1
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, 1994
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, 1994
- - --------------------------------------- ----------------------------
Common Stock, par value $0.50 per share 13,356,338
2
QUANEX CORPORATION
INDEX
Page No.
--------
Part I. Financial Information:
Item 1: Financial Statements
Consolidated Balance Sheets - July 31, 1994 and
October 31, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Consolidated Statements of Income - Three and Nine Months
Ended July 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Cash Flow - Nine Months
Ended July 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . 3
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . 4-6
Item 2: Management's Discussion and Analysis of Results of
Operations and Financial Condition . . . . . . . . . . . . . . . . . . . . . . . 7-12
Part II. Other Information
Item 6: Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . 13
Exhibit 11 Computation of Earnings per Common Share
3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
QUANEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
July 31, October 31,
1994 1993
----------- ------------
(Unaudited) (Audited)
ASSETS
- - ------
Current assets:
Cash and equivalents...................................... $ 30,245 $ 42,247
Short-term investments.................................... 47,163 47,655
Accounts and notes receivable, net........................ 82,546 72,266
Inventories............................................... 86,029 76,899
Deferred income taxes..................................... 4,541 3,875
Prepaid expenses.......................................... 817 468
---------- -----------
Total current assets.............................. 251,341 243,410
Property, plant and equipment............................... 488,914 459,154
Less accumulated depreciation and amortization.............. (235,818) (216,808)
---------- -----------
Net property, plant and equipment........................... 253,096 242,346
Goodwill, net............................................... 33,253 33,964
Other assets................................................ 8,177 9,147
---------- -----------
$ 545,867 $ 528,867
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- - ------------------------------------
Current liabilities:
Accounts payable.......................................... $ 66,597 $ 62,349
Income taxes payable...................................... 950 -
Accrued expenses.......................................... 37,580 32,504
Current maturities of long-term debt...................... 115 219
---------- -----------
Total current liabilities......................... 105,242 95,072
Long-term debt.............................................. 128,400 128,476
Deferred pension credits.................................... 15,141 13,923
Deferred postretirement welfare benefits.................... 49,934 47,559
Deferred income taxes....................................... 19,725 18,061
---------- -----------
Total liabilities................................. 318,442 303,091
Stockholders' equity:
Preferred stock, no par value............................. 86,250 86,250
Common stock, $.50 par value.............................. 6,678 6,657
Additional paid-in capital................................ 85,979 85,218
Retained earnings......................................... 50,906 49,635
Unearned compensation..................................... (404) -
Adjustment for minimum pension liability.................. (1,984) (1,984)
---------- -----------
Total stockholders' equity........................ 227,425 225,776
---------- -----------
$ 545,867 $ 528,867
========== ===========
(1)
4
QUANEX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
July 31, July 31,
------------------ -----------------
1994 1993 1994 1993
-------- ------- -------- -------
(Unaudited)
Net sales.................................................................. $ 181,088 $ 153,500 $ 502,845 $ 456,300
Cost and expenses:
Cost of sales............................................................ 157,554 136,584 444,598 411,375
Selling, general and administrative expense.............................. 11,378 9,873 32,266 30,783
--------- --------- --------- ---------
Operating income........................................................... 12,156 7,043 25,981 14,142
Other income (expense):
Interest expense......................................................... (3,484) (3,492) (10,461) (10,268)
Capitalized interest..................................................... 996 586 2,613 1,262
Other, net............................................................... 292 480 1,388 3,598
--------- --------- --------- ---------
Income before income taxes................................................. 9,960 4,617 19,521 8,734
Income tax expense......................................................... (4,183) (1,939) (8,199) (3,668)
--------- --------- --------- ---------
Net income................................................................. 5,777 2,678 11,322 5,066
Preferred dividends........................................................ (1,484) (1,484) (4,451) (4,451)
--------- --------- --------- ---------
Net income attributable to
common stockholders...................................................... $ 4,293 $ 1,194 $ 6,871 $ 615
========= ========= ========= =========
Primary earnings (loss) per common share................................... $ 0.32 $ 0.09 $ 0.51 $ 0.05
========= ========= ========= =========
Weighted average shares outstanding........................................ 13,465 13,346 13,442 13,532
========= ========= ========= =========
(2)
5
QUANEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)
Nine Months Ended July 31,
-----------------------------
1994 1993
-------- ----------
(Unaudited)
Operating activities:
Net income..................................................... $ 11,322 $ 5,066
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation and amortization............................. 21,885 22,758
Facilities realignment accrual............................ (1,128) (2,326)
Deferred income taxes..................................... 1,664 1,126
Pension costs............................................. 1,218 917
Postretirement welfare benefits........................... 2,375 1,631
-------- ---------
37,336 29,172
Changes in assets and liabilities net of effects from
acquisitions and dispositions:
Decrease (increase) in accounts and notes receivable...... (16,670) 3,505
Decrease (increase) in inventory.......................... (9,130) (2,985)
Increase (decrease) in accounts payable................... 4,248 (10,734)
Increase (decrease) in accrued expenses................... 5,076 239
Other, net................................................ (65) 615
-------- ---------
Cash provided (used) by operating activities......... 20,795 19,812
Investment activities:
Capital expenditures, net of retirements....................... (30,213) (26,997)
Decrease (increase) in short-term investments.................. 492 -
Proceeds from the sale of Bellville Tube
Division and Viking Metallurgical Subsidiary............... 6,390 15,500
Other, net..................................................... 387 3,445
-------- ---------
Cash provided (used) by investment activities........ (22,944) (8,052)
-------- ---------
Cash provided (used) by operating and
investment activities............................. (2,149) 11,760
Financing activities:
Repayments of long-term debt................................... (180) (71)
Dividends paid................................................. (10,051) (10,135)
Purchases of Quanex common stock............................... - (4,996)
Other, net..................................................... 378 158
-------- ---------
Cash used by financing activities.................... (9,853) (15,044)
-------- ---------
Increase (decrease) in cash and equivalents...................... (12,002) (3,284)
Cash and equivalents at beginning of period...................... 42,247 96,858
-------- ---------
Cash and equivalents at end of period............................ $ 30,245 $ 93,574
======== =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest......................................................... $ 7,090 $ 7,075
Income taxes..................................................... $ 6,500 $ 2,250
(3)
6
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 1993 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 1994
classifications.
2. Inventories
Inventories consist of the following: July 31, October 31,
1994 1993
----------- -----------
(In thousands)
Inventories valued at lower of cost
(principally LIFO method) or market:
Raw materials . . . . . . . . . . . . . $30,847 $25,474
Finished goods and work in process . . . 45,674 42,610
------- -------
76,521 68,084
Other . . . . . . . . . . . . . . . . . . . 9,508 8,815
------- -------
$86,029 $76,899
======= =======
With respect to inventories valued using the LIFO method, replacement cost
exceeded the LIFO value by approximately $13 million at July 31, 1994, and
$10 million at October 31, 1993.
3. Long-term Debt and Financing Arrangements
At July 31, 1994, the Company had $125 million outstanding under its
unsecured long-term Note Agreement (Senior Notes Agreement). The debt
bears interest at the rate of 10.77% per annum, payable semi-annually. The
Senior Notes Agreement will mature on August 23, 2000, and requires annual
repayments of $20,833,000 beginning on August 23, 1995.
At July 31, 1994, the Company had no amounts 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), which expires March 31, 1997, and includes 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, 1994, the Company
was in compliance with all of the covenants.
(4)
7
4. Income Taxes
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 109, "Accounting for Income Taxes", effective November 1, 1993. This
Statement supersedes SFAS No. 96, "Accounting for Income Taxes", which was
adopted by the Company in 1989. It was not necessary for the Company to
record any adjustments for the cumulative effect of adopting SFAS No. 109.
Deferred income taxes typically reflect (a) the net tax effects of
temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for
income tax purposes, and (b) alternative minimum tax, operating loss and
tax credit carryforwards. Significant components of the Company's net
deferred tax liability as of November 1, 1993 are as follows:
November 1,
1993
-----------
($000)
Deferred tax liabilities:
Tax over book depreciation $ 38,690
Other 4,917
--------
43,607
--------
Deferred tax assets:
Employee benefit obligations 26,695
Reserves not currently deductible 2,726
--------
29,421
--------
Net deferred tax liability $ 14,186
========
At July 31, 1994, $4,541,000 of deferred tax assets were classified as a
current asset and included in "Deferred income taxes" on the Consolidated
Balance Sheet. No valuation allowance was required for deferred tax assets
at either November 1, 1993 or July 31, 1994.
(5)
8
QUANEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. 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 building products.
Cold
Three Months Ended Hot Rolled Finished Steel Alum. Bldg.
July 31, 1994 Steel Bars Steel Bars Tubes Products
------------------ ---------- ---------- ----- -----------
(in thousands)
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
Intersegment(2) ............................. 2,681 - - -
---------- ----------- ----------- -------------
Total......................................... $ 59,848 40,251 24,693 58,977
========== =========== =========== =============
Operating income (loss)....................... $ 7,719 $ 2,147 $ 1,055 $ 4,953
========== =========== =========== =============
Three Months Ended Consoli-
July 31, 1994 Other(1) dated
------------------ -------- --------
(in thousands)
Units shipped:
To unaffiliated companies....................
Intersegment.................................
Total.........................................
Net Sales:
To unaffiliated companies.................... $ - $ 181,088
Intersegment(2) ............................. (2,681) -
----------- ------------
Total......................................... (2,681) 181,088
=========== ============
Operating income (loss)....................... $ (3,718) $ 12,156
=========== ============
Cold
Three Months Ended Hot Rolled Finished Steel Alum. Bldg.
July 31, 1993 Steel Bars Steel Bars Tubes Products
------------------ ---------- ---------- -------- -----------
Units shipped:
To unaffiliated companies.................... 106.5 Tons 47.4 Tons 17.4 Tons 28,497 Lbs.
Intersegment................................. 6.1 - - -
---------- ----------- ----------- -------------
Total......................................... 112.6 Tons 47.4 Tons 17.4 Tons 28,497 Lbs.
========== =========== =========== =============
Net Sales:
To unaffiliated companies.................... $ 50,553 $ 38,815 $ 23,544 $ 40,588
Intersegment(2) ............................. 3,186 - - -
---------- ----------- ----------- -------------
Total......................................... $ 53,739 38,815 23,544 40,588
========== =========== =========== =============
Operating income (loss)....................... $ 5,255 $ 1,718 $ 1,043 $ 2,120
========== =========== =========== =============
Three Months Ended Consoli-
July 31, 1993 Other(1) dated
------------------ -------- --------
Units shipped:
To unaffiliated companies....................
Intersegment.................................
Total.........................................
Net Sales:
To unaffiliated companies.................... $ - $ 153,500
Intersegment(2) ............................. (3,186) -
----------- ------------
Total......................................... (3,186) 153,500
=========== ============
Operating income (loss)....................... $ (3,093) $ 7,043
=========== ============
Cold
Nine Months Ended Hot Rolled Finished Steel Alum. Bldg.
July 31, 1994 Steel Bars Steel Bars Tubes Products
------------------ ---------- ---------- ----- -----------
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
Intersegment(2) ............................. 10,597 - - -
---------- ----------- ----------- -------------
Total......................................... $ 180,733 120,677 76,865 135,167
========== =========== =========== =============
Operating income (loss)....................... $ 22,101 $ 6,430 $ 4,171 $ 3,232
========== =========== =========== =============
Nine Months Ended Consoli-
July 31, 1994 Other(1) dated
------------------ -------- --------
Units shipped:
To unaffiliated companies....................
Intersegment.................................
Total.........................................
Net Sales:
To unaffiliated companies.................... $ - $ 502,845
Intersegment(2) ............................. (10,597) -
----------- ------------
Total......................................... (10,597) 502,845
=========== ============
Operating income (loss)....................... $ (9,953) $ 25,981
=========== ============
Cold
Nine Months Ended Hot Rolled Finished Steel Alum. Bldg.
July 31, 1993 Steel Bars Steel Bars Tubes(3) Products
------------------ ---------- ---------- -------- -----------
Units shipped:
To unaffiliated companies.................... 312.4 Tons 132.6 Tons 92.9 Tons 74,730 Lbs.
Intersegment................................. 18.8 - - -
---------- ----------- ----------- -------------
Total......................................... 331.2 Tons 132.6 Tons 92.9 Tons 74,730 Lbs.
========== =========== =========== =============
Net Sales:
To unaffiliated companies.................... $ 146,393 $ 108,204 $ 93,845 $ 101,693
Intersegment(2) ............................. 9,709 - - -
---------- ----------- ----------- -------------
Total......................................... $ 156,102 108,204 93,845 101,693
========== =========== =========== =============
Operating income (loss)....................... $ 15,119 $ 4,562 $ 6,724 $ (2,608)
========== =========== =========== =============
Nine Months Ended Consoli-
July 31, 1993 Other(1) dated
------------------ -------- --------
Units shipped:
To unaffiliated companies....................
Intersegment.................................
Total.........................................
Net Sales:
To unaffiliated companies.................... $ 6,165 $ 456,300
Intersegment(2) ............................. (9,709) -
----------- ------------
Total......................................... (3,544) 456,300
=========== ============
Operating income (loss)....................... $ (9,655) $ 14,142
=========== ============
(1)Included in "Other" are intersegment eliminations, Viking Metallurgical
Corporation (for the nine months ended July 31, 1993), and corporate
expenses.
(2)Intersegment sales are conducted on an arm's-length basis.
(3)Includes Bellville Tube Division which was sold during the second quarter of
fiscal 1993.
(6)
9
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 building
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.
Results for the first three quarters of fiscal 1994 reflect improved market
conditions in the Company's hot rolled and cold finished steel bar businesses,
higher average selling prices at those businesses, and lower costs per unit at
those businesses resulting from higher volume and the effects of cost reduction
programs. Results for the Company's steel tube businesses reflect the absence
of operating income from Bellville Tube Division, which was sold in fiscal
1993, and continuing downward pricing pressure from imports on certain
products. Weakness in the steel tube businesses' primary markets, which include
power generation, petrochemical and refining industries, also continued to
depress results. Results for the Company's aluminum building products business
also improved. Unit volume in the third quarter of 1994 increased
significantly over the prior year period due to improved demand and market
penetration. However, prices continued to be affected by excess supplies of
aluminum ingot. Also affecting the aluminum building products business for the
nine months ended July 31, 1994, was the loss of sales related to a fire that
occurred at the Company's Lincolnshire facility during the fourth quarter of
fiscal 1993 and continued to impact the first two quarters of fiscal 1994.
Improved results also reflected the continued recovery in the United States
economy, which has resulted in increased prices and demand. Continued improved
financial results will be dependent upon, among other things, whether
improvements in the economy are sustained and whether such improvements will
continue to be felt in the Company's businesses. The Company currently expects
that its results for the steel bar businesses for the fourth quarter ending
October 31, 1994 should continue to reflect strong demand. The steel tube
business is expected to continue to experience volume and pricing pressures
related to higher levels of imported tubing. Further improved results in the
Company's aluminum building products business are expected to be largely
dependent upon increasing unit volume and higher margins between selling prices
and scrap costs.
(7)
10
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,
-------------------- --------------------
1994 1993 1994 1993
-------- -------- -------- --------
(In thousands)
Hot Rolled Steel Bars:
Units shipped (Tons)........... 113.9 112.6 352.1 331.2
Net Sales...................... $ 59,848 $ 53,739 $180,733 $156,102
Operating income............... $ 7,719 $ 5,255 $ 22,101 $ 15,119
Depreciation and amortization.. $ 3,285 $ 3,200 $ 9,855 $ 9,590
Identifiable assets............ $165,571 $149,763 $165,571 $149,763
Cold Finished Steel Bars:
Units shipped (Tons)........... 45.8 47.4 138.9 132.6
Net Sales...................... $ 40,251 $ 38,815 $120,677 $108,204
Operating income............... $ 2,147 $ 1,718 $ 6,430 $ 4,562
Depreciation and amortization.. $ 311 $ 310 $ 985 $ 941
Identifiable assets............ $ 49,806 $ 44,285 $ 49,806 $ 44,285
Steel Tubes:
Units shipped (Tons)........... 19.9 17.4 59.2 92.9
Net Sales...................... $ 24,693 $ 23,544 $ 76,865 $ 93,845
Operating income............... $ 1,055 $ 1,043 $ 4,171 $ 6,724
Depreciation and amortization.. $ 488 $ 562 $ 1,515 $ 2,268
Identifiable assets............ $ 40,032 $ 36,064 $ 40,032 $ 36,064
Aluminum Building Products:
Units shipped (Pounds)......... 43,994 28,497 104,080 74,730
Net Sales...................... $ 58,977 $ 40,588 $135,167 $101,693
Operating income............... $ 4,953 $ 2,120 $ 3,232 $ (2,608)
Depreciation and amortization.. $ 3,280 $ 3,009 $ 9,271 $ 9,123
Identifiable assets............ $219,600 $194,701 $219,600 $194,701
Consolidated net sales for the quarter and nine months ended July 31, 1994,
were $181.1 million and $502.8 million, respectively, representing an increase
in third quarter sales of $27.6 million, or 18.0%, and an increase in
year-to-date sales of $46.5 million, or 10.2%, when compared to the three and
nine month periods last year. The increase is due to improvements in the
economy and increases in demand in the Company's hot rolled and cold finished
steel bar business which has resulted in higher average selling prices in the
Company's steel businesses. Sales of aluminum products have increased due to
improved demand and a larger customer base which resulted in a higher market
share. The Company realized these year-to-date increases in sales despite the
absence of $11.5 million and $25.8 million in sales, respectively, during the
first and second quarters of fiscal 1993 from businesses sold last year.
Net sales from the Company's hot rolled steel bar business for the quarter
and nine months ended July 31, 1994, were $59.8 million and $180.7 million,
respectively, as compared to $53.7 million and $156.1 million, respectively,
for the same 1993 periods. These results represent increases of $6.1 million,
or 11.4%, and $24.6 million, or 15.8%, respectively, as compared to the 1993
periods. These increases are attributable to improved demand, particularly in
the automotive and truck markets, and higher average selling prices. The
Company's hot rolled steel bar business is currently operating near capacity.
Net sales from the Company's cold finished steel bar business for the
quarter and nine months ended July 31, 1994, were $40.3 million and $120.7
million, respectively, as compared to $38.8 million and $108.2 million,
respectively, for the same 1993 periods. This represents increases of
(8)
11
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
$1.4 million, or 3.7%, and $12.5 million, or 11.5%, respectively, as compared
to the same 1993 periods. The increase for the three months ended July 31,
1994, as compared to the same prior period, is primarily due to increased
average selling prices of 7%. Volume for the same three month period
comparison was down slightly principally related to some equipment outages.
The increase for the nine months ended July 31, 1994, as compared to the same
prior year period is due to both improved demand and higher selling prices.
Net sales from the Company's steel tube business for the quarter and nine
months ended July 31, 1994, were $24.7 million and $76.9 million, respectively,
as compared to $23.5 million and $93.8 million, respectively, for the same 1993
periods. This represents an increase of $1.1 million, or 4.9%, and a decrease
of $17.0 million, or 18.1%, respectively, as compared to the same 1993 periods.
However, net sales for the nine months ended July 31, 1993, included revenues
from Bellville Tube Division that was sold in April of 1993. Excluding the net
sales of Bellville Tube Division from the 1993 data, net sales increased by
$2.6 million, or 3.5%, for the nine months ended July 31. The steel tube
business was adversely affected during the quarter and year-to-date by
increased foreign competition and lower prices for certain products. The
increased pressure from imports on certain products was partially offset by
improved demand and prices in automotive related business. Weakness in primary
markets, which include power generation, petrochemical and refining industries,
continues to depress revenues.
Net sales from the Company's aluminum building products business for the
quarter and nine months ended July 31, 1994, were $59.0 million and $135.2
million, respectively, as compared to $40.6 million and $101.7 million,
respectively, for the comparative 1993 periods. This represents increases of
$18.4 million, or 45.3%, and $33.5 million, or 32.9%, respectively, as compared
to the 1993 periods. This increase is attributable to improved demand related
to the economy and a larger customer base which resulted in a higher market
share.
Consolidated operating income for the quarter and nine months ended July
31, 1994, was $12.2 million and $26.0 million, respectively, as compared to
$7.0 million and $14.1 million, respectively, for the comparative 1993 periods.
This represents increases of $5.1 million, or 72.6%, and $11.8 million, or
83.7%, respectively, as compared to the same 1993 periods. This increase is
principally due to higher net sales combined with lower costs per unit for the
Company's hot rolled steel bars, cold finished steel bars, and aluminum
building products businesses, primarily related to operating at higher levels
of volume and cost reduction programs. Included in the nine months ended July
31, 1993, is $3.1 million of operating income from the Company's Bellville Tube
Division and Viking Metallurgical subsidiary which were sold during fiscal
1993.
Operating income from the Company's hot rolled steel bar business for the
quarter and nine months ended July 31, 1994, was $7.7 million and $22.1
million, respectively, as compared to $5.3 million and $15.1 million,
respectively, for the comparative 1993 periods. This represents increases of
$2.5 million, or 46.9%, and $7.0 million, or 46.2%, respectively, as compared
to the 1993 periods. This increase is due to higher net sales as well as lower
variable production costs per ton.
Operating income from the Company's cold finished steel bar business for
the quarter and nine months ended July 31, 1994, was $2.1 million and $6.4
million, respectively, as compared to $1.7 million and $4.6 million,
respectively, for the same 1993 periods. This represents increases of $429
thousand, or 25.0%, and $1.9 million, or 40.9%, respectively, as compared to
the 1993 periods. This increase is primarily due to higher net sales and lower
variable costs per ton.
(9)
12
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
Operating income from the Company's steel tube business for the quarter and
nine months ended July 31, 1994, was $1.1 million and $4.2 million,
respectively, as compared to $1.0 million and $6.7 million, respectively, for
the comparative 1993 periods. This represents an increase of $12 thousand, or
1.2%, and a decrease of $2.6 million, or 38.0%, respectively, as compared to
the 1993 periods. Operating income for the nine months ended July 31, 1993
included income from the Company's Bellville Tube Division, which was sold in
April of 1993. After excluding the impact of the Bellville Tube Division,
operating income for the nine months ended July 31, 1994, was essentially flat
as compared to the same period in 1993 notwithstanding increased sales.
Operating income in the steel tube business reflected reduced margins due to
continuing pricing pressures from imports.
Operating income from the Company's aluminum building products business for
the quarter and nine months ended July 31, 1994, was $5.0 million and $3.2
million, respectively, as compared to operating income of $2.1 million and an
operating loss of $2.6 million, respectively, for the comparative 1993 periods.
This represents improvements of $2.8 million and $5.8 million, respectively, as
compared to the 1993 periods. These improved results are due to higher sales,
slightly improved margins between selling prices and raw material costs, and
cost reductions.
Selling, general and administrative expenses for the quarter and nine
months ended July 31, 1994, were $11.4 million and $32.3 million, respectively,
as compared to $9.9 million and $30.8 million, respectively, for the
comparative 1993 periods. The increases were due principally to operating at
higher levels of volume. Selling, general and administrative expenses as a
percentage of net sales did not change significantly as compared to the prior
year periods.
Interest expense was relatively flat as compared to the same prior year
periods.
Net income attributable to common shareholders for the quarter and nine
months ended July 31, 1994, was $4.3 million and $6.9 million, respectively, as
compared to $1.2 million and $615 thousand, respectively, for the 1993 periods.
This represents increases of $3.1 million and $6.3 million, respectively, as
compared to the same 1993 periods, after deducting preferred dividends of $1.5
million and $4.5 million, respectively, from both periods. The improvement is
primarily attributable to improved operating income.
Included in net income for the nine months ended July 31, 1994 are two
unusual items which were classified as "other, net" in the income statement.
Based on interest rates during the second fiscal quarter ended April 30, 1994,
the Company accrued the maximum potential loss of $1.7 million on its interest
rate swap contracts to be settled in August 1995. Offsetting this charge was
$1.0 million in income relating to partial reimbursement of a business
interruption loss for the fire which occured at the Company's Lincolnshire
facility in August 1993. Included in net income for the nine months ended July
31, 1993 is a $1.4 million gain on the settlement of financing contracts.
Interest income, classified as "other, net", was $677 thousand and $2.2
million, respectively, for the quarter and nine months ended July 31, 1994, as
compared to $1.1 million and $4.1 million, respectively, excluding the gain on
the settlement of financing contracts, for the comparative 1993 periods. The
decrease in interest income is primarily due to lower yields on the Company's
short-term investments and lower average cash available for investment in 1994
as compared to 1993 as a result of the Company's investment of cash in its
businesses.
(10)
13
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
Net income attributable to common stockholders continues to be affected by
dividend obligations associated with the $86.3 million in preferred stock
issued in the third quarter of fiscal 1992, the proceeds of which have not yet
been fully deployed. Until the Company's excess cash is invested in existing
businesses or an acquisition, the Company is expected to experience a negative
financing cost arbitrage on the uninvested funds.
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.
There were no outstanding borrowings under the Bank Agreement at July 31, 1994
and $92,800 of outstanding letters of credit. As of July 31, 1994, the Company
was in compliance with all Bank Agreement covenants.
At July 31, 1994, the Company had $125,000,000 outstanding under its
unsecured long-term Note Agreement ("Senior Notes Agreement"). The debt bears
interest at the rate of 10.77% per annum, payable semi-annually. The Senior
Notes Agreement will mature on August 23, 2000, and requires annual repayments
of $20,833,000 beginning on August 23, 1995. The Senior Notes Agreement
contains customary affirmative and negative covenants, as well as requirements
to maintain a minimum capital base, as defined. As of July 31, 1994, the
Company was in compliance with all Senior Notes Agreement covenants. In
addition, the Senior Notes Agreement limits the payment of dividends and
certain restricted investments. Management believes that cash flow from
operations, cash balances, and, if necessary, additional borrowings will be
sufficient to make all interest and principal payments related to the Senior
Notes Agreement.
At July 31, 1994, the Company had commitments of $12 million for the
purchase or construction of capital assets, primarily at its Nichols-Homeshield
and MacSteel divisions. The Company's $52 million (not including approximately
$9 million in capitalized interest) Phase II MacSteel Ultra Clean Steel
Program, which commenced in June 1992, is expected to be completed in early
1995. The Company expects to fund its capital expenditures through cash flow
from operations, existing cash balances, proceeds from short-term investments
and, if necessary, from borrowings under the Bank Agreement. The Company is
currently reviewing various alternatives with respect to the use of its excess
available cash, including a possible business acquisition. Although the
Company does not currently have any agreements for such an acquisition, any
such acquisition would likely involve the use of a substantial portion of the
Company's excess available cash as well as additional borrowings if necessary
or desirable.
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, short-term
investments and available borrowings will be sufficient for the foreseeable
future to finance anticipated capital expenditures, debt service requirements,
including interest expense, debt retirement obligations, and dividends.
Operating Activities
Cash provided by operating activities during the nine months ended July 31,
1994, was $20.8 million. This represents an increase of $983 thousand as
compared to the same 1993 period. This small increase reflects improved
operating results, mostly offset by increased working capital requirements.
(11)
14
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
Investment Activities
Net cash used by investment activities during the nine months ended July
31, 1994 was $22.9 million as compared to $8.1 million for the same 1993
period. The nine months ended July 31, 1993, included proceeds from the sale
of Bellville Tube Division and Viking Metallurgical Subsidiary of $15.5 million
as compared to $6.4 million of proceeds received in 1994. Capital
expenditures for the nine months ended July 31, 1994 were $30.2 million as
compared to $27.0 million for the same 1993 period. The Company estimates that
fiscal 1994 capital expenditures will approximate $40 to $50 million.
Financing Activities
Cash used by financing activities for the nine months ended July 31, 1994
was $9.9 million, principally consisting of $5.6 million in common dividends
and $4.5 million in preferred dividends. This represents a decrease of $5.2
million from the same 1993 period. Uses of cash during 1993 included $5.0
million in purchases of the Company's common stock.
CHANGE IN ACCOUNTING
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("FAS") No. 109, "Accounting for Income
Taxes" ("FAS 109"), which modifies and replaces FAS No. 96, "Accounting for
Income Taxes". The Company adopted FAS 109 effective November 1, 1993. It was
not necessary for the Company to record any adjustments for the cumulative
effect of adopting FAS 109.
(12)
15
PART II. OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K.
(a) Exhibit 11 - Statement re computation of earnings per share.
(b) 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
______________________________
Viren M. Parikh
Controller (Chief Accounting Officer)
Date September 8, 1994
(13)
1
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,
------------------ ------------------
1994 1993 1994 1993
------- ------- ------ ------
(Unaudited)
Net income (loss)............................ $ 5,777 $ 2,678 $ 11,322 $ 5,066
Preferred dividend requirements.............. (1,484) (1,484) (4,451) (4,451)
-------- -------- -------- --------
Net income attributable to
common stockholders........................ $ 4,293 $ 1,194 $ 6,871 $ 615
======== ======== ======== ========
Weighted average shares
outstanding-primary........................ 13,465 13,346 13,442 13,532
======== ======== ======== ========
Earnings (loss) per common share - primary... 0.32 0.09 0.51 0.05
======== ======== ======== ========
Net income (loss)............................ $ 5,777 $ 2,678 $ 11,322 $ 5,066
Weighted average shares
outstanding-primary........................ 13,465 13,346 13,442 13,532
Effect of common stock equivalents
arising from stock options................. 30 73 36 73
Preferred stock assumed converted
to common stock............................ 2,738 2,738 2,738 2,738
-------- -------- -------- --------
Weighted average shares
outstanding-fully diluted.................. 16,233 16,157 16,216 16,343
======== ======== ======== ========
Earnings (loss) per common share - assuming
full dilution.............................. $ 0.36 $ 0.17 $ 0.70 $ 0.31
======== ======== ======== ========
5
1,000
OCT-31-1994
NOV-01-1993
JUL-31-1994
9-MOS
30,245
47,163
82,546
0
86,029
251,341
488,914
235,818
545,867
105,242
128,400
0
86,250
6,678
134,497
545,867
502,845
502,845
444,598
444,598
0
0
10,461
19,521
8,199
11,322
0
0
0
11,322
.51
.70
