<PAGE> 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 January 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 Identification No.)
incorporation or organization)
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.
<TABLE>
<CAPTION>
Class Outstanding at January 31, 1994
- --------------------------------------- -------------------------------
<S> <C>
Common Stock, par value $0.50 per share 13,319,703
</TABLE>
<PAGE> 2
QUANEX CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I. Financial Information:
Item 1: Financial Statements
Consolidated Balance Sheets - January 31, 1994 and
October 31, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Consolidated Statements of Income - Three Months
Ended January 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Cash Flow - Three Months
Ended January 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-11
Part II. Other Information
Item 5: Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Exhibit 11 Computation of Earnings per Common Share
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
QUANEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
January 31, October 31,
1994 1993
----------- -----------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents............................ $ 37,254 $ 42,247
Short-term investments.......................... 47,938 47,655
Accounts and notes receivable, net.............. 65,665 72,266
Inventories..................................... 81,309 76,899
Deferred income taxes........................... 3,879 3,875
Prepaid expenses................................ 1,578 468
--------- ---------
Total current assets.................... 237,623 243,410
Property, plant and equipment..................... 466,992 459,154
Less accumulated depreciation and amortization.... (222,763) (216,808)
--------- ---------
Net property, plant and equipment................. 244,229 242,346
Goodwill, net..................................... 33,727 33,964
Other assets...................................... 9,990 9,147
--------- ---------
$ 525,569 $ 528,867
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................ $ 56,844 $ 62,349
Income taxes payable............................ 1,680 -
Accrued expenses................................ 33,164 32,504
Current maturities of long-term debt............ 221 219
--------- ---------
Total current liabilities............... 91,909 95,072
Long-term debt.................................... 128,448 128,476
Deferred pension credits.......................... 14,931 13,923
Deferred postretirement welfare benefits.......... 48,374 47,559
Deferred income taxes............................. 17,637 18,061
--------- ---------
Total liabilities....................... 301,299 303,091
Stockholders' equity:
Preferred stock, no par value................... 86,250 86,250
Common stock, $.50 par value.................... 6,660 6,657
Additional paid-in capital...................... 85,290 85,218
Retained earnings............................... 48,054 49,635
Adjustment for minimum pension liability........ (1,984) (1,984)
--------- ---------
Total stockholders' equity.............. 224,270 225,776
--------- ---------
$ 525,569 $ 528,867
========= =========
</TABLE>
(1)
<PAGE> 4
QUANEX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended January 31,
------------------------------
1994 1993
---- ----
(Unaudited)
<S> <C> <C>
Net sales.................................. $149,522 $141,430
Cost and expenses:
Cost of sales............................ 135,192 129,795
Selling, general and administrative
expense ................................. 10,113 9,681
-------- --------
Operating income........................... 4,217 1,954
Other income (expense):
Interest expense......................... (3,489) (3,405)
Capitalized interest..................... 756 264
Other, net............................... 1,564 2,025
-------- --------
Income before income taxes................. 3,048 838
Income tax expense......................... (1,280) (352)
-------- --------
Net income (loss).......................... 1,768 486
Preferred dividends........................ (1,484) (1,484)
-------- --------
Net income attributable to
common stockholders...................... $ 284 $ (998)
======== ========
Primary earnings (loss) per common share... $ 0.02 $ (0.07)
======== ========
Weighted average shares outstanding........ 13,407 13,641
======== ========
</TABLE>
(2)
<PAGE> 5
QUANEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended January 31,
------------------------------
1994 1993
---- ----
(Unaudited)
<S> <C> <C>
Operating activities:
Net income................................................... $ 1,768 $ 486
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation and amortization........................... 7,201 7,932
Facilities realignment accrual.......................... (597) -
Deferred income taxes................................... (424) (429)
Pension costs........................................... 1,008 618
Postretirement welfare benefits......................... 815 663
------- --------
9,771 9,270
Changes in assets and liabilities net of effects from
acquisitions and dispositions:
Decrease (increase) in accounts and notes receivable.... 6,601 3,090
Decrease (increase) in inventory........................ (4,410) (4,889)
Increase (decrease) in accounts payable................. (5,505) (8,289)
Increase (decrease) in accrued expenses................. 660 (110)
Other, net.............................................. 566 502
------- --------
Cash provided (used) by operating activities....... 7,683 (426)
Investment activities:
Capital expenditures, net of retirements..................... (8,058) (7,533)
Decrease (increase) in short-term investments................ (283) -
Other, net................................................... (1,035) (2,455)
------- --------
Cash used by investment activities................. (9,376) (9,988)
------- --------
Cash provided (used) by operating and
investment activities........................... (1,693) (10,414)
Financing activities:
Repayments of long-term debt................................. (26) (31)
Dividends paid............................................... (3,349) (3,394)
Other, net................................................... 75 82
------- --------
Cash used by financing activities.................. (3,300) (3,343)
------- --------
Increase (decrease) in cash and equivalents.................... (4,993) (13,757)
Cash and equivalents at beginning of period.................... 42,247 96,858
------- --------
Cash and equivalents at end of period.......................... $37,254 $ 83,101
======= ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest....................................................... $ 163 $ 107
Income taxes................................................... $ 101 $ 118
</TABLE>
(3)
<PAGE> 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
<TABLE>
<CAPTION>
Inventories consist of the following: January 31, October 31,
1994 1993
---------- -----------
(In thousands)
<S> <C> <C>
Inventories valued at lower of cost
(principally LIFO method) or market:
Raw materials . . . . . . . . . . . . . . . . . . . $24,888 $25,474
Finished goods and work in process . . . . . . . . . 46,731 42,610
------- -------
71,619 68,084
Other . . . . . . . . . . . . . . . . . . . . . . . . . 9,690 8,815
------- -------
$81,309 $76,899
======= =======
</TABLE>
With respect to inventories valued using the LIFO method, replacement cost
exceeded the LIFO value by approximately $10 million at January 31, 1994,
and $10 million at October 31, 1993.
3. Long-Term Debt and Financing Arrangements
At January 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 January 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), renewable annually, which expires March 31, 1997, 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 January 31, 1994, the Company
was in compliance with all of the covenants.
(4)
<PAGE> 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:
<TABLE>
<CAPTION>
November 1,
1993
-----------
($000)
<S> <C>
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
=======
</TABLE>
At January 31, 1994, $3,879,000 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 January 31, 1994.
(5)
<PAGE> 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.
<TABLE>
<CAPTION>
Cold
Three Months Ended Hot Rolled Finished Steel Alum. Bldg.
January 31, 1994 Steel Bars Steel Bars Tubes Products Other(1)
- ------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Units shipped:
To unaffiliated companies............. 109.5 Tons 43.6 Tons 19.2 Tons 24,582 Lbs.
Intersegment.......................... 6.7 - - -
--------- -------- -------- ----------
Total.................................. 116.2 Tons 43.6 Tons 19.2 Tons 24,582 Lbs.
========= ======== ======== ==========
Net Sales:
To unaffiliated companies............. $ 53,904 $ 37,167 $ 26,155 $ 32,296 $ -
Intersegment(2)....................... 3,743 - - - (3,743)
--------- -------- -------- ---------- ---------
Total.................................. $ 57,647 37,167 26,155 32,296 (3,743)
========= ======== ======== ========== =========
Operating income (loss)................ $ 5,961 $ 1,570 $ 1,733 $ (2,129) $ (2,918)
========= ======== ======== ========== =========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Consoli-
January 31, 1994 dated
- ------------------------------------------------------
(in thousands)
<S> <C>
Units shipped:
To unaffiliated companies.............
Intersegment..........................
Total..................................
Net Sales:
To unaffiliated companies............. $ 149,522
Intersegment(2)....................... -
-----------
Total.................................. $ 149,522
===========
Operating income (loss)................ $ 4,217
===========
</TABLE>
<TABLE>
<CAPTION>
Cold
Three Months Ended Hot Rolled Finished Steel Alum. Bldg.
January 31, 1993 Steel Bars Steel Bars Tubes(3) Products Other(1)
- -----------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Units shipped:
To unaffiliated companies.............. 96.1 Tons 39.1 Tons 37.3 Tons 19,653 Lbs.
Intersegment........................... 5.9 - - -
---------- ----------- ----------- ----------
Total................................... 102.0 Tons 39.1 Tons 37.3 Tons 19,653 Lbs.
========== =========== =========== ==========
Net Sales:
To unaffiliated companies.............. $ 44,803 $ 31,675 $ 33,665 $ 26,695 $ 4,592
Intersegment(2)........................ 3,131 - (1) - (3,130)
---------- ----------- ----------- ---------- ----------
Total................................... $ 47,934 31,675 33,664 26,695 1,462
========== =========== =========== ========== ==========
Operating income (loss)................. $ 4,584 $ 1,050 $ 2,203 $ (3,780) $ (2,103)
========== =========== =========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Consoli-
January 31, 1993 dated
- -----------------------------------------------------
(in thousands)
<S> <C>
Units shipped:
To unaffiliated companies..............
Intersegment...........................
Total...................................
Net Sales:
To unaffiliated companies.............. $ 141,430
Intersegment(2)........................ -
----------
Total................................... $ 141,430
==========
Operating income (loss)................. $ 1,954
==========
</TABLE>
(1) Included in "Other" are intersegment eliminations, Viking Metallurgical
Corporation (for the three months ended January 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)
<PAGE> 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 quarter of fiscal 1994 reflect improved market conditions in the
Company's steel bar and steel tube businesses and lower costs per unit at those
businesses resulting from higher volume and the effects of cost reduction
programs. Net sales and operating losses in the Company's aluminum building
products business showed substantial improvement as compared to the same period
last year. However, excess supplies of aluminum ingot continued to result in
lower selling prices and compressed profit margins. Also affecting the
aluminum building products business is the continued loss of sales related to a
fire that occurred during the fourth quarter of fiscal 1993 at the Company's
Lincolnshire facility.
The Company's steel business has benefited from a continuing improvement in
the United States economy, which resulted in both increased demand and higher
prices. The Company continues to see strengthening in the hot rolled steel bar
and cold finished bar businesses. Results for the remainder of fiscal 1994
will be dependent on whether recent improvements in the economy and the
businesses can be sustained and cost reduction maintained. In this regard, the
Company's hot rolled steel bar segment is expected to be affected by a trend
toward increasing steel scrap prices, the primary material used by the segment,
and the Company's ability to pass the increased material costs to customers.
Although results for the Company's aluminum building products business improved
in the first fiscal quarter of 1994 due to greater demand and market
penetration, future results for this business will be primarily dependent on
whether market conditions will permit further improvements in sales prices and
margins, as well as the success of the Company to achieve higher sales and
market penetration for its aluminum products manufactured at its aluminum
mini-mill that began commercial operations in July 1992. Aluminum building
products results for the second quarter of fiscal 1994 will also continue to be
affected by the loss of revenue and income while the Company's Lincolnshire
facility is being repaired. The Company expects that the damaged facility will
be back to full production levels by the end of March, 1994. The negative
impact on operating earnings resulting from the fire is not expected to exceed
$1 million for the second quarter of fiscal 1994. The Company's aluminum
building products business, however, is expected to continue to be affected by
pricing pressures related to excess supplies of aluminum ingot.
(7)
<PAGE> 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:
<TABLE>
<CAPTION>
Three Months Ended
January 31,
--------------------------
1994 1993
-------- --------
(In thousands)
<S> <C> <C>
Hot Rolled Steel Bars:
Units shipped (Tons)...................... 116.2 102.0
Net Sales................................. $ 57,647 $ 47,934
Operating income.......................... $ 5,961 $ 4,584
Depreciation and amortization............. $ 3,285 $ 3,195
Identifiable assets....................... $157,631 $140,244
Cold Finished Steel Bars:
Units shipped (Tons)...................... 43.6 39.1
Net Sales................................. $ 37,167 $ 31,675
Operating income.......................... $ 1,570 $ 1,050
Depreciation and amortization............. $ 343 $ 315
Identifiable assets....................... $ 52,212 $ 44,513
Steel Tubes:
Units shipped (Tons)...................... 19.2 37.3
Net Sales................................. $ 26,155 $ 33,664
Operating income.......................... $ 1,733 $ 2,203
Depreciation and amortization............. $ 524 $ 864
Identifiable assets....................... $ 40,242 $ 49,595
Aluminum Building Products:
Units shipped (Pounds).................... 24,582 19,653
Net Sales................................. $ 32,296 $ 26,695
Operating income.......................... $ (2,129) $ (3,780)
Depreciation and amortization............. $ 2,964 $ 2,931
Identifiable assets....................... $190,369 $195,222
</TABLE>
Consolidated net sales for the three months ended January 31, 1994, were
$149.5 million representing an increase of $8.1 million or 5.7% when compared
to the same period last year. The increase is due to improvements in the
economy and increases in demand in all of the Company's businesses combined
with higher average selling prices in the Company's steel businesses. The
Company realized this increase in sales despite the absence of $14.2 million in
net sales from businesses sold during the second quarter of fiscal 1993.
Net sales from the Company's hot rolled steel bar business for the three
months ended January 31, 1994 were $57.6 million as compared to $47.9 million
for the same 1993 period. This represents an increase of $9.7 million or
20.3%. This increase is attributable to a 13.9% increase in volume due to
improved market conditions, particularly in automotive and truck, combined with
a 5.5% increase in average selling prices.
Net sales from the Company's cold finished steel bar business for the three
months ended January 31, 1994 were $37.2 million as compared to $31.7 million
for the same 1993 period. This represents an increase of $5.5 million or
17.3%. The improvements in results for the cold finished steel bar business
reflected an 11.5% increase in volumes and a 5.2% increase in average selling
prices. These increases primarily related to an improvement in the automotive
and truck market as well as a general improvement in overall market conditions.
(8)
<PAGE> 11
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 months ended
January 31, 1994 declined 22.3% from $33.7 million in 1993 to $26.2 million for
the first fiscal quarter of 1994. This decline in sales was attributable to
the absence of sales from the Company's Bellville Tube division, which was sold
in April 1993. Although sales in this business declined, average unit prices
and margins increased. During the first quarter of 1994, sales volumes
(excluding Bellville) increased 5.3% and average selling prices 3.4%. These
increases reflect improved market conditions, particularly in the industrial
machinery and capital equipment markets.
Net sales from the Company's aluminum building products business for the
three months ended January 31, 1994 were $32.3 million as compared to $26.7
million for the same 1993 period. This represents an increase of $5.6 million
or 21.0%. This increase is attributable to a 25.1% increase in volume due to
improved demand related to the improving economy and improved market share.
This increase in volume, however, was partially offset by a 3.3% decrease in
average selling prices.
Consolidated operating income for the three months ended January 31, 1994,
was $4.2 million representing an increase of $2.3 million or 116% when compared
to the same period last year. This increase is principally due to higher net
sales , lower unit manufacturing costs and reduced losses at the Company's
aluminum building products business. The decline in costs was attributable to
higher operating levels and the effects of past and ongoing cost reduction
programs. Also included in the three months ended January 31, 1993 is $1.3
million of operating income from the Company's Bellville Tube division and
Viking Metallurgical subsidiary, which were sold during the second quarter of
fiscal 1993.
Operating income from the Company's hot rolled steel bar business for the
three months ended January 31, 1994 was $6.0 million as compared to $4.6
million for the same 1993 period. This represents an increase of $1.4 million
or 30.0%. This increase is due to higher net sales as well as lower variable
costs per ton.
Operating income from the Company's cold finished steel bar business for
the three months ended January 31, 1994 was $1.6 million as compared to $1.1
million for the same 1993 period. This represents an increase of $520 thousand
or 49.5%. This increase is primarily due to higher net sales and lower
variable costs per ton.
Operating income from the Company's steel tube business for the three
months ended January 31, 1994 was $1.7 million as compared to $2.2 million for
the same 1993 period. This represents a decrease of $470 thousand or 21.3%.
However, operating income for the three months ended January 31, 1993 included
income from Bellville Tube Division which was sold in April of 1993. Operating
income actually improved as compared to the first quarter of 1993 after
excluding the results of Bellville Tube Division. Operating income as a
percentage of net sales improved to 6.6% in 1994 as compared to 6.5% in 1993.
The operating loss from the Company's aluminum building products business
for the three months ended January 31, 1994 was $2.1 million as compared to an
operating loss of $3.8 million for the same 1993 period. This represents an
improvement of $1.7 million or 43.7%. The improvement reflected increased
sales from the Company's aluminum plants in Davenport, Iowa and an improved
product mix from the Company's fabricated products plant in Chatsworth,
Illinois.
Selling, General and Administrative Expenses increased by $432 thousand or 4.5%
for the three months ended January 31, 1994, as compared to the same period of
1993 primarily due to increased levels of business activity. However, as a
percentage of net sales, selling, general and administrative expenses were
essentially unchanged as compared to the same period last year.
(9)
<PAGE> 12
Item 2 - Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
Interest expense was relatively flat at $3.5 million for the three months ended
January 31, 1994, as compared to $3.4 million for the same period of 1993.
Net income attributable to common shareholders for the three months ended
January 31, 1994 was $284 thousand as compared to a net loss attributable to
common shareholders of $998 thousand for the same 1993 period, after deducting
preferred dividends of $1.5 million from both periods. The improvement is
primarily attributable to improved operating income. Included in net income
for the three months ended January 31, 1993 is a $1.4 million gain on the
settlement of financing contracts. Interest income, classified as "other", was
$923 thousand for the three months ended January 31, 1994, as compared to $1.3
million, excluding the gain on the settlement of financing contracts, for the
same 1993 period. The decrease in interest income is primarily because of
lower interest rates. 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 in the Company's business operations.
Until the Company's excess cash is invested in the business and returns
received therefrom, the Company will continue to experience a negative
financing cost arbitrage.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of funds are cash and short-term investments,
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. During 1993, the Bank Agreement was amended to
increase available borrowings from $40 million to $48 million and to extend the
maturity of the facility to March 31, 1997. Under the Bank Agreement, at
January 31, 1994, there were no outstanding borrowings and $104,000 of
outstanding letters of credit.
At January 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. In addition, the Senior Notes
Agreement limits the payment of dividends and certain restricted investments.
Management believes that cash flow from operations, cash reserves, and, if
necessary, additional borrowings will be sufficient to make all interest and
principal payments related to the Senior Notes Agreement.
(10)
<PAGE> 13
Item 2 - Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
At January 31, 1994, the Company had commitments of $15 million for the
purchase or construction of capital assets, primarily at its Nichols-
Homeshield and MacSteel divisions. The Company's $52 million Phase II MacSteel
Ultra Clean Steel Program, which commenced in June 1992, is expected to be
completed in early 1995. Also, the Company's $9 million in capital additions
at its Nichols-Homeshield division is expected to be completed in July 1994.
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 three months ended January 31,
1994 was $7.7 million. This represents an increase of $8.1 million as compared
to the same 1993 period. This increase reflects improved operating results and
smaller increases in working capital as compared to the three months ended
January 31, 1993.
Investment Activities
Net cash used by investment activities during the three months ended January
31, 1994 was $9.4 million as compared to $10.0 million for the same 1993
period. Capital expenditures for the three months ended January 31, 1994 were
$8.1 million as compared to $7.5 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 three months ended January 31, 1994
was $3.3 million, principally consisting of $1.9 million in common dividends
and $1.5 million in preferred dividends. This represents no significant change
from the same 1993 period.
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.
(11)
<PAGE> 14
PART II. OTHER INFORMATION
Item 5 - Other Information.
None
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
/s/ VIREN M. PARIKH
Viren M. Parikh
Controller (Chief Accounting Officer)
Date March 7, 1994
(12)
<PAGE> 1
EXHIBIT 11
QUANEX CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended January 31,
------------------------------
1994 1993
---- ----
<S> <C> <C>
Net income (loss)............................. $ 1,768 $ 486
Preferred dividend requirements............... (1,484) (1,484)
------- -------
Net income attributable to
common stockholders......................... $ 284 $ (998)
======= =======
Weighted average shares
outstanding-primary......................... 13,407 13,641
======= =======
Earnings (loss) per common share - primary.... 0.02 (0.07)
======= =======
Net income (loss)............................. $ 1,768 $ 486
Weighted average shares
outstanding-primary......................... 13,407 13,641
Effect of common stock equivalents
arising from stock options.................. 24 108
Preferred stock assumed converted
to common stock............................. 2,738 2,738
------- -------
Weighted average shares
outstanding-fully diluted................... 16,169 16,487
======= =======
Earnings (loss) per common share - assuming
full dilution............................... $ 0.11 $ 0.03
======= =======
</TABLE>
