<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, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ___________.
Commission File Number 1-5725
QUANEX CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 38-1872178
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1900 West Loop South, Suite 1500, Houston, Texas 77027
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (713) 961-4600
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at January 31, 1995
- --------------------------------------- -------------------------------
Common Stock, par value $0.50 per share 13,429,533
<PAGE> 2
QUANEX CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I. Financial Information:
Item 1: Financial Statements
Consolidated Balance Sheets - January 31, 1995 and
October 31, 1994 . . . . . . . . . . . . . . . . . 1
Consolidated Statements of Income - Three Months
Ended January 31, 1995 and 1994 . . . . . . . . . 2
Consolidated Statements of Cash Flow - Three Months
Ended January 31, 1995 and 1994 . . . . . . . . . 3
Notes to Consolidated Financial Statements . . . . . 4-5
Item 2: Management's Discussion and Analysis of Results of
Operations and Financial Condition . . . . . . . . . 6-10
Part II. Other Information
Item 5: Other Information . . . . . . . . . . . . . . . . . 11
Item 6: Exhibits and Reports on Form 8-K . . . . . . . . . . 11-14
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
QUANEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
January 31, October 31,
1995 1994
------------ -----------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents............................ $ 22,737 $ 34,041
Short-term investments.......................... - 54,070
Accounts and notes receivable, net.............. 97,573 83,082
Inventories..................................... 93,791 81,800
Deferred income taxes........................... 6,165 6,114
Prepaid expenses................................ 1,513 289
----------- -----------
Total current assets.................... 221,779 259,396
Property, plant and equipment..................... 509,006 499,798
Less accumulated depreciation and amortization.... (245,226) (237,537)
----------- -----------
Net property, plant and equipment................. 263,780 262,261
Goodwill, net..................................... 32,780 33,017
Other assets...................................... 8,584 9,334
----------- -----------
$ 526,923 $ 564,008
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable................................... $ 10,000 $ -
Accounts payable................................ 87,851 75,515
Income taxes payable............................ 2,445 1,160
Accrued expenses................................ 35,740 37,118
Current maturities of long-term debt............ 20,958 20,958
----------- -----------
Total current liabilities............... 156,994 134,751
Long-term debt.................................... 47,942 107,442
Deferred pension credits.......................... 15,474 15,810
Deferred postretirement welfare benefits.......... 51,418 50,742
Deferred income taxes............................. 22,482 23,014
----------- -----------
Total liabilities....................... 294,310 331,759
Stockholders' equity:
Preferred stock, no par value................... 86,250 86,250
Common stock, $.50 par value.................... 6,715 6,688
Additional paid-in capital...................... 87,382 86,323
Retained earnings............................... 54,350 55,081
Unearned compensation........................... (361) (370)
Adjustment for minimum pension liability........ (1,723) (1,723)
----------- -----------
Total stockholders' equity.............. 232,613 232,249
----------- -----------
$ 526,923 $ 564,008
=========== ===========
</TABLE>
(1)
<PAGE> 4
QUANEX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
January 31,
-------------------------------
1995 1994
---------- ----------
(Unaudited)
<S> <C> <C>
Net sales.............................................. $ 199,886 $ 149,522
Cost and expenses:
Cost of sales........................................ 177,189 135,192
Selling, general and administrative expense.......... 12,286 10,285
---------- ----------
Operating income....................................... 10,411 4,045
Other income (expense):
Interest expense..................................... (3,116) (3,489)
Capitalized interest................................. 1,030 756
Other, net........................................... (303) 1,736
---------- ----------
Income before income taxes and extraordinary charge.... 8,022 3,048
Income tax expense..................................... (3,369) (1,280)
---------- ----------
Income before extraordinary charge..................... 4,653 1,768
Extraordinary charge - early extinguishment of debt.... (2,021) -
---------- ----------
Net income............................................. 2,632 1,768
Preferred dividends.................................... (1,484) (1,484)
---------- ----------
Net income attributable to common stockholders......... $ 1,148 $ 284
========== ==========
Earnings per common share:
Earnings before extraordinary charge................ $ 0.23 $ 0.02
Extraordinary charge................................ (0.15) -
---------- ----------
Earnings per common share........................ $ 0.08 $ 0.02
========== ==========
Weighted average shares outstanding.................... 13,566 13,407
========== ==========
</TABLE>
(2)
<PAGE> 5
QUANEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
January 31,
--------------------------
1995 1994
----------- ----------
(Unaudited)
<S> <C> <C>
Operating activities:
Net income................................................... $ 2,632 $ 1,768
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation and amortization........................... 8,494 7,201
Facilities realignment accrual.......................... - (597)
Deferred income taxes................................... (532) (424)
Deferred pension costs.................................. (336) 1,008
Deferred postretirement welfare benefits................ 676 815
----------- ----------
10,934 9,771
Changes in assets and liabilities net of effects from
acquisitions and dispositions:
Decrease (increase) in accounts and notes receivable.... (14,491) 6,601
Decrease (increase) in inventory........................ (11,991) (4,410)
Increase (decrease) in accounts payable................. 12,336 (5,505)
Increase (decrease) in accrued expenses................. (1,378) 660
Other, net.............................................. 10 566
----------- ----------
Cash provided (used) by operating activities....... (4,580) 7,683
Investment activities:
Capital expenditures, net of retirements..................... (9,242) (8,058)
Decrease (increase) in short-term investments................ 54,070 (283)
Other, net................................................... 216 (1,035)
----------- ----------
Cash provided (used) by investment activities...... 45,044 (9,376)
----------- ----------
Cash provided (used) by operating and
investment activities........................... 40,464 (1,693)
Financing activities:
Notes payable borrowings..................................... 10,000 -
Purchase of Senior Notes..................................... (59,500) -
Repayments of long-term debt................................. - (26)
Common dividends paid........................................ (1,879) (1,865)
Preferred dividends paid..................................... (1,484) (1,484)
Other, net................................................... 1,095 75
----------- ----------
Cash used by financing activities.................. (51,768) (3,300)
Increase (decrease) in cash and equivalents.................... (11,304) (4,993)
Cash and equivalents at beginning of period.................... 34,041 42,247
----------- ----------
Cash and equivalents at end of period.......................... $ 22,737 $ 37,254
=========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest....................................................... $ 2,475 $ 163
Income taxes................................................... $ 1,147 $ 101
</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 1994 Annual Report
on Form 10-K, which is incorporated by reference. Certain
amounts for prior periods have been reclassified in the
accompanying consolidated financial statements to conform to
1995 classifications.
2. Inventories
<TABLE>
<CAPTION>
Inventories consist of the following: January 31, October 31,
1995 1994
----------- -----------
(In thousands)
<S> <C> <C>
Inventories valued at lower of cost
(principally LIFO method) or market:
Raw materials . . . . . . . . . . . . . . $34,034 $25,946
Finished goods and work in process . . . . 50,236 47,684
------- -------
84,270 73,630
Other . . . . . . . . . . . . . . . . . . . . 9,521 8,170
------- -------
$93,791 $81,800
======= =======
</TABLE>
With respect to inventories valued using the LIFO method,
replacement cost exceeded the LIFO value by approximately $18
million at January 31, 1995, and $15 million at October 31, 1994.
3. Long-Term Debt and Financing Arrangements
In December 1994, the Company acquired $59.5 million principal
amount of the Senior Notes for a purchase price equal to 105% of
the principal amount plus accrued interest. The Company recorded
an extraordinary charge of $2.0 million ($3.5 million before tax)
in the first quarter of 1995 related to the call premium and
write-off of deferred debt issuance costs for the Senior Notes
that were repurchased. At January 31, 1995, the Company had $65.5
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 requires annual repayments of $20.8 million beginning on
August 23, 1995, with a final payment of $3.0 million on August
23, 1998.
At January 31, 1995, the Company had $10.0 million outstanding
under its unsecured $48 million Revolving Credit and Letter of
Credit Agreement ("Bank Agreement"). The Bank Agreement consists
of a revolving line of credit ("Revolver"), renewable annually,
which expires March 31, 1999, and up to $20 million for standby
letters of credit, limited to the undrawn amount available under
the Revolver. All borrowings under the Revolver bear interest, at
the option of the Company, at either floating prime or a reserve
adjusted Eurodollar rate.
All of the above agreements contain customary affirmative and
negative covenants which the Company must meet. As of January 31,
1995, the Company was in compliance with all of the covenants.
4. Postemployment Benefits
Effective November 1, 1994, the Company adopted Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" which establishes standards of financial
accounting and reporting for the estimated cost of benefits
provided by an employer to former or inactive employees after
employment but before retirement. Adoption of this statement did
not have a material effect on the Company's financial position or
results of operations.
(4)
<PAGE> 7
QUANEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Industry Segment Information
Quanex is principally a specialty metals producer. The Company's operations
primarily consist of four segments: hot rolled steel bars, cold finished
steel bars, steel tubes, and aluminum products.
<TABLE>
<CAPTION>
Cold Corporate
Three Months Ended Hot Rolled Finished Steel Aluminum and Consoli-
January 31, 1995 Steel Bars Steel Bars Tubes Products Other(1) dated
------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Units shipped:
To unaffiliated companies... 111.9 Tons 48.0 Tons 22.8 Tons 51,173 Lbs.
Intersegment................ 5.2 - - -
---------- ---------- ------- -----------
Total........................ 117.1 Tons 48.0 Tons 22.8 Tons 51,173 Lbs.
========== ========== ======= ===========
Net Sales:
To unaffiliated companies...$ 59,564 $ 43,327 $28,795 $ 68,200 $ - $199,886
Intersegment(2)............. 2,916 - - - (2,916) -
---------- ---------- ------- ----------- --------- --------
Total........................$ 62,480 43,327 28,795 68,200 (2,916) 199,886
========== ========== ======= =========== ========= ========
Operating income (loss)......$ 6,976 $ 2,669 $ 1,879 $ 4,185 $ (5,298) $ 10,411
========== ========== ======= =========== ========= ========
</TABLE>
<TABLE>
<CAPTION>
Cold Corporate
Three Months Ended Hot Rolled Finished Steel Aluminum and Consoli-
January 31, 1994 Steel Bars Steel Bars Tubes Products Other(1) dated
------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <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 $ - $149,522
Intersegment(2)............. 3,743 - - - (3,743) -
---------- ---------- ------- ----------- --------- --------
Total........................$ 57,647 37,167 26,155 32,296 (3,743) 149,522
========== ========== ======= =========== ========= ========
Operating income (loss)......$ 5,961 $ 1,570 $ 1,733 $ (2,129) $ (3,090) $ 4,045
========== ========== ======= =========== ========= ========
</TABLE>
(1) Included in "Corporate and Other" are intersegment eliminations and
corporate expenses
(2) Intersegment sales are conducted on an arm's-length basis.
(5)
<PAGE> 8
Item 2 - Management's Discussion and Analysis of
Results of Operations and Financial Condition
RESULTS OF OPERATIONS
The Company classifies its operations into four business segments:
hot rolled steel bars, cold finished steel bars, steel tubes and
aluminum products. The Company's products are marketed to the
industrial machinery and capital equipment industries, the
transportation industry, the energy processing industry and the home
building and remodeling industries.
All of the Company's businesses reflected improvement in the first
quarter of fiscal 1995 over the first quarter of fiscal 1994 in both
revenues and income, with the most significant improvement being
recognized in the Company's aluminum products business where revenues
more than doubled and results shifted from an operating loss of $2.1
million for the first quarter of 1994 to operating income of $4.2
million in the first quarter of 1995. The Company's businesses
benefited from more favorable market conditions in all segments
relating primarily to a stronger domestic economy, improved margins
resulting from favorable pricing trends, greater market penetration for
certain of the Company's manufactured products and the cost reduction
programs initiated in earlier years and continuing to the present. The
improved results also reflected the benefits realized from the
Company's capital improvement programs, which have allowed the Company
to increase capacity, improve quality and manage manufacturing costs.
The improvements in each of the Company's businesses resulted in
the Company reporting operating income for the first quarter of 1995 of
$10.4 million compared to $4.0 million in the first quarter of 1994 and
income before extraordinary charge of $4.7 million for the first
quarter of 1995 compared to $1.8 million in the first quarter of 1994.
Net income for the first quarter of 1995 was $2.6 million and included
a $2.0 million ($3.5 million before tax) extraordinary charge for early
extinguishment of debt relating to the acquisition by the Company of
$59.5 million principal amount of its 10.77% Senior Notes for a
purchase price equal to 105% of the principal amount plus accrued
interest.
Market conditions continue to be favorable in each of the
Company's businesses. In addition, fiscal 1995 revenues in the
Company's hot rolled steel bar business and aluminum products business
are expected to continue to show improvement over 1994 results due to
increased capacity levels. Domestic and global market factors,
however, will continue to impact the Company and any slowdown in the U.
S. economy could affect demand and pricing for many of the Company's
products. In this regard, increased interest rates can be expected to
impact the demand for products in many of the Company's markets,
including the automotive and light truck market and the residential
building market. The Company currently expects that business
conditions will remain strong in fiscal 1995. Continued improved
financial results, however, will be dependent upon, among other things,
whether the strong economic conditions experienced in the first quarter
of fiscal 1995 can be sustained.
(6)
<PAGE> 9
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,
--------------------
1995 1994
-------- --------
(In thousands)
<S> <C> <C>
Hot Rolled Steel Bars:
Units shipped (Tons)...................... 117.1 116.2
Net Sales................................. $ 62,480 $ 57,647
Operating income.......................... $ 6,976 $ 5,961
Depreciation and amortization............. $ 3,870 $ 3,285
Identifiable assets....................... $170,467 $157,631
Cold Finished Steel Bars:
Units shipped (Tons)...................... 48.0 43.6
Net Sales................................. $ 43,327 $ 37,167
Operating income.......................... $ 2,669 $ 1,570
Depreciation and amortization............. $ 346 $ 343
Identifiable assets....................... $ 57,143 $ 52,212
Steel Tubes:
Units shipped (Tons)...................... 22.8 19.2
Net Sales................................. $ 28,795 $ 26,155
Operating income.......................... $ 1,879 $ 1,733
Depreciation and amortization............. $ 525 $ 524
Identifiable assets....................... $ 39,452 $ 40,242
Aluminum Products:
Units shipped (Pounds).................... 51,173 24,582
Net Sales................................. $ 68,200 $ 32,296
Operating income.......................... $ 4,185 $ (2,129)
Depreciation and amortization............. $ 3,331 $ 2,964
Identifiable assets....................... $245,021 $190,369
</TABLE>
Consolidated net sales for the three months ended January 31,
1995, were $199.9 million representing an increase of $50.4 million or
34% when compared to the same period last year. The increase is due to
significantly higher volume in the aluminum products business,
improvements in the economy and increases in demand in all of the
Company's businesses combined with higher average selling prices.
Net sales from the Company's hot rolled steel bar business for the
three months ended January 31, 1995, were $62.5 million as compared to
$57.6 million for the same 1994 period. This represents an increase of
$4.8 million or 8%. This increase is attributable to a 1% increase in
volume combined with a 7% increase in average selling prices. The
increase in volume was achieved even though during the first quarter,
the Fort Smith, Arkansas operation was down about four weeks for
equipment upgrades as part of the Phase II expansion project. The
Phase II project is currently expected to be completed in the second
fiscal quarter of 1995, with an anticipated increase in capacity at the
Company's Fort Smith, Arkansas plant of approximately 10%.
Net sales from the Company's cold finished steel bar business for
the three months ended January 31, 1995, were $43.3 million as compared
to $37.2 million for the same 1994 period. This represents an increase
of $6.2 million or 17%. The improvement reflects a 10% increase in
volume and a 6% increase in average selling prices. This business is
currently operating at near capacity.
(7)
<PAGE> 10
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, 1995, increased 10% from $26.2 million in 1994
to $28.8 million for the first fiscal quarter of 1995. This increase
in sales resulted from a 19% improvement in volume, particularly in
condenser tubing and heat treated tonnage, combined with a decrease in
average selling prices of 7% due to product mix. The Company's steel
tube business was adversely affected in fiscal 1994, and to a lesser
degree in the first quarter of fiscal 1995, by downward pricing
pressure from imports on certain products and a general weakness in
this segment's primary markets, which include power generation and the
petrochemical and refining industries. In June 1994, the Company filed
petitions alleging that imports of carbon and alloy seamless pipe up to
4.5 inches in diameter from four countries were being dumped or
subsidized. In August 1994, the International Trade Commission made an
affirmative preliminary determination that imports of small-diameter
pipe from these countries were causing injury to the U.S. industry and
in January 1995, the U.S. Department of Commerce released preliminary
determinations against importers from four countries, and dumping bonds
were imposed against their imports until a final determination is made.
Final injury and dumping determinations from both the International
Trade Commission and the Department of Commerce are expected by late
summer 1995.
Net sales from the Company's aluminum products business for the
three months ended January 31, 1995, were $68.2 million as compared to
$32.3 million for the same 1994 period. This represents an increase of
$35.9 million or 111%. This increase is attributable to a 108%
increase in volume due to improved demand and market share combined
with a 1% increase in average selling prices. Aluminum prices in
general have increased by more than the Company s average selling
price, which was affected by a change in product mix. Lower priced
mill finished sheet is a higher percentage of total sales in the first
quarter of fiscal 1995 as compared to the same period last year. First
quarter results for 1994 were also adversely affected by the fire at
the Company's Lincolnshire plant.
Consolidated operating income for the three months ended January
31, 1995, was $10.4 million representing an increase of $6.4 million or
157% when compared to the same period last year. This increase is
principally due to higher net sales and significantly improved results
at the Company's aluminum products business.
Operating income from the Company's hot rolled steel bar business
for the three months ended January 31, 1995, was $7.0 million as
compared to $6.0 million for the same 1994 period. This represents an
increase of $1.0 million or 17%. This increase is due to higher net
sales.
Operating income from the Company's cold finished steel bar
business for the three months ended January 31, 1995, was $2.7 million
as compared to $1.6 million for the same 1994 period. This represents
an increase of $1.1 million or 70%. This increase is principally due
to higher net sales and improved pricing.
Operating income from the Company's steel tube business for the
three months ended January 31, 1995, was $1.9 million as compared to
$1.7 million for the same 1994 period. This represents an increase of
$146 thousand or 8%.
Operating income from the Company's aluminum products business for
the three months ended January 31, 1995, was $4.2 million as compared
to an operating loss of $2.1 million for the same 1994 period. This
represents an improvement of $6.3 million. The improvement reflected
significantly increased sales from the Company's aluminum plants in
Davenport, Iowa and Lincolnshire, Illinois.
(8)
<PAGE> 11
Item 2 - Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
Selling, General and Administrative Expenses increased by $2.0
million or 19% for the three months ended January 31, 1995, as compared
to the same period of 1994 primarily due to increased levels of
business activity. However, as a percentage of net sales, selling,
general and administrative expenses decreased as compared to the same
period last year.
Interest expense decreased by $373 thousand for the three months
ended January 31, 1995, as compared to the same period of 1994
primarily as a result of the early extinguishment of a portion of the
Company s senior debt late in the first fiscal quarter of 1995.
Net income attributable to common shareholders for the three
months ended January 31, 1995, was $1.1 million as compared to $284
thousand for the same 1994 period, after deducting preferred dividends
of $1.5 million from both periods. The improvement is primarily
attributable to improved operating income partly offset by an
extraordinary charge relating to early extinguishment of debt.
Included in "Other, net", was an investment loss of $293 thousand for
the three months ended January 31, 1995, as compared to investment
income of $923 thousand for the same 1994 period. The decrease was due
to losses on sales of short-term investments.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of funds are cash on hand, cash
flow from operations, and, if needed, borrowings under a $48 million
unsecured revolving credit facility with a group of banks (the "Bank
Agreement"). All borrowings under the Bank Agreement bear interest, at
the option of the Company, at either floating prime or a reserve
adjusted Eurodollar rate. The Bank Agreement contains customary
affirmative and negative covenants and requirements to maintain a
minimum consolidated tangible net worth, as defined. The Bank
Agreement limits the payment of dividends and certain restricted
investments. The Bank Agreement was amended in December 1994 to extend
the maturity of the facility to March 31, 1999. Under the Bank
Agreement, at January 31, 1995, there were $10.0 million of outstanding
borrowings and $92,800 of outstanding letters of credit.
At January 31, 1995, the Company had outstanding $65.5 million in
Senior Notes ("Senior Notes") The Senior Notes are unsecured and bear
interest at the rate of 10.77% per annum, payable semi-annually. The
Senior Notes require annual repayments of $20.8 million beginning on
August 23, 1995, with a final payment of $3.0 million on August 23,
1998. In December 1994, the Company acquired $59.5 million principal
amount of the Senior Notes for a purchase price equal to 105% of the
principal amount plus accrued interest. The acquisition was funded
with the Company's available cash, proceeds from the sale of its short-
term investments and $10 million in borrowings under the Bank
Agreement. The acquisition resulted in the Company's ratio of debt to
capitalization declining to approximately 23% from approximately 36% as
of October 31, 1994. The Senior Notes contain customary affirmative
and negative covenants, as well as requirements to maintain a minimum
capital base, as defined. In addition, the Senior Notes limit the
payment of dividends and certain restricted investments.
The Company currently has outstanding 3,450,000 Depositary
Convertible Exchangeable Preferred Shares, each representing 1/10th of
a share of the Company's 6.88% Cumulative Convertible Exchangeable
Preferred Stock ("Preferred Stock"). The Preferred Stock may be
exchanged, at the option of the Company, beginning on June 30, 1995,
for a new issue of the Company's 6.88% Convertible Subordinated
Debentures due June 30, 2007, having a principal amount equal to $250
per share of Preferred Stock ($25 per Depositary Convertible
Exchangeable Preferred Share) exchanged.
(9)
<PAGE> 12
Item 2 - Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
At January 31, 1995, the Company had commitments of $9 million for
the purchase or construction of capital assets. During the quarter
ended January 31, 1995, the Company s Board of Directors approved a $5
million capital project for the purchase and installation of a fully
integrated coil-to-bar drawing line at LaSalle Steel s Hammond, Indiana
operation. 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 fiscal 1995. Capital expenditures remaining for this program are
approximately $4 million.
In management's opinion, the Company currently has sufficient
funds and adequate financial sources available to meet its anticipated
liquidity needs including required payments on the Senior Notes.
Management believes that cash flow from operations, cash balances and
available borrowings will be sufficient for the foreseeable future to
finance anticipated capital expenditures, debt service requirements and
dividends.
Operating Activities
Cash used by operating activities during the three months ended
January 31, 1995, was $4.6 million. This represents a decrease of
$12.3 million as compared to the same 1994 period. This decrease
reflects increases in working capital requirements partly offset by
improved net income.
Investment Activities
Net cash provided by investment activities during the three months
ended January 31, 1995, was $45.0 million as compared to net cash used
by investment activities of $9.4 million for the same 1994 period. The
increase in cash provided by investment activities is principally due
to decreases in short-term investments to fund the Company's
acquisition of its Senior Notes. Capital expenditures for the three
months ended January 31, 1995, were $9.2 million as compared to $8.1
million for the same 1994 period. The Company estimates that fiscal
1995 capital expenditures will approximate $30 to $40 million.
Financing Activities
Net cash used by financing activities for the three months ended
January 31, 1995, was $51.8 million, principally consisting of $59.5
million for the early extinguishment of long-term debt, $1.9 million in
common dividends and $1.5 million in preferred dividends. This was
partly offset by notes payable borrowings of $10.0 million.
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.
Effective November 1, 1994, the Company adopted Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" which establishes standards of financial
accounting and reporting for the estimated cost of benefits provided by
an employer to former or inactive employees after employment but before
retirement. Adoption of this statement did not have a material effect
on the Company's financial position or results of operations.
(10)
<PAGE> 13
PART II. OTHER INFORMATION
Item 5 - Other Information.
None
Item 6 - Exhibits and Reports on Form 8-K.
Exhibit
Number
-------
3.1 Certificate of Incorporation of the Registrant, as
amended, filed as Exhibit 3.1 of the Registrant's Annual
Report on Form 10-K for the fiscal year ended October 31,
1987, and incorporated herein by reference.
3.2 Amended and Restated Bylaws of the Registrant, as amended
through October 21, 1992, filed as Exhibit 3.2 to the
Registrant's Annual Report on Form 10-K for the fiscal
year ended October 31, 1992, and incorporated herein by
reference.
4.1 Form of Registrant's Common Stock certificate, filed as
Exhibit 4.1 of the Registrant's Quarterly Report on Form
10-Q for the quarter ended April 30, 1987, and
incorporated herein by reference.
4.2 Amended and Restated Rights Agreement between the
Registrant and Manufacturers Hanover Trust Company, as
Rights Agent, filed as Exhibit 1 to Amendment No. 1 to the
Registrant's Form 8-A dated April 28, 1989, and
incorporated herein by reference.
4.3 Amended and Restated Certificate of Designation,
Preferences and Rights of the Registrant's Series A Junior
Participating Preferred Stock, filed as Exhibit 1 to
Amendment No. 1 to the Registrant's Form 8-A dated April
28, 1989, and incorporated herein by reference.
4.4 Certificate of Designations of the Registrant's 6.88%
Cumulative Convertible Exchangeable Preferred Stock,
Liquidation preference $250 per share, filed as Exhibit
19.1 to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended April 30, 1992, and incorporated herein
by reference.
4.5 Form of Indenture relating to the Registrant's 6.88%
Cumulative Subordinated Debentures due 2007 between the
Registrant and Chemical Bank, as Trustee, filed as Exhibit
19.2 to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended April 30, 1992, and incorporated herein
by reference.
4.6 Form of Certificate of 6.88% Cumulative Convertible
Exchangeable Preferred Stock, Liquidation preference $250
per share, filed as Exhibit 19.3 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended April
30, 1992, and incorporated herein by reference.
(11)
<PAGE> 14
4.7 Deposit Agreement, relating to Depositary Convertible
Exchangeable Preferred Shares between the Registrant and
Chemical Bank, filed as Exhibit 19.4 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended April
30, 1992, and incorporated herein by reference.
4.8 Form of Depositary Receipt for Depositary Convertible
Exchangeable Preferred Shares, filed as Exhibit 19.6 to
the Registrant's Quarterly Report on Form 10-Q for the
quarter ended April 30, 1992, and incorporated herein by
reference.
4.9 Note Agreement dated July 25, 1990 among the Registrant
and the Purchasers listed therein, regarding the sale of
$125,000,000 of 10.77% Senior Notes due August 23, 2000,
filed as Exhibit 4.1 to the Registrant s Quarterly Report
on Form 10-Q for the quarter ended July 31, 1990, and
incorporated herein by reference.
4.10 Revolving Credit and Letter of Credit Agreement dated as
of December 4, 1990 among the Registrant and the Banks
listed therein relating to a $40,000,000 revolving credit,
filed as Exhibit 4.7 to the Registrant's Annual Report on
Form 10-K for the year ended October 31, 1991, and
incorporated herein by reference.
4.11 Second Amendment to the Revolving Credit and Letter of
Credit Agreement dated as of April 15, 1992, filed as
Exhibit 4.13 to the Registrant's Registration Statement on
Form S-3 (Registration No. 33-47282), and incorporated
herein by reference.
4.12 Third and Fourth Amendments to the Revolving Credit and
Letter of Credit Agreement dated as of February 12, 1993
and April 1, 1993, respectively, filed as Exhibit 19 to
the Registrant's Quarterly Report on Form 10-Q for the
quarter ended April 30, 1993, and incorporated herein by
reference.
4.13 Fifth Amendment to the Revolving Credit and Letter of
Credit Agreement dated as of December 8, 1994, filed as
Exhibit 4.15 to the Registrant's Form S-8 Registration No.
33-57235, and incorporated herein by reference.
10.1 Agreement of Lease between Leland Tube Company, Inc. and
Role Realty Co., dated March 5, 1970, with attached
Assignment of Tenant's Interest in Lease from Leland Tube
Company to the Registrant, dated May 31, 1979, and filed
as Exhibit 10.3 of the Registrant's Form S-2, Registration
No. 2-88583, and incorporated herein by reference.
10.2 Agreement of Lease between Leland Tube Company, Inc. and
Role Realty Co., dated January 24, 1973, with attached
Assignment of Tenant's Interest in Lease from Leland Tube
Company to the Registrant, dated May 31, 1979, and filed
as Exhibit 10.4 of the Registrant's Form S-2, Registration
No. 2-88583, and incorporated herein by reference.
10.3 Lease Agreement between the Registrant and William M. Paul
and Associates, dated August 27, 1980, and filed as
Exhibit 10.5 of the Registrant's Form S-2, Registration
No. 2-88583, and incorporated herein by reference.
(12)
<PAGE> 15
10.4 Agreement of Lease between the Registrant and 3D Tower
Limited, dated March 5, 1985, filed as Exhibit 10.13 to
the Registrant's Annual Report on Form 10-K for the fiscal
year ended October 31, 1985, and incorporated herein by
reference, as amended by the First Amendment to Lease
Agreement between the Registrant and VPM 1989-1, effective
December 8, 1989, filed as Exhibit 10.9 to the
Registrant's Annual Report on Form 10-K for the fiscal
year ended October 31, 1989, and incorporated herein by
reference.
10.5 Quanex Corporation 1988 Stock Option Plan and form of
Stock Option Agreement filed as Exhibit 10.4 to the
Registrant's Annual Report on Form 10-K for the year ended
October 31, 1988, and incorporated herein by reference.
10.6 Quanex Corporation Deferred Compensation Plan, as amended,
filed as Exhibit 10.5 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended October 31, 1981, and
incorporated herein by reference.
10.7 Quanex Corporation 1978 Stock Option Plan, as amended,
filed as Exhibit 10.6 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended October 31, 1988, and
incorporated herein by reference
10.8 Quanex Corporation Executive Incentive Compensation Plan,
as amended, filed as Exhibit 10.8 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended
October 31, 1993, and incorporated herein by reference.
10.9 Quanex Corporation Supplemental Benefit Plan, effective
February 28, 1980, as restated November 1, 1988 and
amended on June 28, 1991, filed as Exhibit 10.9 to the
Registrant's Annual Report on Form 10-K for the year ended
October 31, 1991, and incorporated herein by reference.
10.10 Form of Severance Compensation Agreement and Escrow
Agreement, adopted on February 28, 1985, between the
Registrant and each executive officer of the Registrant,
filed as Exhibit 10.14 to the Registrant's Annual Report
on Form 10-K for the fiscal year ended October 31, 1985,
and incorporated herein by reference.
10.11 Quanex Corporation Stock Option Loan Plan for Key
Officers, filed as Exhibit 10.13 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended
October 31, 1988, and incorporated herein by reference.
10.12 Quanex Corporation 1987 Non-Employee Director Stock Option
Plan and the related form of Stock Option Agreement, filed
as Exhibit 10.14 to the Registrant's Annual Report on Form
10-K for the fiscal year ended October 31, 1988, and
incorporated herein by reference.
10.13 Quanex Corporation 1989 Non-Employee Director Stock Option
Plan, filed as Exhibit 4.4 of the Registrant's Form S-8,
Registration No. 33-35128, and incorporated herein by
reference.
10.14 Amendment to Quanex Corporation 1987 Non-Employee Director
Stock Option Plan.
(13)
<PAGE> 16
10.15 Amendment to Quanex Corporation 1989 Non-Employee Director
Stock Option Plan.
10.16 Amendment to Quanex Corporation 1978 Stock Option Plan.
10.17 Amendment to Quanex Corporation 1988 Stock Option Plan.
10.18 Quanex Corporation Employee Stock Option and Restricted
Stock Plan, as amended, filed as Exhibit 10.14 to the
Registrant's Annual Report on Form 10-K for the fiscal
year ended October 31, 1994, and incorporated herein by
reference.
10.19 Retirement Agreement dated as of September 1, 1992,
between the Registrant and Carl E. Pfeiffer, filed as
Exhibit 10.20 to the Registrant's Annual Report on Form
10-K for the fiscal year ended October 31, 1992, and
incorporated herein by reference.
10.20 Stock Option Agreement dated as of October 1, 1992,
between the Registrant and Carl E. Pfeiffer, filed as
Exhibit 10.21 to the Registrant's Annual Report on Form
10-K for the fiscal year ended October 31, 1992, and
incorporated herein by reference.
10.21 Deferred Compensation Agreement dated as of July 31, 1992,
between the Registrant and Carl E. Pfeiffer, filed as
Exhibit 10.22 to the Registrant's Annual Report on Form
10-K for the fiscal year ended October 31, 1992, and
incorporated herein by reference.
10.22 Quanex Corporation Non-Employee Director Retirement Plan,
filed as Exhibit 10.18 to the Registrant's Annual Report
on Form 10-K for the fiscal year ended October 31, 1994,
and incorporated herein by reference.
10.23 Third Amendment to Lease Agreement between the Registrant
and VPM 1989-1, Ltd. effective October 1, 1994.
11 Statement re computation of per share earnings.
27 Financial Data Schedule.
No reports on Form 8-K were filed by the Company during
the quarter for which this report is being filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
QUANEX CORPORATION
_______________________________
Viren M. Parikh
Controller (Chief Accounting Officer)
Date March 10, 1995
(14)
<PAGE> 1
EXHIBIT 10.14
AMENDMENT TO
THE QUANEX CORPORATION
1987 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
THIS AGREEMENT by Quanex Corporation (the "Company"),
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Company previously
adopted the plan agreement known as the "Quanex Corporation Employee Stock
Option and Restricted Stock Plan" (the "Plan"); and
WHEREAS, the Board of Directors of the Company retained the
right in Section 13 of the Plan to amend the Plan from time to time; and
WHEREAS, the Board of Directors of the Company has approved
the following amendment to the Plan;
NOW, THEREFORE, subject to the requirement set forth below,
the Board of Directors of the Company agrees that Paragraph 9 of the Plan is
hereby amended, effective with respect to both Options outstanding on the date
of the adoption of this Amendment and all Options issued in the future under
this Plan, as follows:
9. TERMINATION OR DEATH OF OPTIONEE. Except as may be
otherwise expressly provided herein all Options shall terminate on the
earlier of the date of the expiration of the Option or the date that
is three months after the optionee ceases to be a member of the
Company's Board of Directors, for any reason other than the death,
permanent disability or, retirement of the optionee, during which
period the optionee shall be entitled to exercise the Option in
respect of the number of shares that the optionee would have been
entitled to purchase had the optionee exercised the Option on the date
the optionee ceased to be a member of the Company's Board of
Directors.
In the event the optionee ceases to be a member of the
Company's Board of Directors because of his death, permanent
disability or retirement from the Board of Directors of the Company,
before the date of expiration
<PAGE> 2
of his Option, such Option shall continue fully in effect, including
provisions providing for subsequent vesting of such Option, and shall
terminate on the date of expiration of the Option notwithstanding any
provision to the contrary in the optionee's Option Agreement. After
the death of the optionee, his executors, administrators or any person
or persons to whom his Option may be transferred by will or by the
laws of descent and distribution, shall have the right, at any time
prior to the termination of the Option to exercise the Option, in
respect to the number of shares that the optionee would have been
entitled to exercise if he were still alive.
In any event, an Option shall terminate on the tenth
anniversary of the date of grant of such Option.
For purposes of this Paragraph 9, an Optionee will be treated
as having retired from the Company's Board of Directors if the
Optionee shall, at the time the Optionee ceases to be a member of the
Board of Directors of the Company, have served at least two full
three-year terms of office as a director of the Company or six years
of service as a director of the Company.
This Amendment shall be effective as of December 8, 1994, but
shall be subject to the approval of the holders of a majority of the
outstanding shares of Common Stock of the Company. If such approval is not
obtained by December 31, 1995, this Amendment shall be null and void and of no
force or effect.
Dated: October 20, 1994
-2-
<PAGE> 1
EXHIBIT 10.15
AMENDMENT TO
THE QUANEX CORPORATION
1989 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
THIS AGREEMENT by Quanex Corporation (the "Company"),
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Company previously
adopted the plan agreement known as the "Quanex Corporation Employee Stock
Option and Restricted Stock Plan" (the "Plan"); and
WHEREAS, the Board of Directors of the Company retained the
right in Section 13 of the Plan to amend the Plan from time to time; and
WHEREAS, the Board of Directors of the Company has approved
the following amendment to the Plan;
NOW, THEREFORE, subject to the requirement set forth below,
the Board of Directors of the Company agrees that Paragraph 9 of the Plan is
hereby amended, effective with respect to both Options outstanding on the date
of the adoption of this Amendment and all Options issued in the future under
this Plan, as follows:
9. TERMINATION OR DEATH OF OPTIONEE. Except as may be
otherwise expressly provided herein all Options shall terminate on the
earlier of the date of the expiration of the Option or the date that
is three months after the optionee ceases to be a member of the
Company's Board of Directors, for any reason other than the death,
permanent disability or, retirement of the optionee, during which
period the optionee shall be entitled to exercise the Option in
respect of the number of shares that the optionee would have been
entitled to purchase had the optionee exercised the Option on the date
the optionee ceased to be a member of the Company's Board of
Directors.
In the event the optionee ceases to be a member of the
Company's Board of Directors because of his death, permanent
disability or retirement from the Board of Directors of the Company,
before the date of expiration
<PAGE> 2
of his Option, such Option shall continue fully in effect, including
provisions providing for subsequent vesting of such Option, and shall
terminate on the date of expiration of the Option notwithstanding any
provision to the contrary in the optionee's Option Agreement. After
the death of the optionee, his executors, administrators or any person
or persons to whom his Option may be transferred by will or by the
laws of descent and distribution, shall have the right, at any time
prior to the termination of the Option to exercise the Option, in
respect to the number of shares that the optionee would have been
entitled to exercise if he were still alive.
In any event, an Option shall terminate on the tenth
anniversary of the date of grant of such Option.
For purposes of this Paragraph 9, an Optionee will be treated
as having retired from the Company's Board of Directors if the
Optionee shall, at the time the Optionee ceases to be a member of the
Board of Directors of the Company, have served at least two full
three-year terms of office as a director of the Company or six years
of service as a director of the Company.
This Amendment shall be effective as of December 8, 1994, but
shall be subject to the approval of the holders of a majority of the
outstanding shares of Common Stock of the Company. If such approval is not
obtained by December 31, 1995, this Amendment shall be null and void and of no
force or effect.
Dated: October 20, 1994
-2-
<PAGE> 1
EXHIBIT 10.16
AMENDMENT TO
THE QUANEX CORPORATION
1978 STOCK OPTION PLAN
THIS AGREEMENT by Quanex Corporation (the "Company"),
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Company previously
adopted the plan agreement known as the "Quanex Corporation 1978 Stock Option
Plan" (the "Plan"); and
WHEREAS, the Board of Directors of the Company retained the
right in Section 13 of the Plan to amend the Plan from time to time; and
WHEREAS, the Board of Directors of the Company has approved
the following amendment to the Plan;
NOW, THEREFORE, the Board of Directors of the Company agrees
that Section 10 of the Plan is hereby amended, effective with respect to both
Options outstanding on the date of the adoption of this Amendment and all
Options issued in the future under this Plan, as follows:
10. EFFECT OF TERMINATION OF EMPLOYMENT OR DEATH. If,
prior to the date that any portion of an option shall first become
exercisable, the participant's employment with the Company and its
subsidiaries shall be terminated, with or without cause, for any
reason other than the death, permanent disability, or retirement of
the participant, the participant's right to exercise any portion of
that option shall terminate and all rights thereunder shall cease.
On or after the date that any portion of an option shall first
become exercisable, to the extent such rights shall not previously
have been exercised, the option shall terminate and become null and
void on the last day of the three month period commencing on the date
of termination of the participant's employment, whether voluntary or
involuntary, whether with or without cause, for any reason other than
the death, permanent disability, or retirement of the participant,
during which period the participant shall be entitled to exercise the
option in respect of the number of shares that the participant would
have been entitled to exercise such option had the participant
exercised the option right on the date of such termination of
employment.
<PAGE> 2
In the event of the death, permanent disability, or retirement
of a holder of an option, before the date of expiration of such
option, such option shall continue fully in effect, including
provisions providing for subsequent vesting of such option, and shall
terminate on the date of expiration of the option notwithstanding any
provision to the contrary in the optionee's option agreement. After
the death of the optionee, his executors, administrators or any person
or persons to whom his option may be transferred by will or by the
laws of descent and distribution, shall have the right, at any time
prior to the termination of the option to exercise the option, in
respect to the number of shares that the optionee would have been
entitled to exercise if he were still alive.
In any event, a participant's option will terminate on the
last day of the ten year period commencing on the date of grant.
This Amendment shall be effective as of December 8, 1994;
provided that it shall not be effective as to any Option held by a person that
is subject to the reporting and liability provisions of Section 16(a) or
Section 16(b) of the Securities Exchange Act of 1934 unless and until the
Amendment is approved by the holders of a majority of the outstanding shares of
Common Stock of the Company.
Dated: October 20, 1994
-2-
<PAGE> 1
EXHIBIT 10.17
AMENDMENT TO
THE QUANEX CORPORATION
1988 STOCK OPTION PLAN
THIS AGREEMENT by Quanex Corporation (the "Company"),
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Company previously
adopted the plan agreement known as the "Quanex Corporation 1988 Stock Option
Plan" (the "Plan"); and
WHEREAS, the Board of Directors of the Company retained the
right in Section 18 of the Plan to amend the Plan from time to time; and
WHEREAS, the Board of Directors of the Company has approved
the following amendment to the Plan;
NOW, THEREFORE, the Board of Directors of the Company agrees
that Paragraph 12 of the Plan is hereby amended, effective with respect to both
Non-statutory Options outstanding on the date of the adoption of this Amendment
and all Non-statutory Options issued in the future under this Plan, as follows:
12. TERMINATION OF EMPLOYMENT OR DEATH OF OPTIONEE. Except
as may be otherwise expressly provided herein with respect to an
Option that is a Non-statutory Stock Option, all Options shall
terminate on the earlier of the date of the expiration of the Option
or one day less than three months after the date of severance, upon
severance of the employment relationship between the Company and the
optionee, whether with or without cause, for any reason other than the
death, disability or, in the case of Non-statutory Stock Options only,
Retirement of the optionee, during which period the optionee shall be
entitled to exercise the Option in respect of the number of shares
that the optionee would have been entitled to purchase had the
optionee exercised the Option on the date of such severance of
employment. Whether authorized leave of absence, or absence on
military or government service, shall constitute severance of the
employment relationship between the Company and the optionee shall be
determined by the Committee at the time thereof. In the event of
severance because of the disability of the holder of any Incentive
Stock Option while in the employ of the Company and before the date of
<PAGE> 2
expiration of such Incentive Stock Option, such Incentive Stock Option
shall terminate on the earlier of such date of expiration or one year
following the date of such severance because of disability, during
which period the optionee shall be entitled to exercise the Incentive
Stock Option in respect to the number of shares that the optionee
would have been entitled to purchase had the optionee exercised the
Incentive Stock Option on the date of such severance because of
disability. In the event of the death of the holder of any Incentive
Stock Option while in the employ of the Company and before the date of
expiration of such Incentive Stock Option, such Incentive Stock Option
shall terminate on the earlier of such date of expiration or one year
following the date of death. After the death of the optionee, his
executors, administrators or any person or persons to whom his
Incentive Stock Option may be transferred by will or by the laws of
descent and distribution, shall have the right, at any time prior to
the termination of an Incentive Stock Option to exercise the Incentive
Stock Option, in respect to the number of shares that the optionee
would have been entitled to exercise if he had exercised the Incentive
Stock Option on the date of his death while in employment. For
purposes of Incentive Stock Options issued under this Plan, an
employment relationship between the Company and the optionee shall be
deemed to exist during any period in which the optionee is employed by
the Company, a corporation issuing or assuming an option in a
transaction to which Section 424(a) of the Code applies, or a parent
or subsidiary corporation of such corporation issuing or assuming an
option. For this purpose, the phrase "corporation issuing or assuming
an option" shall be substituted for the word "Company" in the
definitions of parent and subsidiary corporations in Section 4 and the
parent-subsidiary relationship shall be determined at the time of the
corporate action described in Section 424(a) of the Code.
In the event of the death, disability, or Retirement of a
holder of a Non-statutory Stock Option, before the date of expiration
of such Non-statutory Stock Option, such Non-statutory Stock Option
shall continue fully in effect, including provisions providing for
subsequent vesting of such Option, and shall terminate on the date of
expiration of the Non-statutory Stock Option notwithstanding any
provision to the contrary in the optionee's Option Agreement. After
the death of the optionee, his executors, administrators or any person
or persons to whom his Non-statutory Stock Option may be transferred
by will or by the laws of descent and distribution, shall have the
right, at any time prior to the termination of the Non-statutory Stock
Option to exercise the Non-statutory Stock Option, in respect to the
number of shares that the optionee would have been entitled to
exercise if he were still alive. Notwithstanding the foregoing
provisions of this Section, in the case of a Non-statutory Stock
Option granted on or after December 8, 1994, the Committee may
establish any option termination date in the Option Agreement with
respect to such Option that is not later than ten years from the date
of grant and impose restrictions on the exercise of such Option.
This Amendment shall be effective as of December 8, 1994; provided
that it shall not be effective as to any Option held by a person that is
subject to the reporting and liability provisions
-2-
<PAGE> 3
of Section 16(a) or Section 16(b) of the Securities Exchange Act of 1934 unless
and until the Amendment is approved by the holders of a majority of the
outstanding shares of Common Stock of the Company.
Dated: October 20, 1994
-3-
<PAGE> 1
EXHIBIT 10.23
THIRD AMENDMENT TO LEASE AGREEMENT
THIS THIRD AMENDMENT TO LEASE AGREEMENT ( this "Third Amendment") is
made and entered into effective as of October 1, 1994, by and between VPM
1989-1, LTD., a Texas limited partnership ("Landlord"), and Quanex Corporation,
a Delaware corporation ("Tenant").
RECITALS:
3D Tower Limited, as Landlord, and Tenant, as tenant, entered into a
Lease Agreement dated February 7, 1985 (the "Lease"), pursuant to which 3D
Tower Limited leased to Tenant, and Tenant leased from 3D Tower Limited, the
Leased Premises described in said Lease.
3D Tower Limited and Tenant entered into a First Amendment to Lease
Agreement dated April 25, 1989 (the "First Amendment"), amending said Lease.
Subsequent thereto, Landlord purchased the Project described in said Lease, and
in connection therewith Landlord acquired all right, title and interest of 3D
Tower Limited in and to said Lease, as so amended, and under that certain
letter agreement ("Letter Agreement") dated March 15, 1985, a copy of which was
attached as Schedule I to the hereinafter described Second Amendment.
Landlord and Tenant entered into a First Amendment to Lease Agreement
dated December 11, 1989 (the "Second Amendment"), further amending said Lease,
Such Second Amendment having been entitled "First Amendment to Lease Agreement"
even though it amended said lease for the second time. Said Lease, as
heretofore amended, is hereinafter referred to as the "Original Lease".
Capitalized terms used but not defined herein, which are defined in the
Original Lease, shall have the respective meanings ascribed to them in the
Original Lease.
The Tenant has requested a sixty (60) month extension of the term of
the Original Lease beginning October 1, 1994. Landlord and Tenant now desire
to amend the Original Lease by this Third Amendment to effectuate said
extension of the term of the Original Lease, and to make certain other changes
as set forth hereinafter.
AGREEMENTS:
Now, therefore, for and in consideration of the mutual covenants and
conditions contained herein and those contained in the Original Lease, Landlord
and Tenant hereby agree as follows:
1. NOTWITHSTANDING THE INITIAL PARAGRAPH OF THE ORIGINAL
LEASE, THE ADDRESS OF LANDLORD FOR PURPOSES OF NOTICES PURSUANT TO THE
ORIGINAL LEASE IS C/O VERIQUEST REAL ESTATE SERVICES, INC., 5333
WESTHEIMER, SUITE 800, HOUSTON, TEXAS 77056, ATTENTION: MR. LARRY
A. STRICKLAND, UNTIL SUCH ADDRESS SHALL BE CHANGED BY NOTICE FROM
LANDLORD TO TENANT PURSUANT TO SECTION 10.01 OF THE ORIGINAL LEASE.
<PAGE> 2
2. SECTION 1.02 OF THE ORIGINAL LEASE IS HEREBY AMENDED
BY DELETING THEREFROM "SEPTEMBER 30, 1994", AND BY SUBSTITUTING
THEREFOR "SEPTEMBER 30, 1999".
3. THE FIRST FULL SENTENCE OF SECTION 2.01 OF THE
ORIGINAL LEASE IS HEREBY AMENDED IN ITS ENTIRETY TO BE AND READ AS
FOLLOWS:
"Tenant hereby agrees to pay a base annual rental (herein
called 'Base Rental') for (x) the Office Space in the sum of
(a) Sixteen and 50/100 Dollars ($16.50) per square foot of Net
Rentable Area of the Office Space per Lease Year, or any
portion thereof, beginning with the Commencement Date through
and including September 30, 1989, (b) Twelve and 36/100
Dollars ($12.36) per square foot of Net Rentable Area of the
Office Space per Lease Year, or any portion thereof, beginning
with October 1, 1989 through and including September 30, 1994,
and (c) for the remainder of the Initial Term, Thirteen and
75/100 Dollars ($13.75) per square foot of Net Rentable Area
of the Office Space per Lease Year, or any portion thereof,
and (y) the Storage Space in the sum of (a) Six Dollars
($6.00) per square foot of Net Rentable Area of the Storage
Space per Lease Year, or any portion thereof, beginning with
the Commencement Date through and including September 30,
1994, and (b) for the remainder of the Initial Term, Seven
Dollars ($7.00) per square foot of Net Rentable Area of the
Storage Space per Lease Year, or any portion thereof."
4. THE FIRST TWO SENTENCES OF SECTION 2.02(A) OF THE
ORIGINAL LEASE ARE HEREBY AMENDED IN THEIR ENTIRETY TO BE AND READ AS
FOLLOWS:
"(a) There is hereby established under this Lease a 'Base
Year', which for purposes of determining Basic Costs (as
hereinafter defined) for those Lease Years, or portions
thereof, (i) commencing with the Commencement Date and ending
on September 30, 1989, shall be the calendar year 1984, (ii)
commencing with October 1, 1989, and ending on September 30,
1994, shall be the calendar year 1989, and (iii) for the
remainder of the Initial Term, calendar year 1994. Landlord
and Tenant hereby agree that for purposes of this Lease the
Basic Costs for (1) Base Year 1984 will be deemed to be $5.94
per square foot of Net Rentable Area per year, (2) Base Year
1989 will be deemed to be $5.46 per square foot of Net
Rentable Area per year, and (3) for Base Year 1994, will be
equal to the actual Basic Costs of Landlord for such year."
5. SECTION 3.03 OF THE ORIGINAL LEASE IS HEREBY AMENDED
BY ADDING A NEW SUBSECTION (D) THERETO, WHICH SHALL BE AND READ AS
FOLLOWS:
"(d) Landlord may at its option, but shall not be obligated
to, at any time erect, construct, modify, repair, move or
remove a project monument sign with respect to the Building.
If Landlord constructs such a project monument sign and such
sign identifies multiple tenants within the Building, then for
so long as Landlord maintains such sign for such purpose, and
for so long as Tenant leases at least a full floor in the
Building, Tenant shall have the right, at its sole cost and
expense, to be listed on
<PAGE> 3
such sign with lettering and numerals of equal size and
proportion as those of other tenants listed on such sign.
Tenant shall pay and be responsible for all costs and expenses
in connection with such listing, including without limitation,
the cost of graphics and installation. All graphics must be
approved in writing by Landlord."
6. THERE IS HEREBY ADDED TO THE ORIGINAL LEASE A NEW
SECTION 5.05, WHICH SHALL BE AND READ AS FOLLOWS:
"5.05 Remodelling and Allowance. Landlord and Tenant agree
that the provisions of Exhibit D-1 attached hereto and
incorporated herein shall govern the construction of the
leasehold improvements requested by Tenant in respect of the
extension of the Expiration Date from September 30, 1994, to
September 30, 1999. The construction of such improvements
shall be in accordance with Exhibit D-1 hereto, and Tenant
shall be entitled to the Leasehold Improvement Allowance
described therein. To the extent (if any) to which the
Leasehold Improvement Allowance shall exceed the costs and
expenses of construction, the Landlord s compensation (if
any), and all other sums payable from the Leasehold
Improvement Allowance pursuant to Exhibit D-1, Tenant shall be
entitled to cause the remaining balance of the Leasehold
Improvement Allowance to be applied against the rental
obligations of Tenant under this Lease in direct order of
their maturities. To the extent not inconsistent with the
provisions of Exhibit D-1 hereto, the provisions of Section
5.01 of this Lease shall be applicable to the performance of
the improvements contemplated by this Section."
7. SECTION 9.01(B)(IV) OF THE ORIGINAL LEASE IS HEREBY
AMENDED IN ITS ENTIRETY TO BE AND READ AS FOLLOWS:
"(iv) [intentionally deleted]"
8. SECTION 9.03 OF THE ORIGINAL LEASE IS HEREBY AMENDED
IN ITS ENTIRETY TO BE AND READ AS FOLLOWS:
"9.03 Renewal Option. Landlord hereby grants to Tenant the
Renewal Option set forth in Exhibit G attached hereto and
incorporated herein."
9. TENANT ACKNOWLEDGES AND AGREES THAT IT TIMELY
RECEIVED FROM 3D TOWER LIMITED THE PAYMENT AND RENTAL ABATEMENT
CONTEMPLATED BY PARAGRAPH 1 OF THE LETTER AGREEMENT. TENANT AND
LANDLORD FURTHER AGREE THAT THE PROVISIONS OF THE ABOVE DESCRIBED
FIRST AMENDMENT, AND PARAGRAPH 2 OF THE LETTER AGREEMENT, RELATING TO
PAYMENT OF CERTAIN SUMS TO TENANT IN CONNECTION WITH THE EXERCISE BY
TENANT OF AN OPTION TO RENEW THE LEASE FOR A SECOND TERM, ARE HEREBY
TERMINATED.
10. SECTION 9.04 OF THE ORIGINAL LEASE IS HEREBY AMENDED
IN ITS ENTIRETY TO BE AND READ AS FOLLOWS:
"9.04 Market Base Rental Rate. As used in this Lease, the
term Market Base Rental Rate shall have the meaning set forth
in Exhibit G attached hereto and incorporated herein."
<PAGE> 4
11. THE THIRD TO LAST PARAGRAPH OF THE ORIGINAL LEASE IS
HEREBY AMENDED IN ITS ENTIRETY TO BE AND READ AS FOLLOWS:
"The terms and provisions of Exhibits A, B, C, D, D-1, E, F
and G attached hereto are hereby made a part hereof for all
purposes."
12. THE ORIGINAL LEASE IS HEREBY AMENDED BY ADDING
EXHIBITS D-1 AND G TO THIS THIRD AMENDMENT AS EXHIBITS D-1 AND G,
RESPECTIVELY, TO THE ORIGINAL LEASE.
13. THE FIRST SENTENCE OF SECTION 10.03 OF THE ORIGINAL
LEASE IS HEREBY AMENDED IN ITS ENTIRETY TO BE AND READ AS FOLLOWS:
"Landlord agrees to provide, and Tenant obligates itself to
rent, certain reserved parking permits (each a 'Reserved
Permit') and unassigned parking permits (each an 'Unassigned
Permit') for the parking of automobiles in spaces in locations
from time to time designated by Landlord in the parking garage
('Parking Garage') within the Project, in the following
numbers during the following periods: (x) for that portion of
the Initial Term from and after October 1, 1989 and through
and including September 30, 1994, one Reserved Permit and 38
Unassigned Permits; and (y) for that portion of the Initial
Term from and after October 1, 1994 and through and including
September 30, 1999 (and thereafter during the Renewal Term, if
the Renewal Option provided hereby shall be exercised by
Tenant), one Reserved Permit and 45 Unassigned Permits."
14. THE NINTH SENTENCE OF SECTION 10.03 IS HEREBY AMENDED
IN ITS ENTIRETY TO BE AND READ AS FOLLOWS:
"Notwithstanding the foregoing, no parking rent shall accrue
for either the Reserved Permit or the Unassigned Permits for
(i) the twenty-four (24) month calendar period beginning
October 1, 1989 and ending September 30, 1991, or (ii) the
twenty-four (24) month calendar period beginning October 1,
1994 and ending September 30, 1996."
15. A NEW SENTENCE IS HEREBY ADDED TO SECTION 10.03 OF
THE ORIGINAL LEASE, IMMEDIATELY FOLLOWING THE NINTH SENTENCE THEREOF,
WHICH SHALL BE AND READ AS FOLLOWS:
"In addition, Tenant shall be entitled to a visitor parking
validation credit, for Tenant's visitors who park in the
Parking Garage, of up to $200 per calendar month during the
portion of the Initial Term commencing on October 1, 1994 and
through and including September 30, 1999. Tenant and Tenant's
visitors shall comply with all rules, regulations and
requirements which may be imposed by Landlord in connection
therewith."
16. EXCEPT AS EXPRESSLY AMENDED HEREBY, THE ORIGINAL
LEASE SHALL REMAIN IN FULL FORCE AND EFFECT. THE ORIGINAL LEASE, AS
AMENDED BY THIS THIRD AMENDMENT, AND ALL RIGHTS, POWERS AND REMEDIES
CREATED THEREBY OR THEREUNDER ARE HEREBY RATIFIED AND CONFIRMED IN ALL
RESPECTS. THIS THIRD AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
<PAGE> 5
EXECUTED effective as of the date first above written.
QUANEX CORPORATION:
By:__________________________________________
Wayne M. Rose
Vice President and Chief Financial Officer
<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,
-----------------------------
1995 1994
---------- ----------
(Unaudited)
<S> <C> <C>
Income before extraordinary charge..................... $ 4,653 $ 1,768
Extraordinary charge - early extinguishment of debt.... (2,021) -
---------- ----------
Net income............................................. 2,632 1,768
Preferred dividend requirements........................ (1,484) (1,484)
---------- ----------
Net income attributable to
common stockholders.................................. $ 1,148 $ 284
========== ==========
Weighted average shares
outstanding-primary.................................. 13,566 13,407
========== ==========
Earnings per common share:
Primary:
Earnings before extraordinary charge................ 0.23 0.02
Extraordinary charge................................ (0.15) -
---------- ----------
Earnings per common share......................... 0.08 0.02
========== ==========
Income before extraordinary charge..................... $ 4,653 $ 1,768
Extraordinary charge - early extinguishment of debt.... (2,021) -
---------- ----------
Net income............................................. 2,632 1,768
========== ==========
Weighted average shares
outstanding-primary.................................. 13,566 13,407
Effect of common stock equivalents
arising from stock options........................... - 24
Preferred stock assumed converted
to common stock...................................... 2,738 2,738
---------- ----------
Weighted average shares
outstanding-fully diluted............................ 16,304 16,169
========== ==========
Earnings per common share:
Assuming full dilution:
Earnings before extraordinary charge................ 0.28 0.11
Extraordinary charge................................ (0.12) -
---------- ----------
Earnings per common share......................... 0.16 0.11
========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
balance sheet as of January 31, 1995 and the income statement for the
three months ended January 31, 1995 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> JAN-31-1995
<CASH> 22,737
<SECURITIES> 0
<RECEIVABLES> 97,573
<ALLOWANCES> 0
<INVENTORY> 93,791
<CURRENT-ASSETS> 221,779
<PP&E> 509,006
<DEPRECIATION> 245,226
<TOTAL-ASSETS> 526,923
<CURRENT-LIABILITIES> 156,994
<BONDS> 47,942
<COMMON> 6,715
0
86,250
<OTHER-SE> 139,648
<TOTAL-LIABILITY-AND-EQUITY> 526,923
<SALES> 199,886
<TOTAL-REVENUES> 199,886
<CGS> 177,189
<TOTAL-COSTS> 177,189
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,116
<INCOME-PRETAX> 8,022
<INCOME-TAX> 3,369
<INCOME-CONTINUING> 4,653
<DISCONTINUED> 0
<EXTRAORDINARY> 2,021
<CHANGES> 0
<NET-INCOME> 2,632
<EPS-PRIMARY> .08
<EPS-DILUTED> .16
</TABLE>
