SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ___________.
Commission File Number 1-5725
QUANEX CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 38-1872178
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1900 West Loop South, Suite 1500, Houston, Texas 77027
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(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (713) 961-4600
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at April 30, 1996
- --------------------------------------- -------------------------------
Common Stock, par value $0.50 per share 13,520,825
QUANEX CORPORATION
INDEX
Page No.
Part I. Financial Information:
Item 1: Financial Statements
Consolidated Balance Sheets - April 30, 1996 and
October 31, 1995 .................................. 1
Consolidated Statements of Income - Three and Six
Months Ended April 30, 1996 and 1995............... 2
Consolidated Statements of Cash Flow - Six Months
Ended April 30, 1996 and 1995 ..................... 3
Notes to Consolidated Financial Statements ............ 4-6
Item 2: Management's Discussion and Analysis of Results of
Operations and Financial Condition .................... 7-11
Part II. Other Information
Item 4: Submission of Matters to a Vote of Security Holders ... 12
Item 5: Other Information ..................................... 12
Item 6: Exhibits and Reports on Form 8-K ...................... 12
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
QUANEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
April 30, October 31,
1996 1995
---------- ----------
(Unaudited) (Audited)
ASSETS
Current assets:
Cash and equivalents ............................$ 38,276 $ 45,213
Accounts and notes receivable, net .............. 100,193 104,240
Inventories ..................................... 94,188 84,676
Deferred income taxes ........................... 6,804 6,848
Prepaid expenses ................................ 1,458 1,398
---------- ----------
Total current assets .................... 240,919 242,375
Property, plant and equipment ..................... 538,721 525,325
Less accumulated depreciation and amortization ....(285,749) (266,761)
---------- ----------
Property, plant and equipment, net ................ 252,972 258,564
Goodwill, net ..................................... 31,588 32,064
Other assets ...................................... 15,812 13,744
---------- ----------
$541,291 $546,747
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable ................................... $ - $ 10,000
Accounts payable ................................ 85,959 91,730
Income taxes payable ............................ 2,696 423
Accrued expenses ................................ 42,071 42,087
Current maturities of long-term debt ............ - 20,968
---------- ----------
Total current liabilities ............... 130,726 165,208
Long-term debt .................................... 138,195 111,894
Deferred pension credits .......................... 16,258 16,656
Deferred postretirement welfare benefits .......... 54,261 53,185
Deferred income taxes ............................. 25,039 29,278
---------- ----------
Total liabilities ....................... 364,479 376,221
Stockholders' equity:
Common stock, $.50 par value .................... 6,760 6,743
Additional paid-in capital ...................... 93,046 92,406
Retained earnings ............................... 80,028 74,426
Unearned compensation ........................... (290) (317)
Adjustment for minimum pension liability ........ (2,732) (2,732)
---------- ----------
Total stockholders' equity .............. 176,812 170,526
---------- ----------
$541,291 $546,747
========== ==========
(1)
QUANEX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Three Months Ended Six Months Ended
April 30 April 30
---------------- ----------------
1996 1995 1996 1995
------- ------- ------ -------
(Unaudited)
Net sales............................ $218,341 $234,347 $407,113 $434,233
Cost and expenses:
Cost of sales...................... 191,614 204,600 359,100 381,789
Selling, general and
administrative expense.......... 11,555 12,580 23,164 24,866
------- ------- ------- -------
Operating income..................... 15,172 17,167 24,849 27,578
Other income (expense):
Interest expense................... (2,260) (2,034) (5,140) (5,150)
Capitalized interest............... 78 837 127 1,867
Other, net......................... 1,031 965 1,163 662
Income before income taxes and ------- ------- ------- -------
extraordinary charge............ 14,021 16,935 20,999 24,957
Income tax expense................... (5,889) (7,113) (8,820) (10,482)
------- ------- ------- -------
Income before extraordinary charge... 8,132 9,822 12,179 14,475
Extraordinary charge - early
extinguishment of debt.......... - - (2,522) (2,021)
------- ------- ------- -------
Net income........................... 8,132 9,822 9,657 12,454
Preferred dividends.................. - (1,483) - (2,967)
Net income attributable to ------- ------- ------- -------
common stockholders............. $ 8,132 $ 8,339 $ 9,657 $ 9,487
======= ======= ======= =======
Earnings per common share:
Primary before
extraordinary charge........... $ 0.60 $ 0.62 $ .90 $ 0.85
Extraordinary charge.............. - - (0.19) (0.15)
------- ------- ------- -------
Total primary net earnings..... $ 0.60 $ 0.62 $ .71 $ 0.70
======= ======= ======= =======
Fully diluted before
extraordinary charge........... $ 0.55 $ 0.60 $ .85 $ 0.85
Extraordinary charge.............. - - (0.15) (0.15)
------- ------- ------- -------
Total assuming full dilution... $ 0.55 $ 0.60 $ .70 $ 0.70
======= ======= ======= =======
Weighted average shares outstanding:
Primary........................... 13,641 13,601 13,614 13,580
======= ======= ======= =======
Assuming full dilution............ 16,360 16,351 16,353 13,580
======= ======= ======= =======
(2)
QUANEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)
Six Months Ended
April 30,
--------------------
1996 1995
------ ------
(Unaudited)
Operating activities:
Net income..............................................$ 9,657 $12,454
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation and amortization........................ 18,495 16,673
Deferred income taxes................................ (4,239) 2,107
Deferred pension costs............................... (398) (627)
Deferred postretirement welfare benefits............. 1,076 1,204
------ ------
24,591 31,811
Changes in assets and liabilities net of effects from
acquisitions and dispositions:
Decrease (increase) in accounts and notes receivable 4,304 (29,850)
Increase in inventory............................... (9,512) (11,409)
Increase (decrease) in accounts payable............. (5,771) 13,733
Increase (decrease) in accrued expenses............. (16) 2,453
Other, net.......................................... 2,257 (1,189)
------ ------
Cash provided by operating activities.......... 15,853 5,549
Investment activities:
Capital expenditures, net of retirements............... (11,971) (14,894)
Decrease in short-term investments..................... - 54,070
Other, net............................................. (2,781) (493)
------ ------
Cash provided (used) by investment activities.. (14,752) 38,683
Cash provided by operating and ------ ------
investment activities..................... 1,101 44,232
Financing activities:
Notes payable borrowings (repayments).................. (10,000) 10,000
Purchase of Senior Notes............................... (44,667) (59,500)
Bank borrowings (repayments), net. .................... 50,000 -
Common dividends paid.................................. (4,055) (3,894)
Preferred dividends paid............................... - (2,967)
Other, net............................................. 684 1,130
------ ------
Cash used by financing activities.............. (8,038) (55,231)
Decrease in cash and equivalents......................... (6,937) (10,999)
Cash and equivalents at beginning of period.............. 45,213 34,041
------ ------
Cash and equivalents at end of period.................... $38,276 $23,042
====== ======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest................................................. $ 6,195 $ 6,262
Income taxes............................................. $ 8,907 $ 7,190
(3)
QUANEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Accounting Policies
- ----------------------
The interim consolidated financial statements of Quanex Corporation and
subsidiaries are unaudited, but include all adjustments which the Company deems
necessary for a fair presentation of its financial position and results of
operations. All such adjustments are of a normal recurring nature. Results of
operations for interim periods are not necessarily indicative of results to be
expected for the full year. All significant accounting policies conform to those
previously set forth in the Company's fiscal 1995 Annual Report on Form 10-K,
which is incorporated by reference. Certain amounts for prior periods have been
reclassified in the accompanying consolidated financial statements to conform to
1996 classifications.
2. Inventories
- --------------
Inventories consist of the following: April 30, October 31,
1996 1995
-------- ---------
(In thousands)
Inventories valued at lower of cost
(principally LIFO method) or market:
Raw materials .................................. $29,344 $27,655
Finished goods and work in process ............. 54,549 48,071
------- -------
83,893 75,726
Other ............................................. 10,295 8,950
-------- -------
$94,188 $84,676
======= =======
With respect to inventories valued using the LIFO method, replacement cost
exceeded the LIFO value by approximately $21 million at April 30, 1996 and $24
million at October 31, 1995
3. Long-Term Debt and Financing Arrangements
- --------------------------------------------
On June 30, 1995, the Company exercised its right under the terms of its
Cumulative Convertible Exchangeable Preferred Stock to exchange such stock for
an aggregate of $84,920,000 of its 6.88% Convertible Subordinated Debentures due
June 30, 2007 ("Debentures"). Interest is payable semi-annually on June 30 and
December 31 of each year. The Debentures are subject to mandatory annual sinking
fund payments sufficient to redeem 25% of the Debentures issued on each of June
30, 2005 and June 30, 2006, to retire a total of 50% of the Debentures before
maturity. The Debentures are subordinate to all senior indebtedness of the
Company and are convertible, at the option of the holder, into shares of the
Company's common stock at a conversion price of $31.50 per share.
In December 1995, the Company acquired all of its outstanding 10.77% Senior
Notes for a purchase price equal to 107.5% of the principal amount plus accrued
interest. The acquisition and related expenses resulted in an after-tax
extraordinary charge of approximately $2.5 million ($4.3 million before tax) in
the first quarter of 1996.
At April 30, 1996, the Company had $50.0 million outstanding under its unsecured
$75 million Revolving Credit and Letter of Credit Agreement ("Bank Agreement").
The Bank Agreement consists of a revolving line of credit ("Revolver"), which
expires March 31, 1999, and up to $20 million for standby letters of credit,
limited to the undrawn amount available under the Revolver. All borrowings under
the Revolver bear interest, at the option of the Company, at either floating
prime or a reserve adjusted Eurodollar rate. Borrowings under the Revolver
during the first quarter of 1996 were used to fund the repurchase of the
Company's 10.77% Senior Notes.
(4)
QUANEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Industry Segment Information
Quanex is principally a specialty metals producer. The Company's operations
primarily consist of four segments: hot rolled steel bars, cold finished steel
bars, steel tubes, and aluminum products.
Cold Corporate
Three Months Ended Hot Rolled Finished Steel Aluminum and Consoli-
April 30, 1996 Steel Bars Steel Bars Tubes Products Other(1) dated
------------------ ---------- ---------- ---------- ---------- ---------- ----------
(in thousands)
Units shipped:
To unaffiliated companies 127.7 Tons 48.4 Tons 24.2 Tons 59,833 Lbs.
Intersegment............ 6.5 - - -
------- ------- ------- -------
Total.................... 134.2 Tons 48.4 Tons 24.2 Tons 59,833 Lbs.
======= ======= ======= =======
Net Sales:
To unaffiliated companies $69,375 $44,025 $31,661 $73,280 - $218,341
Intersegment(2)......... 3,715 - - - $(3,715) -
------- ------- ------- ------- ------- -------
Total.................... $73,090 $44,025 $31,661 $73,280 $(3,715) $218,341
======= ======= ======= ======= ======= =======
Operating income (loss).. $10,340 $ 2,800 $ 2,382 $ 3,766 $(4,116) $ 15,172
======= ======= ======= ======= ======= =======
Cold Corporate
Three Months Ended Hot Rolled Finished Steel Aluminum and Consoli-
April 30, 1995 Steel Bars Steel Bars Tubes Products Other(1) dated
------------------ ---------- ---------- ---------- ---------- ---------- ----------
Units shipped:
To unaffiliated companies 120.2 Tons 53.0 Tons 25.3 Tons 58,336 Lbs.
Intersegment............ 7.4 - - -
------- ------- ------- -------
Total.................... 127.6 Tons 53.0 Tons 25.3 Tons 58,336 Lbs.
======= ======= ======= =======
Net Sales:
To unaffiliated companies $67,087 $49,627 $31,541 $86,092 - $234,347
Intersegment(2)......... 4,260 - 1 - $(4,261) -
------- ------- ------- ------- ------- -------
Total.................... $71,347 $49,627 $31,542 $86,092 $(4,261) $234,347
======= ======= ======= ======= ======= =======
Operating income (loss).. $10,058 $ 4,070 $ 2,985 $ 5,262 $(5,208) $ 17,167
======= ======= ======= ======= ======= =======
Cold Corporate
Six Months Ended Hot Rolled Finished Steel Aluminum and Consoli-
April 30, 1996 Steel Bars Steel Bars Tubes Products Other(1) dated
---------------- ---------- ---------- ---------- ---------- ---------- ----------
Units shipped:
To unaffiliated companies 230.9 Tons 87.8 Tons 47.1 Tons 109,466 Lbs.
Intersegment............ 14.1 - - -
------- ------- ------- -------
Total.................... 245.0 Tons 87.8 Tons 47.1 Tons 109,466 Lbs.
======= ======= ======= =======
Net Sales:
To unaffiliated companies $126,483 $ 81,650 $61,811 $137,169 - $407,113
Intersegment(2)......... 8,158 - - - $ (8,158) -
------- ------- ------- ------- ------- -------
Total.................... $134,641 $ 81,650 $61,811 $137,169 $ (8,158) $407,113
======= ======= ======= ======= ======= =======
Operating income (loss).. $ 17,675 $ 5,472 $ 4,337 $ 5,417 $ (8,052) $ 24,849
======= ======= ======= ======= ======= =======
Cold Corporate
Six Months Ended Hot Rolled Finished Steel Aluminum and Consoli-
April 30, 1995 Steel Bars Steel Bars Tubes Products Other(1) dated
---------------- ---------- ---------- ---------- ---------- ---------- ----------
Units shipped:
To unaffiliated companies 232.2 Tons 101.0 Tons 48.0 Tons 109,509 Lbs.
Intersegment............ 12.5 - - -
------- ------- ------- -------
Total.................... 244.7 Tons 101.0 Tons 48.0 Tons 109,509 Lbs.
======= ======= ======= =======
Net Sales:
To unaffiliated companies $126,651 $ 92,954 $60,336 $154,292 - $434,233
Intersegment(2)......... 7,176 - 1 - $ (7,177) -
------- ------- ------- ------- ------- -------
Total.................... $133,827 $ 92,954 $60,337 $154,292 $ (7,177) $434,233
======= ======= ======= ======= ======= =======
Operating income (loss).. $ 17,034 $ 6,739 $ 4,864 $ 9,447 $(10,506) $ 27,578
======= ======= ======= ======= ======= =======
(1) Included in "Corporate and Other" are intersegment eliminations and
corporate expenses.
(2) Intersegment sales are conducted on an arm's-length basis.
(5)
QUANEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. Subsequent event
- -------------------
On June 10, 1996, the Company announced that it had signed a letter of
intent to acquire substantially all of the net assets of Piper Impact, Inc.
("Piper"). The ultimate transaction will be consummated pursuant to a definitive
agreement to be negotiated between the Company and Piper. The Company intends to
increase its present revolving credit facility of $75 million to $250 million in
order to finance the Piper acquisition and its related working capital
requirements together with the Company's other capital needs. Piper is a
privately owned manufacturer of custom-designed, impact-extruded aluminum and
steel parts for the transportation, electronics and defense markets. The
acquisition is expected to be completed in July 1996.
(6)
Item 2 - Management's Discussion and Analysis of
Results of Operations and Financial Condition
RESULTS OF OPERATIONS
The Company classifies its operations into four business segments: hot
rolled steel bars, cold finished steel bars, steel tubes and aluminum products.
The Company's products are marketed to the industrial machinery and capital
equipment industries, the transportation industry, the energy processing
industry and the home building and remodeling industries.
All of the Company's business segments were affected during the three
and six month periods ended April 30, 1996, by a general reduction in demand for
their products from the record levels experienced in fiscal 1995. This reduction
in industry demand has resulted in a softening in prices in certain markets as
well as lower sales volumes in the cold finished steel bars and steel tubes
segments. The hot rolled steel bar segment offset these pressures through
increased sales volumes capitalizing on increased capacity. The aluminum
products business was able to maintain its volume and increase its market share
although pricing pressures resulted in reduced revenue and operating profit.
The Company's hot rolled steel bar business experienced improvement in
operating income for the second quarter of fiscal 1996 compared to the
record-setting second quarter of fiscal 1995. The results reflect the benefits
realized from the Company's capital improvement programs, which have allowed the
Company to increase volume, improve quality and better manage manufacturing
costs. Hot rolled steel bar volume was up during the second quarter by 5% as
compared to the second quarter of fiscal 1995.
The Company's cold finished steel bar business results for the second
quarter were affected by lower volume and average selling prices as compared to
the second quarter of fiscal 1995. However, the second quarter of 1995
represented all-time performance records for volume, net sales, and operating
income.
The Company's steel tube business results for the second quarter were
affected by tighter margins and slightly lower volume as compared to the second
quarter of fiscal 1995. The tube business, as with the Company's other segments,
experienced a strong second quarter in fiscal 1995.
The Company's aluminum products business was affected by weaker margins
between selling prices and raw material costs. These margins, referred to herein
as "price spreads", are a key financial performance indicator in the aluminum
products business. The second quarter of fiscal 1996 reflected improved results
as compared to the first quarter of 1996. The aluminum business achieved record
operating income in the second quarter of fiscal 1995.
The Company currently expects that business levels for the balance of
fiscal 1996 should be similar to those experienced during the same period of
fiscal 1995. Improved financial results will be dependent upon, among other
things, the strength of the economy, improvements in the markets which the
Company serves and improvement in the price spreads of aluminum products.
In December 1995, the Company acquired its remaining 10.77% Senior
Notes for a purchase price equal to 107.5% of the principal amount plus accrued
interest. The purchase resulted in an extraordinary charge of $2.5 million in
the first quarter of fiscal 1996.
(7)
Item 2 - Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
The following table sets forth selected operating data for the Company's four
businesses:
Three Months Ended Six Months Ended
April 30, April 30,
------------------ ----------------
1996 1995 1996 1995
------ ------ ----- -----
(In thousands)
Hot Rolled Steel Bars:
Units shipped (Tons)............ 134.2 127.6 245.0 244.7
Net Sales....................... $ 73,090 $ 71,347 $134,641 $133,827
Operating income................ $ 10,340 $ 10,058 $ 17,675 $ 17,034
Depreciation and amortization... $ 4,590 $ 3,870 $ 9,180 $ 7,740
Identifiable assets............. $170,779 $174,055 $170,779 $174,055
Cold Finished Steel Bars:
Units shipped (Tons)............ 48.4 53.0 87.8 101.0
Net Sales....................... $ 44,025 $ 49,627 $ 81,650 $ 92,954
Operating income................ $ 2,800 $ 4,070 $ 5,472 $ 6,739
Depreciation and amortization... $ 419 $ 347 $ 839 $ 693
Identifiable assets............. $ 58,420 $ 57,005 $ 58,420 $ 57,005
Steel Tubes:
Units shipped (Tons)............ 24.2 25.3 47.1 48.0
Net Sales....................... $ 31,661 $ 31,542 $ 61,811 $ 60,337
Operating income................ $ 2,382 $ 2,985 $ 4,337 $ 4,864
Depreciation and amortization... $ 583 $ 510 $ 1,178 $ 1,035
Identifiable assets............. $ 43,839 $ 42,652 $ 43,839 $ 42,652
Aluminum Products:
Units shipped (Pounds).......... 59,833 58,336 109,466 109,509
Net Sales....................... $ 73,280 $ 86,092 $137,169 $154,292
Operating income................ $ 3,766 $ 5,262 $ 5,417 $ 9,447
Depreciation and amortization... $ 3,454 $ 3,386 $ 6,937 $ 6,717
Identifiable assets............. $227,862 $252,886 $227,862 $252,886
Consolidated net sales for the three and six months ended April 30,
1996, were $218.3 million and $407.1 million, respectively, representing
decreases of $16.0 million, or 7%, and $27.1 million, or 6%, respectively, when
compared to the same periods last year. The reduction in net sales was primarily
attributable to lower sales volumes compared to the record levels achieved in
fiscal 1995.
Net sales from the Company's hot rolled steel bar business for the
three and six months ended April 30, 1996, were $73.1 million and $134.6
million, respectively, representing increases of $1.7 million, or 2%, and $814
thousand, or 1%, respectively, when compared to the same periods last year.
Average selling price for the second quarter declined approximately 3% which is
attributable to slightly weaker conditions in the durable goods markets. The
sales decrease resulting from lower average selling prices was offset by higher
volume resulting from improved market share and the additional capacity added
during fiscal year 1995.
Net sales from the Company's cold finished steel bar business for the
three and six months ended April 30, 1996, were $44.0 million and $81.7 million,
respectively, representing decreases of $5.6 million, or 11%, and $11.3 million,
or 12%, respectively, when compared to the same periods last year. Business
levels improved during the second quarter over the first quarter of fiscal 1996
as steel service centers returned to more normal buying patterns late in the
quarter following a period of working down inventories. However, business
remained below the all-time record levels experienced during the second quarter
of fiscal 1995.
(8)
Item 2 - Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
Net sales from the Company's steel tube business for the three and six
months ended April 30, 1996, were $31.7 million and $61.8 million, respectively,
representing increases of $119 thousand, or less than 1%, and $1.5 million, or
2%, respectively, when compared to the same periods last year. Average selling
prices for the second quarter of fiscal 1996 increased by approximately 5% as
compared to the second quarter of fiscal 1995 mostly due to product mix.
Year-to-date average selling prices increased by approximately 4% as compared to
the same prior year period partly due to product mix and continued strength in
the seamless heat exchanger/condenser markets.
Net sales from the Company's aluminum products business for the three
and six months ended April 30, 1996, were $73.3 million and $137.2 million,
respectively, representing decreases of $12.8 million, or 15%, and $17.1
million, or 11%, respectively, when compared to the same periods last year.
Average selling price for the second quarter of fiscal 1996 was down
approximately 18% as compared to the second quarter of fiscal 1995. Year-to-date
average selling prices decreased by approximately 11% as compared to the same
prior year period. Volumes for both the quarter and year-to-date are comparable
to the same periods in fiscal 1995.
Consolidated operating income for the three and six months ended April
30, 1996, was $15.2 million and $24.8 million, respectively, representing
decreases of $2.0 million, or 12%, and $2.7 million, or 10%, respectively, when
compared to the same periods last year.
Operating income from the Company's hot rolled steel bar business for
the three and six months ended April 30, 1996, was $10.3 million and $17.7
million, respectively, representing increases of $282 thousand, or 3%, and $641
thousand, or 4%, respectively, when compared to the same periods last year. The
improvement resulted principally from higher volume offset by lower average
selling prices.
Operating income from the Company's cold finished steel bar business
for the three and six months ended April 30, 1996, was $2.8 million and $5.5
million, respectively, representing decreases of $1.3 million, or 31%, and $1.3
million, or 19%, respectively, when compared to the same periods last year. The
decrease is attributable to lower volume and net sales. However, the second
quarter of 1995 represented all-time performance records for volume, net sales,
and operating income.
Operating income from the Company's steel tube business for the three
and six months ended April 30, 1996, was $2.4 million and $4.3 million,
respectively, representing decreases of $603 thousand, or 20%, and $527
thousand, or 11%, respectively, when compared to the same periods last year. The
decrease resulted primarily from lower margins. The quarter was also marginally
affected by start-up costs at the NitroSteel division.
Operating income from the Company's aluminum products business for the
three and six months ended April 30, 1996, was $3.8 million and $5.4 million,
respectively, representing decreases of $1.5 million, or 28%, and $4.0 million,
or 43%, respectively, when compared to the same periods last year. The decreases
were principally related to lower price spreads.
Selling, general and administrative expenses decreased by $1.0 million,
or 8%, and $1.7 million, or 7%, respectively, for the three and six months ended
April 30, 1996, as compared to the same periods of 1995. However, as a
percentage of net sales, selling, general and administrative expenses are
essentially unchanged for both the quarter and year-to-date as compared to the
same periods last year.
(9)
Item 2 - Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
Interest expense was relatively flat as compared to the same periods of
1995. Increased interest related to the Company's $84.9 million of 6.88%
Convertible Subordinated Debentures that were issued in June 1995 in exchange
for the Company's outstanding preferred stock was offset by the early
extinguishment of a portion of the Company's senior debt in the first quarter of
fiscal 1995 and the early extinguishment of the remaining senior debt in the
first fiscal quarter of 1996.
Capitalized interest decreased by $759 thousand and $1.7 million,
respectively, as compared to the first and second quarter of fiscal 1995. The
decrease is associated with the completion in March 1995 of the Phase II
MacSteel Ultra Clean Steel Program.
Net income attributable to common shareholders for the three and six
months ended April 30, 1996, was $8.1 million and $9.7 million, respectively, as
compared to $8.3 million and $9.5 million, respectively, for the same 1995
periods, after deducting preferred dividends of $1.5 million from the first and
second quarters of fiscal 1995. Included in the six months ended April 30, 1996
and 1995, were extraordinary charges of $2.5 million and $2.0 million,
respectively, relating to early extinguishment of debt. Included in "Other, net"
for the three and six months ended April 30, 1996, was a $2.3 million pretax
gain which represents the final recovery of a business interruption claim
related to a fire at the Company's Lincolnshire, Illinois facility that occurred
in 1993. Also included in "Other, net" for the three and six months ended April
30, 1996, was $1.5 million resulting from a loss on abandonment of idle assets.
Included in "Other, net" for the three and six months ended April 30, 1995 was a
$1.1 million pretax gain related to a life insurance policy on a deceased former
officer. Also included in "Other, net" was investment income of $342 thousand
and $690 thousand, respectively, for the three and six months ended April 30,
1996, as compared to investment income of $213 thousand and an investment loss
of $80 thousand, respectively, for the same 1995 periods.
Liquidity and Capital Resources
The Company's principal sources of funds are cash on hand, cash flow
from operations, and borrowings under a $75 million unsecured revolving credit
facility with a group of banks (the "Bank Agreement"). All borrowings under the
Bank Agreement bear interest, at the option of the Company, at either floating
prime or a reserve adjusted Eurodollar rate. The Bank Agreement contains
customary affirmative and negative covenants and requirements to maintain a
minimum consolidated tangible net worth, as defined. The Bank Agreement limits
the payment of dividends and certain restricted investments. Under the Bank
Agreement, at April 30, 1996, there were $50.0 million of outstanding
borrowings. The amount outstanding under the Bank Agreement increased during the
quarter ended January 31, 1996, in order to fund the repurchase of the Company's
remaining senior debt.
In December 1995, the Company acquired all of its outstanding 10.77%
Senior Notes for a purchase price equal to 107.5% of the principal amount plus
accrued interest. The acquisition and related expenses resulted in an after-tax
extraordinary charge of approximately $2.5 million in the first quarter of 1996.
The acquisition was funded with cash and additional borrowings under the Bank
Agreement.
(10)
Item 2 - Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
On June 30, 1995, the Company exercised its right under the terms of
the Preferred Stock to exchange such stock for $84,920,000 principal amount of
Debentures. Interest on the Debentures is payable semi-annually on June 30 and
December 31 of each year. The Debentures are subject to mandatory annual sinking
fund payments sufficient to redeem 25% of the Debentures issued on each of June
30, 2005 and June 30, 2006, to retire a total of 50% of the Debentures before
maturity. The Debentures are subordinate to all senior indebtedness of the
Company and are convertible, at the option of the holder, into shares of the
Company's common stock at a conversion price of $31.50 per share.
At April 30, 1996, the Company had commitments of $13 million for the
purchase or construction of capital assets. The Company's $52 million (not
including approximately $9 million in capitalized interest) Phase II MacSteel
Ultra Clean Steel Program, which increased capacity by approximately 50,000
tons, was completed in fiscal 1995. In December 1995, the Company's Board of
Directors approved Phase III of the MacSteel expansion project. Phase III is
designed to improve melting and casting capabilities and is expected to increase
capacity by approximately 70,000 tons. The project also includes significant
upgrades to pollution control systems to ensure compliance with new EPA
standards under the Clean Air Act. Phase III is expected to cost approximately
$60 million and should be completed during fiscal year 1998. The Company plans
to fund this capital investment through cash flow from operations and, if
necessary, additional borrowings.
On June 10, 1996, the Company announced that it had signed a letter of
intent to acquire substantially all of the net assets of Piper Impact, Inc.
("Piper"). The ultimate transaction will be consummated pursuant to a definitive
agreement to be negotiated between the Company and Piper. The Company intends to
increase its present revolving credit facility of $75 million to $250 million in
order to finance the Piper acquisition and its related working capital
requirements together with the Company's other capital needs. The acquisition is
expected to be completed in July 1996.
In management's opinion, the Company currently has sufficient funds and
adequate financial sources available to meet its anticipated liquidity needs.
Management believes that cash flow from operations, cash balances and available
borrowings, including the above referenced anticipated increase in the
revolving credit facility, should be sufficient for the foreseeable future to
finance anticipated working capital requirements, capital expenditures, debt
service requirements and dividends.
OPERATING ACTIVITIES
Cash provided by operating activities during the six months ended April
30, 1996, was $15.9 million as compared to $5.5 million during the six months
ended April 30, 1995. The increase was principally due to lower working capital.
INVESTMENT ACTIVITIES
Net cash used by investment activities during the six months ended
April 30, 1996, was $14.8 million as compared to net cash provided by investment
activities of $38.7 million for the same 1995 period. The decrease in cash
provided by investment activities was principally due to decreases in short-term
investments during the six months ended April 30, 1995. Capital expenditures,
net of retirements, for the six months ended April 30, 1996, were $12.0 million
as compared to $14.9 million for the same 1995 period. The Company estimates
that fiscal 1996 capital expenditures will approximate $40 to $50 million.
FINANCING ACTIVITIES
Cash used by financing activities for the six months ended April 30,
1996, was $8.0 million, principally consisting of $44.7 million for the early
extinguishment of long-term debt, a $10.0 million reduction in notes payable and
$4.1 million in common dividends. These uses of funds were mostly offset by
long-term bank borrowings of $50.0 million.
(11)
PART II. OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
On February 22, 1996, the Company held its regular Annual Meeting of
Stockholders (the "Annual Meeting").
At the Annual Meeting, Gerald B. Haeckel and Michael J. Sebastian were elected
as directors for a three year term. The following sets forth the number of
shares that voted for and for which votes were withheld for the election of each
of such persons:
For Withheld
---------- --------
Gerald B. Haeckel 11,399,916 109,944
Michael J. Sebastian 11,401,598 108,263
In addition, at the Annual Meeting, the stockholders of the Company ratified the
appointment of Deloitte & Touche LLP as the Company's independent auditors,
approved an amendment to the Company's Deferred Compensation Plan and approved
the 1996 Employee Stock Option and Restricted Stock Plan. The ratification of
Deloitte & Touche LLP as the Company's independent auditors was approved with
11,410,291 votes cast for approval, 44,408 votes cast against and 55,106
abstentions. The amendment to the Deferred Compensation Plan was approved with
9,151,318 votes cast for approval, 429,961 votes cast against, 145,780
abstentions and 1,782,766 broker non-votes. The 1996 Employee Stock Option and
Restricted Stock Plan was approved with 9,174,586 votes cast for approval,
443,801 votes cast against, 110,024 abstentions and 1,781,414 broker non-votes.
Item 5 - Other Information.
- ---------------------------
None
Item 6 - Exhibits and Reports on Form 8-K.
11 Statement re computation of per share earnings.
27 Financial Data Schedule.
No reports on Form 8-K were filed by the Company during
the quarter for which this report is being filed.
(12)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
QUANEX CORPORATION
/s/ Viren M. Parikh
-------------------
Viren M. Parikh
Controller (Chief Accounting Officer)
Date June 10, 1996
- -------------------
(13)
EXHIBIT 11
QUANEX CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE
(In thousands, except per share amounts)
Three Months Ended Six Months Ended
April 30, April 30,
----------------- -----------------
1996 1995 1996 1995
------ ------ ------ ------
(Unaudited) (Unaudited)
Income before extraordinary charge................$ 8,132 $ 9,822 $ 12,179 $ 14,475
Extraordinary charge - early extinguishment of debt - - (2,522) (2,021)
------ ------ ------ ------
Net income........................................ 8,132 9,822 9,657 12,454
Preferred dividend requirements................... - (1,483) - (2,967)
Net income attributable to ------ ------ ------ ------
common stockholders.............................$ 8,132 $ 8,339 $ 9,657 $ 9,487
====== ====== ====== ======
Weighted average shares
outstanding-primary............................. 13,641 13,601 13,614 13,580
====== ====== ====== ======
Earnings per common share:
Primary:
Earnings before extraordinary charge........... 0.60 0.62 0.90 0.85
Extraordinary charge........................... - - (0.19) (0.15)
------ ------ ------ ------
Earnings per common share.................... 0.60 0.62 0.71 0.70
====== ====== ====== ======
Income before extraordinary charge................$ 8,132 $ 9,822 $ 12,179 $ 14,475
Interest on 6.88% convertible subordinated
debentures and amortization of related issuance
costs, net of applicable income taxes.......... 891 - 1,784 -
------ ------ ------ ------
Adjusted income before extraordinary charge 9,023 9,822 13,963 14,475
Extraordinary charge - early extinguishment of debt - - (2,522) (2,021)
------ ------ ------ ------
Adjusted net income after extraordinary charge.... 9,023 9,822 11,441 12,454
====== ====== ====== ======
Weighted average shares
outstanding-primary............................. 13,641 13,601 13,614 13,580
Effect of common stock equivalents
arising from stock options...................... 23 12 43 23
Preferred stock assumed converted
to common stock................................. - 2,738 - 2,738
Subordinated debentures assumed converted
to common stock................................. 2,696 - 2,696 -
Weighted average shares ------ ------ ------ ------
outstanding-fully diluted....................... 16,360 16,351 16,353 16,341
====== ====== ====== ======
Earnings per common share:
Assuming full dilution:
Earnings before extraordinary charge........... 0.55 0.60 0.85 0.88
Extraordinary charge........................... - - (0.15) (0.12)
------ ------ ------ ------
Earnings per common share.................... 0.55 0.60 0.70 0.76
====== ====== ====== ======
5
1,000
6-MOS
OCT-31-1996
NOV-01-1995
APR-30-1996
38,276
0
100,193
0
94,188
240,919
538,721
285,749
541,291
130,726
138,195
6,760
0
0
170,052
541,291
407,113
407,113
359,100
359,100
0
0
5,140
20,999
8,820
12,179
0
2,522
0
9,657
0.710
0.700
