<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 April 30, 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 April 30, 1994
----- -----------------------------
Common Stock, par value $0.50 per share 13,332,403
<PAGE> 2
QUANEX CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I. Financial Information:
Item 1: Financial Statements
Consolidated Balance Sheets - April 30, 1994 and
October 31, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Consolidated Statements of Income - Three and Six Months
Ended April 30, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Cash Flow - Six Months
Ended April 30, 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 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
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>
April 30, October 31,
1994 1993
----------- -----------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
------
Current assets:
Cash and equivalents .................................. $ 10,400 $ 42,247
Short-term investments................................. 60,985 47,655
Accounts and notes receivable, net .................... 80,624 72,266
Inventories ........................................... 86,050 76,899
Deferred income taxes ................................. 3,866 3,875
Prepaid expenses ...................................... 1,359 468
--------- ---------
Total current assets........................... 243,284 243,410
Property, plant and equipment ........................... 477,174 459,154
Less accumulated depreciation and amortization .......... (229,003) (216,808)
--------- ---------
Net property, plant and equipment ....................... 248,171 242,346
Goodwill, net ........................................... 33,490 33,964
Other assets ............................................ 10,430 9,147
--------- ---------
$ 535,375 $ 528,867
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable ...................................... $ 64,736 $ 62,349
Income taxes payable .................................. 346 -
Accrued expenses ...................................... 34,611 32,504
Current maturities of long-term debt .................. 115 219
--------- ---------
Total current liabilities ..................... 99,808 95,072
Long-term debt .......................................... 128,400 128,476
Deferred pension credits ................................ 15,021 13,923
Deferred postretirement welfare benefits ................ 49,251 47,559
Deferred income taxes ................................... 17,973 18,061
--------- ---------
Total liabilities ............................. 310,453 303,091
Stockholders' equity:
Preferred stock, no par value ......................... 86,250 86,250
Common stock, $.50 par value .......................... 6,666 6,657
Additional paid-in capital ............................ 85,507 85,218
Retained earnings ..................................... 48,483 49,635
Adjustment for minimum pension liability............... (1,984) (1,984)
--------- ---------
Total stockholders' equity .................... 224,922 225,776
--------- ---------
$ 535,375 $ 528,867
========= =========
</TABLE>
(1)
<PAGE> 4
QUANEX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30,
------------------------------ ------------------------------
1994 1993 1994 1993
------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C>
Net sales ........................................ $ 172,235 $ 161,370 $ 321,757 $ 302,800
Cost and expenses:
Cost of sales .................................. 151,852 144,996 287,044 274,791
Selling, general and administrative
expense ...................................... 10,775 11,229 20,888 20,910
------------ ------------ ------------ ------------
Operating income ................................. 9,608 5,145 13,825 7,099
Other income (expense):
Interest expense ............................... (3,488) (3,371) (6,977) (6,776)
Capitalized interest ........................... 861 412 1,617 676
Other, net ..................................... (468) 1,093 1,096 3,118
------------ ------------ ------------ ------------
Income before income taxes ....................... 6,513 3,279 9,561 4,117
Income tax expense ............................... (2,736) (1,377) (4,016) (1,729)
------------ ------------ ------------ ------------
Net income ....................................... 3,777 1,902 5,545 2,388
Preferred dividends .............................. (1,483) (1,483) (2,967) (2,967)
------------ ------------ ------------ ------------
Net income attributable to
common stockholders ............................ $ 2,294 $ 419 $ 2,578 $ (579)
============ ============ ============ ============
Primary earnings (loss) per common share ......... $ 0.17 $ 0.03 $ 0.19 $ (0.04)
============ ============ ============ ============
Weighted average shares outstanding .............. 13,446 13,607 13,431 13,626
============ ============ ============ ============
</TABLE>
(2)
<PAGE> 5
QUANEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended April 30,
---------------------------------
1994 1993
----------- ------------
(Unaudited)
<S> <C> <C>
Operating activities:
Net income ........................................................ $ 5,545 $ 2,388
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation and amortization................................. 14,432 15,600
Facilities realignment accrual................................ (1,113) (1,962)
Deferred income taxes......................................... (88) 1,198
Pension costs................................................. 1,098 991
Postretirement welfare benefits............................... 1,692 1,043
----------- -----------
21,566 19,258
Changes in assets and liabilities net of effects from
acquisitions and dispositions:
Decrease (increase) in accounts and notes receivable.......... (14,748) (1,651)
Decrease (increase) in inventory ............................. (9,151) (4,457)
Increase (decrease) in accounts payable ...................... 2,387 (6,498)
Increase (decrease) in accrued expenses ...................... 2,107 250
Other, net.................................................... (536) 188
----------- -----------
Cash provided (used) by operating activities............. 1,625 7,090
Investment activities:
Capital expenditures, net of retirements .......................... (18,283) (16,163)
Decrease (increase) in short-term investments ..................... (13,330) -
Proceeds from the sale of Bellville Tube
Division and Viking Metallurgical Subsidiary................... 6,390 16,375
Other, net ........................................................ (1,670) 3,448
----------- -----------
Cash provided (used) by investment activities ........... (26,893) 3,660
----------- -----------
Cash provided (used) by operating and
investment activities ................................ (25,268) 10,750
Financing activities:
Repayments of long-term debt ...................................... (180) (46)
Dividends paid .................................................... (6,697) (6,788)
Purchases of Quanex common stock................................... - (3,540)
Other, net ........................................................ 298 124
----------- -----------
Cash used by financing activities ....................... (6,579) (10,250)
----------- -----------
Increase (decrease) in cash and equivalents ......................... (31,847) 500
Cash and equivalents at beginning of period.......................... 42,247 96,858
----------- -----------
Cash and equivalents at end of period ............................... $ 10,400 $ 97,358
=========== ============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest............................................................. $ 6,976 $ 7,002
Income taxes ........................................................ $ 3,796 $ 122
</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>
April 30, October 31,
1994 1993
---------- ----------
(In thousands)
<S> <C> <C>
Inventories consist of the following:
Inventories valued at lower of cost
(principally LIFO method) or market:
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $27,450 $25,474
Finished goods and work in process . . . . . . . . . . . . . . . . . . . 49,742 42,610
------- -------
77,192 68,084
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,858 8,815
------- -------
$86,050 $76,899
======= =======
</TABLE>
With respect to inventories valued using the LIFO method, replacement cost
exceeded the LIFO value by approximately $12 million at April 30, 1994, and
$10 million at October 31, 1993.
3. Long-Term Debt and Financing Arrangements
At April 30, 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 April 30, 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 April 30, 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 April 30, 1994, $3,866,000 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 April 30, 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. Consoli-
April 30, 1994 Steel Bars Steel Bars Tubes Products Other(1) dated
- - -----------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Units shipped:
To unaffiliated companies ....... 114.2 Tons 49.5 Tons 20.1 Tons 35,504 Lbs.
Intersegment .................... 7.8 - - -
-------- -------- -------- --------
Total............................. 122.0 Tons 49.5 Tons 20.1 Tons 35,504 Lbs.
======== ======== ======== ========
Net Sales:
To unaffiliated companies ....... $ 59,066 $ 43,259 $ 26,016 $ 43,894 $ - $ 172,235
Intersegment(2).................. 4,172 - 1 - (4,173) -
-------- -------- -------- -------- -------- ---------
Total............................. $ 63,238 43,259 26,017 43,894 (4,173) 172,235
======== ======== ======== ======== ======== =========
Operating income (loss) .......... $ 8,421 $ 2,713 $ 1,383 $ 408 $ (3,317) $ 9,608
======== ======== ======== ======== ======== =========
</TABLE>
<TABLE>
<CAPTION>
Cold
Three Months Ended Hot Rolled Finished Steel Alum. Bldg. Consoli-
April 30, 1993 Steel Bars Steel Bars Tubes(3) Products Other(1) dated
- - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Units shipped:
To unaffiliated companies ....... 109.7 Tons 46.1 Tons 38.1 Tons 26,580 Lbs.
Intersegment .................... 6.8 - - -
-------- -------- -------- --------
Total............................. 116.5 Tons 46.1 Tons 38.1 Tons 26,580 Lbs.
======== ======== ======== ========
Net Sales:
To unaffiliated companies ....... $ 51,037 $ 37,714 $ 36,637 $ 34,410 $ 1,572 $ 161,370
Intersegment(2).................. 3,392 - - - (3,392) -
-------- -------- -------- -------- -------- ---------
Total............................. $ 54,429 37,714 36,637 34,410 (1,820) 161,370
======== ======== ======== ======== ======== =========
Operating income (loss) .......... $ 5,280 $ 1,794 $ 3,478 $ (948) $ (4,459) $ 5,145
======== ======== ======== ======== ======== =========
</TABLE>
<TABLE>
<CAPTION>
Cold
Six Months Ended Hot Rolled Finished Steel Alum. Bldg. Consoli-
April 30, 1994 Steel Bars Steel Bars Tubes Products Other(1) dated
- - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Units shipped:
To unaffiliated companies ....... 223.7 Tons 93.1 Tons 39.3 Tons 60,086 Lbs.
Intersegment .................... 14.5 - - -
-------- -------- -------- --------
Total............................. 238.2 Tons 93.1 Tons 39.3 Tons 60,086 Lbs.
======== ======== ======== ========
Net Sales:
To unaffiliated companies ....... $112,969 $ 80,426 $ 52,172 $ 76,190 $ - $ 321,757
Intersegment(2).................. 7,916 - - - (7,916) -
-------- -------- -------- -------- -------- ---------
Total............................. $120,885 80,426 52,172 76,190 (7,916) 321,757
======== ======== ======== ======== ======== =========
Operating income $ 14,382 $ 4,283 $ 3,116 $ (1,721) $ (6,235) $ 13,825
======== ======== ======== ======== ======== =========
</TABLE>
<TABLE>
<CAPTION>
Cold
Six Months Ended Hot Rolled Finished Steel Alum. Bldg. Consoli-
April 30, 1993 Steel Bars Steel Bars Tubes(3) Products Other(1) dated
- - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Units shipped:
To unaffiliated companies ....... 205.9 Tons 85.2 Tons 75.5 Tons 46,233 Lbs.
Intersegment .................... 12.7 - - -
-------- -------- -------- --------
Total............................. 218.6 Tons 85.2 Tons 75.5 Tons 46,233 Lbs.
======== ======== ======== ========
Net Sales:
To unaffiliated companies(2)..... $ 95,840 $ 69,389 $ 70,301 $ 61,105 $ 6,165 $ 302,800
Intersegment .................... 6,523 - - - (6,523) -
-------- -------- -------- -------- -------- ---------
Total............................. $102,363 69,389 70,301 61,105 (358) 302,800
======== ======== ======== ======== ======== =========
Operating income.................. $ 9,864 $ 2,844 $ 5,681 $ (4,728) $ (6,562) $ 7,099
======== ======== ======== ======== ======== =========
</TABLE>
(1) Included in "Other" are intersegment eliminations, Viking Metallurgical
Corporation (for the three and six months ended April 30, 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 two quarters of fiscal 1994 reflect improved
market conditions in the Company's steel bar 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 increased pressure from imports on certain products. Partially
offsetting these items was improved demand and prices in automotive related
business. Results for the Company's aluminum building products business also
improved but continued to be affected by excess supplies of aluminum ingot.
Although excess supplies of ingot have reduced the Company's raw material
costs, declines in prices for the Company's finished products have exceeded the
benefit of the lower raw material costs, resulting in lower margins. Also
affecting the aluminum building products business was 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 improved results in the Company's steel bar businesses were
partially related to 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 other businesses. The Company currently expects that its results
for the steel bar businesses for the third quarter ending July 31, 1994 should
continue to reflect strong demand but will be seasonally slower than the second
quarter. The steel tube business is expected to continue to experience volume
and pricing pressures related to higher levels of imported tubing. Improved
results in the Company's aluminum building products business will be largely
dependent upon improvements in selling prices relative to the cost of raw
materials and increasing sales and market penetration for aluminum products
from the Company's aluminum mini-mill that began commercial operations in July
1992.
(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 Six Months Ended
April 30, April 30,
------------------------- -------------------------
1994 1993 1994 1993
-------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Hot Rolled Steel Bars:
Units shipped (Tons)........... 122.0 116.5 238.2 218.6
Net Sales...................... $ 63,238 $ 54,429 $120,885 $102,363
Operating income............... $ 8,421 $ 5,280 $ 14,382 $ 9,864
Depreciation and amortization.. $ 3,285 $ 3,195 $ 6,570 $ 6,390
Identifiable assets............ $162,189 $146,623 $162,189 $146,623
Cold Finished Steel Bars:
Units shipped (Tons)........... 49.5 46.1 93.1 85.2
Net Sales...................... $ 43,259 $ 37,714 $ 80,426 $ 69,389
Operating income............... $ 2,713 $ 1,794 $ 4,283 $ 2,844
Depreciation and amortization.. $ 331 $ 316 $ 674 $ 631
Identifiable assets............ $ 54,367 $ 44,226 $ 54,367 $ 44,226
Steel Tubes:
Units shipped (Tons)........... 20.1 38.1 39.3 75.5
Net Sales...................... $ 26,017 $ 36,637 $ 52,172 $ 70,301
Operating income............... $ 1,383 $ 3,478 $ 3,116 $ 5,681
Depreciation and amortization.. $ 503 $ 842 $ 1,027 $ 1,706
Identifiable assets............ $ 41,621 $ 38,009 $ 41,621 $ 38,009
Aluminum Building Products:
Units shipped (Pounds)......... 35,504 26,580 60,086 46,233
Net Sales...................... $ 43,894 $ 34,410 $ 76,190 $ 61,105
Operating income............... $ 408 $ (948) $ (1,721) $ (4,728)
Depreciation and amortization.. $ 3,027 $ 3,183 $ 5,991 $ 6,114
Identifiable assets............ $211,458 $198,074 $211,458 $198,074
</TABLE>
Consolidated net sales for the quarter and six months ended April 30,
1994, were $172.2 million and $321.8 million, respectively, representing an
increase in second quarter sales of $10.9 million, or 6.7%, and an increase in
year-to-date sales of $19.0 million, or 6.3%, when compared to the three and
six month periods last year. The increase is due to improvements in the
economy and increases in demand which resulted in higher average selling prices
in the Company's steel businesses. The Company realized these increases in
sales despite the absence of $11.5 million and $25.8 million in sales,
respectively, during the first and second quarter of fiscal 1993 from
businesses sold last year.
Net sales from the Company's hot rolled steel bar business for the
quarter and six months ended April 30, 1994, were $63.2 million and $120.9
million, respectively, as compared to $54.4 million and $102.4 million,
respectively, for the same 1993 periods. These results represent increases of
$8.8 million, or 16.2%, and $18.5 million, or 18.1%, 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 six months ended April 30, 1994, were $43.3 million and $80.4
million, respectively, as compared to $37.7 million and $69.4 million,
respectively, for the same 1993 periods. This represents increases of $5.5
million, or 14.7%, and $11.0 million, or 15.9%, respectively, as compared to
the same 1993 periods. These increases are also attributable to improved
demand and higher selling prices.
(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 quarter and
six months ended April 30, 1994, were $26.0 million and $52.2 million,
respectively, as compared to $36.6 million and $70.3 million, respectively, for
the same 1993 periods. This represents decreases of $10.6 million, or 29.0%,
and $18.1 million, or 25.8%, respectively, as compared to the same 1993
periods. However, net sales for the quarter and six months ended April 30,
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 decreased by $678 thousand, or 2.5%, for the quarter ended April 30,
and increased by $1.5 million, or 2.9%, for the six months ended April 30. The
steel tube business was adversely affected during the quarter 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.
Net sales from the Company's aluminum building products business for
the quarter and six months ended April 30, 1994, were $43.9 million and $76.2
million, respectively, as compared to $34.4 million and $61.1 million,
respectively, for the comparative 1993 periods. This represents increases of
$9.5 million, or 27.6%, and $15.1 million, or 24.7%, respectively, as compared
to the 1993 periods. This increase is attributable to improved demand related
to the improving economy and improved market penetration. Improved sales were
partially offset by declines in average selling prices of approximately 4% for
the three and six months ended April 30, 1994, as compared to the corresponding
1993 periods.
Consolidated operating income for the quarter and six months ended
April 30, 1994, was $9.6 million and $13.8 million, respectively, as compared
to $5.1 million and $7.1 million, respectively, for the comparative 1993
periods. This represents increases of $4.5 million, or 86.7%, and $6.7
million, or 94.7%, respectively, as compared to the same 1993 periods. This
increase is principally due to higher net sales combined with lower costs per
unit primarily related to operating at higher levels of volume and cost
reduction programs. Included in the quarter and six months ended April 30,
1993, is $1.3 million and $2.7 million, respectively, 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 quarter and six months ended April 30, 1994, was $8.4 million and $14.4
million, respectively, as compared to $5.3 million and $9.9 million,
respectively, for the comparative 1993 periods. This represents increases of
$3.1 million, or 59.5%, and $4.5 million, or 45.8%, respectively, as compared
to the 1993 periods. 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 quarter and six months ended April 30, 1994, was $2.7 million and $4.3
million, respectively, as compared to $1.8 million and $2.8 million,
respectively, for the same 1993 periods. This represents increases of $919
thousand, or 51.2%, and $1.4 million, or 50.6%, respectively, as compared to
the 1993 periods. 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
quarter and six months ended April 30, 1994, was $1.4 million and $3.1 million,
respectively, as compared to $3.5 million and $5.7 million, respectively, for
the comparative 1993 periods. This represents decreases of $2.1 million, or
60.2%, and $2.6 million, or 45.2%, respectively, as compared to the 1993
periods. Operating income for the quarter and six months ended April 30, 1993
included 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 six months ended April 30, 1994, was down 10% as compared to the
same period in 1993. This decline was attributable to lower sales and prices
in certain markets.
Results for the Company's aluminum building products business for the
quarter and six months ended April 30, 1994, were $408 thousand operating
income and an
(9)
<PAGE> 12
Item 2 - Management's Discussion and Analysis of
Results of Operations and Financial Condition (continued)
operating loss of $1.7 million, respectively, as compared to operating losses
of $948 thousand and $4.7 million, respectively, for the comparative 1993
periods. This represents improvements of $1.4 million and $3.0 million,
respectively, as compared to the 1993 periods. This increase is due to higher
sales of aluminum mill finished sheet and an improved product mix.
Selling, General and Administrative Expenses and Interest Expense for
the 1994 periods were both relatively flat as compared to the same 1993
periods. However, Selling, General and Administrative Expenses for 1994
periods declined as a percentage of net sales from that experienced during the
1993 periods.
Net income attributable to common shareholders for the quarter and six
months ended April 30, 1994, was $2.3 million and $2.6 million, respectively,
as compared to $419 thousand and a loss of $579 thousand, respectively, for the
1993 periods. This represents increases of $1.9 million and $3.2 million,
respectively, as compared to the same 1993 periods, after deducting preferred
dividends of $1.5 million and $3.0 million, respectively, from both periods.
The improvement is primarily attributable to improved operating income.
Included in net income for the quarter ended April 30, 1994 are two
unusual items which were classified as "other, net" in the income statement.
Based on current interest rates, 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 was $1.0 million to recognize partial reimbursement of a
business interruption loss related to a fire at the Company's Lincolnshire
facility in August 1993. Included in net income for the six months ended April
30, 1993 is a $1.4 million gain on the settlement of financing contracts.
Interest income, classified as "other, net", was $600 thousand and $1.5
million, respectively, for the quarter and six months ended April 30, 1994, as
compared to $1.8 million and $3.0 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 because average cash available for investment was
lower in 1994 as compared to 1993.
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, 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
April 30, 1994 and $104,000 of outstanding letters of credit. As of April 30,
1994, the Company was in compliance with all Bank Agreement covenants.
At April 30, 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
(10)
<PAGE> 13
Item 2 - Management's Discussion and Analysis of
Results of Operations and Financial Condition (continued)
contains customary affirmative and negative covenants, as well as requirements
to maintain a minimum capital base, as defined. As of April 30, 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 reserves, and, if necessary, additional borrowings will be
sufficient to make all interest and principal payments related to the Senior
Notes Agreement.
At April 30, 1994, the Company had commitments of $16 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. 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 six months ended
April 30, 1994, was $1.6 million. This represents a decrease of $5.5 million
as compared to the same 1993 period. This decrease reflects improved operating
results, offset by increased working capital requirements.
Investment Activities
Net cash used by investment activities during the six months ended
April 30, 1994 was $26.9 million as compared to net cash provided by investment
activities of $3.7 million for the same 1993 period. The six months ended
April 30, 1994, includes increases in short-term investments of $13.3 million.
The six months ended April 30, 1993, includes the proceeds from the sale of
Bellville Tube Division and Viking Metallurgical Subsidiary of $16.4 million
as compared to $6.4 million of proceeds received in 1994. Capital expenditures
for the six months ended April 30, 1994 were $18.3 million as compared to $16.2
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 six months ended April 30,
1994 was $6.6 million, principally consisting of $3.7 million in common
dividends and $3.0 million in preferred dividends. This represents a decrease
of $3.7 million from the same 1993 period. Uses of cash during 1993 included
$3.5 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.
(11)
<PAGE> 14
PART II. OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders.
On February 24, 1994, the Company held its regular Annual Meeting of
Stockholders (the "Annual Meeting").
At the Annual Meeting, Robert C. Snyder and John D. O'Connell were reelected 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:
<TABLE>
<CAPTION>
For Withheld
---------- ----------
<S> <C> <C>
Robert C. Snyder 11,478,809 49,391
John D. O'Connell 11,468,144 60,056
</TABLE>
In addition, at the Annual Meeting, the stockholders of the Company ratified
the appointment of Deloitte & Touche as the Company's independent auditors and
approved the adoption of the Quanex Corporation 1994 Employee Stock Option
Plan. The ratification of Deloitte & Touche as the Company's independent
auditors was approved with 11,454,865 votes cast for approval, 31,982 votes
cast against and 41,353 abstentions. The Quanex Corporation 1994 Employee
Stock Option Plan was approved with 9,797,194 votes cast for approval,
1,583,311 votes cast against and 144,815 abstentions. Because all of the
matters presented at the Annual Meeting were matters for which brokers had
discretionary authority to vote the shares held by them for their clients,
there were no broker non-votes.
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.
(12)
<PAGE> 15
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 9, 1994
(13)
<PAGE> 16
Exhibit Index
<TABLE>
<CAPTION>
Exhibit Number Description Page Number
- - -------------- ----------- -----------
<S> <C> <C>
11 Computation of Earnings per Share
</TABLE>
<PAGE> 1
EXHIBIT 11
QUANEX CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30,
---------------------------- ----------------------------
1994 1993 1994 1993
----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Net income (loss) .................................... $ 3,777 $ 1,902 $ 5,545 $ 2,388
Preferred dividend requirements ...................... (1,483) (1,483) (2,967) (2,967)
----------- ----------- ----------- -----------
Net income attributable to
common stockholders ................................ $ 2,294 $ 419 $ 2,578 $ (579)
=========== =========== =========== ===========
Weighted average shares
outstanding-primary ................................ 13,446 13,607 13,431 13,626
=========== =========== =========== ===========
Earnings (loss) per common share - primary ........... 0.17 0.03 0.19 (0.04)
=========== =========== =========== ===========
Net income (loss) .................................... $ 3,777 $ 1,902 $ 5,545 $ 2,388
Weighted average shares
outstanding-primary ................................ 13,446 13,607 13,431 13,626
Effect of common stock equivalents
arising from stock options ......................... 8 84 20 95
Preferred stock assumed converted
to common stock .................................... 2,738 2,738 2,738 2,738
----------- ----------- ----------- -----------
Weighted average shares
outstanding-fully diluted .......................... 16,192 16,429 16,189 16,459
=========== =========== =========== ===========
Earnings (loss) per common share - assuming
full dilution ...................................... $ 0.23 $ 0.12 $ 0.34 $ 0.15
=========== =========== =========== ===========
</TABLE>
