (loss).. $ 7,719 $ 2,147 $ 1,055 $ 4,953 $(3,793) $ 12,081
======= ======= ======= ======= ======= =======
Cold Corporate
Nine Months Ended Hot Rolled Finished Steel Aluminum and Consoli-
July 31, 1995 Steel Bars Steel Bars Tubes Products Other(1) dated
---------------- ---------- ---------- ---------- ---------- ---------- ----------
Units shipped:
To unaffiliated companies 352.9 Tons 145.1 Tons 69.5 Tons 169,333 Lbs.
Intersegment............ 17.7 - - -
------- ------- ------- -------
Total.................... 370.6 Tons 145.1 Tons 69.5 Tons 169,333 Lbs.
======= ======= ======= =======
Net Sales:
To unaffiliated companies $196,895 $134,152 $87,814 $243,544 - $662,405
Intersegment(2)......... 10,158 - - - $(10,158) -
------- ------- ------- ------- ------- -------
Total.................... $207,053 $134,152 $87,814 $243,544 $(10,158) $662,405
======= ======= ======= ======= ======= =======
Operating income (loss).. $ 29,014 $ 9,424 $ 6,076 $ 15,711 $(13,621) $ 46,604
======= ======= ======= ======= ======= =======
Cold Corporate
Nine Months Ended Hot Rolled Finished Steel Aluminum and Consoli-
July 31, 1994 Steel Bars Steel Bars Tubes Products Other(1) dated
---------------- ---------- ---------- ---------- ---------- ---------- ----------
Units shipped:
To unaffiliated companies 332.6 Tons 138.9 Tons 59.2 Tons 104,080 Lbs.
Intersegment............ 19.5 - - -
------- ------- ------- -------
Total.................... 352.1 Tons 138.9 Tons 59.2 Tons 104,080 Lbs.
======= ======= ======= =======
Net Sales:
To unaffiliated companies $170,136 $120,677 $76,865 $135,167 - $502,845
Intersegment(2)......... 10,597 - - - $(10,597) -
------- ------- ------- ------- ------- -------
Total.................... $180,733 $120,677 $76,865 $135,167 $(10,597) $542,845
======= ======= ======= ======= ======= =======
Operating income (loss).. $ 22,101 $ 6,430 $ 4,171 $ 3,232 $(10,275) $ 25,659
======= ======= ======= ======= ======= =======
(1) Included in "Corporate and Other" are intersegment eliminations and
corporate expenses.
(2) Intersegment sales are conducted on an arm's-length basis.
(5)
Item 2 - Management's Discussion and Analysis of
Results of Operations and Financial Condition
RESULTS OF OPERATIONS
The Company classifies its operations into four business segments: hot
rolled steel bars, cold finished steel bars, steel tubes and aluminum products.
The Company's products are marketed to the industrial machinery and capital
equipment industries, the transportation industry, the energy processing
industry and the home building and remodeling industries.
The Company's results for the three and nine months ended July 31,
1995, reflected a significant increase in revenues and income from the
comparable periods in 1994. Although all of the Company's business segments
recorded greater revenue and income in the three and nine months ended July 31,
1995, over prior periods, the most significant gains were recognized in the
Company's aluminum products and hot rolled steel bar businesses. The aluminum
products business improved from operating income of $5.0 million and $3.2
million for the three and nine months ended July 31, 1994, respectively, to
operating income of $6.3 million and $15.7 million for the three and nine months
ended July 31, 1995, respectively. The hot rolled steel bar business improved
from operating income of $7.7 million and $22.1 million for the three and nine
months ended July 31, 1994, respectively, to operating income of $12.0 million
and $29.0 million for the three and nine months ended July 31, 1995,
respectively.
The improved results for the first three quarters of fiscal 1995
reflected more favorable market conditions in all segments due primarily to a
stronger domestic economy, improved margins resulting from favorable pricing
trends, greater market penetration for certain of the Company's manufactured
products and the cost reduction programs initiated in earlier years and
continuing to the present. The improved results also reflected the benefits
realized from the Company's capital improvement programs, which have allowed the
Company to increase capacity, improve quality and manage manufacturing costs.
The improvements in each of the Company's businesses resulted in the
Company reporting operating income for the three and nine months ended July 31,
1995, of $19.0 million and $46.6 million, respectively, as compared to $12.1
million and $25.7 million, respectively, for the same periods of fiscal 1994.
Income before extraordinary charge for the three and nine months ended July 31,
1995, was $9.6 million and $24.1 million, respectively, as compared to $5.8
million and $11.3 million, respectively, for the same periods of fiscal 1994.
The nine months ended July 31, 1995, included a $2.0 million ($3.5 million
before tax) extraordinary charge for early extinguishment of debt relating to
the acquisition by the Company of $59.5 million principal amount of its 10.77%
Senior Notes for a purchase price equal to 105% of the principal amount plus
accrued interest.
The Company expects that fiscal year 1995 revenues in the Company's
hot rolled steel bar business and aluminum products business will exceed 1994
results due to increased capacity levels and favorable business conditions
experienced during the first three quarters of fiscal 1995. Domestic and global
market factors, however, will continue to impact the Company and any slowdown in
the U.S. economy could affect demand and pricing for many of the Company's
products. The Company currently expects that business conditions will remain
favorable in the fourth quarter of fiscal 1995. The Company, however, is
operating at near capacity in both its hot rolled steel and cold finished steel
bars segments. Continued improved financial results will be dependent upon,
among other things, whether the strong economic conditions experienced in the
first three quarters of fiscal 1995 can be sustained.
(6)
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,
1995 1994 1995 1994
(In thousands)
Hot Rolled Steel Bars:
Units shipped (Tons)............ 125.9 113.9 370.6 352.1
Net Sales....................... $ 73,226 $ 59,848 $207,053 $180,733
Operating income................ $ 11,980 $ 7,719 $ 29,014 $ 22,101
Depreciation and amortization... $ 3,870 $ 3,285 $ 11,610 $ 9,855
Identifiable assets............. $167,424 $165,571 $167,424 $165,571
Cold Finished Steel Bars:
Units shipped (Tons)............ 44.1 45.8 145.1 138.9
Net Sales....................... $ 41,198 $ 40,251 $134,152 $120,677
Operating income................ $ 2,685 $ 2,147 $ 9,424 $ 6,430
Depreciation and amortization... $ 346 $ 311 $ 1,039 $ 985
Identifiable assets............. $ 49,705 $ 49,806 $ 49,705 $ 49,806
Steel Tubes:
Units shipped (Tons)............ 21.5 19.9 69.5 59.2
Net Sales....................... $ 27,477 $ 24,693 $ 87,814 $ 76,865
Operating income................ $ 1,212 $ 1,055 $ 6,076 $ 4,171
Depreciation and amortization... $ 490 $ 488 $ 1,525 $ 1,515
Identifiable assets............. $ 40,850 $ 40,032 $ 40,850 $ 40,032
Aluminum Products:
Units shipped (Pounds).......... 59,824 43,994 169,333 104,080
Net Sales....................... $ 89,252 $ 58,977 $243,544 $135,167
Operating income................ $ 6,264 $ 4,953 $ 15,711 $ 3,232
Depreciation and amortization... $ 3,199 $ 3,280 $ 9,916 $ 9,271
Identifiable assets............. $242,816 $219,600 $242,816 $219,600
Consolidated net sales for the three and nine months ended July 31,
1995, were $228.2 million and $662.4 million, respectively, representing
increases of $47.1 million, or 26%, and $159.6 million, or 32%, respectively,
when compared to the same periods last year. These increases were due to
significantly higher volume in the aluminum products business, additional volume
related to greater production capacity as compared to last year, improvements in
the economy and increases in demand combined with higher average selling prices.
Net sales from the Company's hot rolled steel bar business for the
three and nine months ended July 31, 1995, were $73.2 million and $207.1
million, respectively, representing increases of $13.4 million, or 22%, and
$26.3 million, or 15%, respectively, when compared to the same periods last
year. These increases were attributable to improvements in volume for the three
and nine months ended July 31, 1995, as compared to the same periods of fiscal
1994, of 11% and 5%, respectively, combined with increases in average selling
prices of 11% and 9%, respectively. Volume increases were partly due to the
additional capacity provided as a result of the capital improvements completed
in March 1995. The hot rolled steel bar business also continued to benefit from
strength in the durable goods markets.
Net sales from the Company's cold finished steel bar business for the
three and nine months ended July 31, 1995, were $41.2 million and $134.2
million, respectively, representing increases of $947 thousand, or 2%, and $13.5
million, or 11%, respectively, when compared to the same periods last year.
Volume for the quarter ending July 31, 1995, was relatively flat at
(7)
Item 2 - Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
44.1 thousand tons as compared to 45.8 thousand tons for the same period last
year. Volume for the nine months ending July 31, 1995, increased 4% over the
same period in fiscal 1994. Average selling prices during the three and nine
months ending July 31, 1995, increased 7% and 6%, respectively, over the three
and nine months ending July 31, 1994.
Net sales from the Company's steel tube business for the three and nine
months ended July 31, 1995, were $27.5 million and $87.8 million, respectively,
representing increases of $2.8 million, or 11%, and $10.9 million, or 14%,
respectively, when compared to the same periods last year. These increases in
sales resulted principally from improvements in volume for the three and nine
months ended July 31, 1995, as compared to the same periods of fiscal 1994, of
8% and 17%, respectively. The Company's steel tube business was adversely
affected in fiscal 1994, and to a lesser degree in fiscal 1995, by downward
pricing pressure from imports on certain products and a general weakness in this
segment's primary markets, which include power generation and the petrochemical
and refining industries. In June 1994, the Company filed petitions alleging that
imports of carbon and alloy seamless pipe up to 4.5 inches in diameter from four
countries were being dumped or subsidized. In August 1994, the International
Trade Commission (the "ITC") made an affirmative preliminary determination that
imports of small-diameter pipe from these countries were causing injury to the
U.S. industry and in January 1995, dumping bonds were imposed on imports of
these products by these countries. In July 1995, the ITC made a final
determination that imports of small diameter seamless carbon and alloy standard,
line and pressure pipe from four countries had caused injury to the U.S.
industry. This final ruling results in the ongoing enforcement of dumping
margins imposed by the U.S. Department of Commerce.
Net sales from the Company's aluminum products business for the three
and nine months ended July 31, 1995, were $89.3 million and $243.5 million,
respectively, representing increases of $30.3 million, or 51%, and $108.4
million, or 80%, respectively, when compared to the same periods last year.
These increases were attributable to increases in volume for the three and nine
months ended July 31, 1995, as compared to the same periods of fiscal 1994, of
36% and 63%, respectively, due to improved demand and market share and increases
in average selling prices of 11% in both the three and nine month periods.
Results were affected by aluminum price increases, which generally increased by
more than the Company's average selling price because of a change in product
mix. Lower priced mill finished sheet was a higher percentage of total sales in
the first three quarters of fiscal 1995 as compared to the same periods of last
year. First and second quarter results for 1994 were adversely affected by the
fire at the Company's Lincolnshire plant.
Consolidated operating income for the three and nine months ended July
31, 1995, was $19.0 million and $46.6 million, respectively, representing
increases of $6.9 million, or 57%, and $20.9 million, or 82%, respectively, when
compared to the same periods last year. These increases were principally due to
higher net sales.
Operating income from the Company's hot rolled steel bar business for
the three and nine months ended July 31, 1995, was $12.0 million and $29.0
million, respectively, representing increases of $4.3 million, or 55%, and $6.9
million, or 31%, respectively, when compared to the same periods last year.
These increases were principally due to higher volume, net sales and improved
margins.
(8)
Item 2 - Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
Operating income from the Company's cold finished steel bar business
for the three and nine months ended July 31, 1995, was $2.7 million and $9.4
million, respectively, representing increases of $538 thousand, or 25%, and $3.0
million, or 47%, respectively, when compared to the same periods last year.
These increases were principally due to higher net sales and improved margins.
Operating income from the Company's steel tube business for the three
and nine months ended July 31, 1995, was $1.2 million and $6.1 million,
respectively, representing increases of $157 thousand, or 15%, and $1.9 million,
or 46%, respectively, when compared to the same periods last year. These
increases were principally due to higher volume and net sales.
Operating income from the Company's aluminum products business for the
three and nine months ended July 31, 1995, was $6.3 million and $15.7 million,
respectively, representing increases of $1.3 million, or 26%, and $12.5 million,
or 386%, respectively, when compared to the same periods last year. These
increases were principally due to higher volume and net sales.
Selling, General and Administrative Expenses were flat for the quarter
ending July 31, 1995, when compared to the same prior year quarter,
notwithstanding a 26% increase in net sales. Fiscal year-to-date selling,
general and administrative expenses have increased by $3.4 million, or 10%, as
compared to the same periods of 1994. However, as a percentage of net sales,
selling, general and administrative expenses decreased as compared to the same
periods last year.
Interest expense decreased by $962 thousand and $2.8 million,
respectively, for the three and nine months ended July 31, 1995, as compared to
the same periods of 1994 primarily as a result of the early extinguishment of a
portion of the Company's senior debt late in the first fiscal quarter of 1995.
Interest expense will increase following the Company's exchange of its 6.88%
Cumulative Convertible Exchangeable Preferred Stock ("Preferred Stock") for its
6.88% Convertible Subordinated Debentures due June 30, 2007 ("6.88% Debentures")
on June 30, 1995. Although this exchange will reduce net income through interest
charges, net income attributable to common shareholders will benefit from the
resulting tax savings.
Net income attributable to common shareholders for the three and nine
months ended July 31, 1995, was $8.6 million and $18.1 million, respectively, as
compared to $4.3 million and $6.9 million, respectively, for the comparable 1994
periods. Preferred dividends reduced net income attributable to common
shareholders by $990 thousand and $4.0 million ,respectively, for the three and
nine month periods ended July 31, 1995, as compared to $1.5 million and $4.5
million, respectively, for the three and nine month periods ended July 31, 1994.
The improvement in net income attributable to common shareholders was primarily
attributable to improved operating income.
Included in the nine months ended July 31, 1995, was an extraordinary
charge of $2.0 million relating to early extinguishment of debt. Included in
"Other, net" for the nine months ended July 31, 1995, was a $1.1 million pretax
gain related to a life insurance policy on a deceased former officer. Included
in "Other, net" for the nine months ended July 31, 1994, was a $1.7 million
pretax charge related to certain financing contracts, partially offset by $1.0
million of income relating to partial reimbursement of a business interruption
loss for the fire that occurred at the Company's Lincolnshire facility in August
1993. Also, included in "Other, net" was investment income of $416 thousand and
$336 thousand for the three and nine months ended July 31, 1995, respectively,
as compared to $677 thousand and $2.2 million,
(9)
Item 2 - Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
respectively, for the comparable 1994 periods. The decreases were due to
decreases in cash available for investment and losses on sales of short-term
investments.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of funds are cash on hand, cash flow
from operations, and, if needed, borrowings under a $48 million unsecured
revolving credit facility with a group of banks (the "Bank Agreement"). All
borrowings under the Bank Agreement bear interest, at the option of the Company,
at either floating prime or a reserve adjusted Eurodollar rate. The Bank
Agreement contains customary affirmative and negative covenants and requirements
to maintain a minimum consolidated tangible net worth, as defined. The Bank
Agreement limits the payment of dividends and certain restricted investments.
The Bank Agreement was amended in December 1994 to extend the maturity of the
facility to March 31, 1999. At July 31, 1995, there were $10.0 million of
outstanding borrowings and $2.1 million of outstanding letters of credit under
the 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 $86,250,000 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.
At July 31, 1995, the Company had outstanding $65.5 million in Senior
Notes ("Senior Notes"). The Senior Notes are unsecured and bear interest at the
rate of 10.77% per annum, payable semi-annually. The Senior Notes require annual
repayments of $20.8 million beginning on August 23, 1995, with a final payment
of $3.0 million on August 23, 1998. In December 1994, the Company acquired $59.5
million principal amount of the Senior Notes for a purchase price equal to 105%
of the principal amount plus accrued interest. The acquisition was funded with
the Company's available cash, proceeds from the sale of its short-term
investments and $10 million in borrowings under the Bank Agreement. The Senior
Notes contain customary affirmative and negative covenants, as well as
requirements to maintain a minimum capital base, as defined. In addition, the
Senior Notes limit the payment of dividends and certain restricted investments.
At July 31, 1995, the Company had commitments of $10 million for the
purchase or construction of capital assets. The Company's $52 million (not
including approximately $9 million in capitalized interest) Phase II MacSteel
expansion project and $8 million Nichols-Homeshield annealing expansion were
both completed in March 1995.
In management's opinion, the Company currently has sufficient funds and
adequate financial sources available to meet its anticipated liquidity needs
including required payments on the Senior Notes and the Debentures. Management
believes that cash flow from operations, cash balances and available borrowings
will be sufficient for the foreseeable future to finance anticipated capital
expenditures, debt service requirements and dividends.
(10)
Item 2 - Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
Operating Activities
Cash provided by operating activities during the nine months ended July
31, 1995, was $38.2 million. This represents an increase of $17.4 million as
compared to the comparable 1994 period. This increase was primarily attributable
to improved income before depreciation and amortization expense. Working capital
increases were $3.0 million less during the nine months ended July 31, 1995, as
compared to the nine months ended July 31, 1994.
Investment Activities
Net cash provided by investment activities during the nine months ended
July 31, 1995, was $32.3 million as compared to net cash used by investment
activities of $22.9 million for the nine months ended July 31, 1994. The
increase in cash provided by investment activities was principally due to
decreases in short-term investments to fund the Company's acquisition of its
Senior Notes. Capital expenditures for the nine months ended July 31, 1995, were
$21.1 million as compared to $30.2 million for the same 1994 period. Cash used
by investing activities for the nine months ended July 31, 1994, includes $6.4
million of proceeds from the sale of the Company's Viking Metallurgical
Corporation subsidiary. The Company estimates that fiscal year 1995 capital
expenditures will approximate $30 million.
Financing Activities
Net cash used by financing activities for the nine months ended July
31, 1995, was $58.8 million, principally consisting of $59.5 million for the
early extinguishment of long-term debt, $5.9 million in common dividends and
$4.5 million in preferred dividends. These uses of cash were partly offset by
notes payable borrowings of $10.0 million.
(11)
PART II. OTHER INFORMATION
Item 5 - Other Information
--------------------------
None
Item 6 - Exhibits and Reports on Form 8-K.
-----------------------------------------
4.1 Sixth Amendment to the Revolving Credit and Letter of Credit
Agreement dated June 30, 1995
11 Statement re computation of per share earnings.
27 Financial Data Schedule.
No reports on Form 8-K were filed by the Company during the quarter for which
this report is being filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
QUANEX CORPORATION
/s/ Viren M. Parikh
-------------------
Viren M. Parikh
Controller (Chief Accounting Officer)
Date September 8, 1995
-----------------
(12)
EXHIBIT 4.1
SIXTH AMENDMENT TO QUANEX CORPORATION
REVOLVING CREDIT AND
LETTER OF CREDIT AGREEMENT
This Sixth Amendment to Quanex Corporation Revolving Credit and Letter
of Credit Agreement ("Sixth Amendment") made as of June 30, 1995 ("Amendment
Effective Date"), among Comerica Bank (successor-in-interest by reason of merger
to Manufacturers Bank, N.A., formerly known as Manufacturers National Bank of
Detroit), First Interstate Bank of Texas, N.A., Harris Trust and Savings Bank
and NationsBank of Texas, N.A. (individually, "Bank" and collectively, "Banks"),
Comerica Bank, as agent for the Banks (in such capacity, "Agent") and Quanex
Corporation, a Delaware corporation ("Company").
W I T E N S S E T H:
WHEREAS, the Banks, the Agent and the Company have executed and
delivered that certain Quanex Corporation Revolving Credit and Letter of Credit
Agreement dated as of December 4, 1990, as amended by a First Amendment to
Quanex Corporation Revolving Credit and Letter of Credit Agreement dated March
26, 1991, a Second Amendment to Quanex Corporation Revolving Credit and Letter
of Credit Agreement dated April 15, 1992, a Third Amendment to Quanex
Corporation Revolving Credit and Letter of Credit Agreement dated as of February
12, 1993, a Fourth Amendment to Quanex Corporation Revolving Credit and Letter
of Credit Agreement dated as of April, 1, 1993, and a Fifth Amendment to Quanex
Corporation Revolving Credit and Letter of Credit Agreement dated as of December
8, 1994 (the "Original Agreement"); and
WHEREAS, the Company and the Banks desire to amend the Original
Agreement as set forth below:
NOW THEREFORE, in consideration of the premises, the Banks, the Agent
and the Company hereby agree as follows:
1. Section 1.56 of the original Agreement is amended in its entirety to
read as follows:
"'Preferred Stock' shall mean the Cumulative Convertible Exchangeable
Preferred Stock of the Company issued in 1988 and the Cumulative
Convertible Exchangeable Preferred Stock of the Company issued in 1992."
2. Section 1.71 of the Original Agreement is amended in its entirety to
read as follows:
"'Subordinated Debentures' shall mean the 9-1/8% Convertible Subordinated
Debentures of the Company due September 30, 2008, and the 6.88%
Convertible Subordinated Debentures of the Company due June 30, 2007."
3. The Company hereby represents and warrants that, after giving effect to
the amendment contained herein, (a) execution, delivery and performance
of this Sixth Amendment are within the Company's corporate powers, have
been duly authorized, are not in contravention of law or the terms of
the Company's Certificate of Incorporation or Bylaws, and do not require
the consent or approval of any governmental body, agency or authority;
and this Sixth Amendment will be valid and binding in accordance with
their terms; (b) the continuing representations and warranties of the
Company set forth in Sections 8.1 through 8.16 of the Original Agreement
are true and correct on and as of the date hereof with the same force
and effect as made on and as of the date hereof; (c) the continuing
representations and warranties of the Company set forth in Section 8.17
of the Original Agreement are true and correct as of the date hereof
with respect to the most recent financial statements furnished to the
Banks by the Company in accordance with Section 9.3 of the Original
Agreement; and (d) no Event of Default, or condition or event which,
with the giving of notice or the running of time, or both, would
constitute an Event of Default under the Original Agreement has occurred
and is continuing as of the date hereof.
4. This Sixth Amendment shall be effective as of the Amendment Effective
Date.
5. All references to the term "Agreement" and to the terms "hereof",
"hereunder" and similar referential terms in the Original Agreement
shall be deemed to mean or refer to the Original Agreement as amended by
this Sixth Amendment.
6. Capitalized terms used herein and not otherwise defined herein shall
have the meanings assigned to them in the Original Agreement.
7. This Sixth Amendment may be executed in counterparts, in accordance with
Section 13.8 of the Original Agreement.
-2-
IN WITNESS WHEREOF, the Banks, the Agent and the Company have caused this Sixth
Amendment to be executed by their respective, duly authorized officers, all as
of the date set forth above.
COMPANY:
QUANEX CORPORATION
By /s/ Wayne M. Rose
-----------------
Wayne M. Rose
Vice President - Finance
AGENT:
COMERICA BANK (successor-in-interest
by reason of merger to
Manufacturers Bank, N.A.,
formerly known as
Manufacturers National Bank
of Detroit), as Agent
By /s/ Bradley Terryn
------------------
Title: Vice President
----------------
BANKS:
COMERICA BANK (successor-in-interest
by reason of merger to
Manufacturers Bank, N.A.,
formerly known as
Manufacturers National Bank
of Detroit), as Agent
By /s/ Bradley Terryn
------------------
Title: Vice President
----------------
FIRST INTERSTATE BANK OF TEXAS, N.A.
By /s/ Frank W. Schageman
----------------------
Title: Vice President
--------------------
-3-
HARRIS TRUST AND SAVINGS BANK
By /s/ James H. Colley
----------------------
Title: Vice President
--------------------
NATIONSBANK OF TEXAS, N.A.
By /s/ Richard L. Nichols, Jr.
----------------------
Title: Vice President
--------------------
The undersigned accept and agree to the Sixth Amendment to the Quanex
Corporation Revolving Credit and Letter of Credit Agreement dated as of December
4, 1990, as amended, and ratify and confirm their respective obligations under
the Guaranty Agreements executed and delivered to the Banks by the undersigned
prior to the date of execution of such Sixth Amendment and agree that such
Guaranty Agreements, as amended, continue to be in full force and effect.
LASALLE STEEL COMPANY
By /s/ Wayne M. Rose
-----------------
Wayne M. Rose
Vice President
NICHOLS-HOMESHIELD, INC.
By /s/ Wayne M. Rose
-----------------
Wayne M. Rose
Vice President
MICHIGAN SEAMLESS TUBE COMPANY
By /s/ Wayne M. Rose
-----------------
Wayne M. Rose
Vice President
-4-
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,
----------------- -----------------
1995 1994 1995 1994
------ ------ ------ ------
(Unaudited) (Unaudited)
Income before extraordinary charge................$ 9,603 $ 5,777 $ 24,078 $ 11,322
Extraordinary charge - early extinguishment of debt - - (2,021) -
------ ------ ------ ------
Net income........................................ 9,603 5,777 22,057 11,322
Preferred dividend requirements................... (990) (1,484) (3,957) (4,451)
Net income attributable to ------ ------ ------ ------
common stockholders.............................$ 8,613 $ 4,293 $ 18,100 $ 6,871
====== ====== ====== ======
Weighted average shares
outstanding-primary............................. 13,642 13,465 13,598 13,442
====== ====== ====== ======
Earnings per common share:
Primary:
Earnings before extraordinary charge........... 0.63 0.32 1.48 0.51
Extraordinary charge........................... - - (0.15) -
------ ------ ------ ------
Earnings per common share.................... 0.63 0.32 1.33 0.51
====== ====== ====== ======
Income before extraordinary charge................$ 9,603 $ 5,777 $ 24,078 $ 11,322
Interest on 6.88% convertible subordinated
debentures and amortization of related issuance
costs, net of applicable income taxes.......... 302 - 302 -
------ ------ ------ ------
Adjusted income before extraordinary charge 9,905 5,777 24,380 11,322
Extraordinary charge - early extinguishment of debt - - (2,021) -
------ ------ ------ ------
Adjusted net income after extraordinary charge.... 9,905 5,777 22,359 11,322
====== ====== ====== ======
Weighted average shares
outstanding-primary............................. 13,642 13,465 13,598 13,442
Effect of common stock equivalents
arising from stock options...................... 2 30 39 36
Subordinated debentures assumed converted
to common stock................................. 2,738 2,738 2,738 2,738
Weighted average shares ------ ------ ------ ------
outstanding-fully diluted....................... 16,382 16,233 16,375 16,216
====== ====== ====== ======
Earnings per common share:
Assuming full dilution:
Earnings before extraordinary charge........... 0.59 0.36 1.49 0.70
Extraordinary charge........................... - - (0.12) -
------ ------ ------ ------
Earnings per common share.................... 0.59 0.36 1.37 0.70
====== ====== ====== ======
5
1,000
9-MOS
OCT-31-1995
NOV-01-1994
JUL-31-1995
45,726
0
95,418
0
89,874
237,667
520,662
260,388
542,781
151,865
134,192
6,715
0
0
155,475
542,781
662,405
662,405
579,805
579,805
0
0
7,672
41,513
17,435
24,078
0
2,021
0
22,057
1.330
1.370
