<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT TO APPLICATION OR REPORT
Filed pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
QUANEX CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
AMENDMENT NO. 1
The undersigned Registrant hereby amends the following items, financial
statements, exhibits or other portions of its Current Report on Form 8-K filed
August 21, 1996, as set forth in the pages attached hereto:
Item 7: (a) and (b)
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amendment to be signed on its behalf by the
undersigned, hereby duly authorized.
QUANEX CORPORATION
-----------------------------------
Registrant
Date October 1, 1996 /s/ Wayne M. Rose
--------------------- -----------------------------------
Wayne M. Rose
Vice President and Chief Financial
Officer
<PAGE> 2
QUANEX CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
ITEM 7: FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Piper Impact, Inc.
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Financial Statements
Balance Sheets as of December 31, 1995 and 1994 and July 31, 1996 . . . . . . . . . 2
Statements of Earnings for the Years Ended December 31, 1995 and 1994 and the
Seven-Month Periods Ended July 31, 1996 and 1995 . . . . . . . . . . . . . . . . . 3
Statements of Cash Flows for the Years Ended December 31, 1995 and 1994 and the
Seven-Month Periods Ended July 31, 1996 and 1995 . . . . . . . . . . . . . . . . . 4
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-10
(b) Unaudited Pro Forma Consolidated Financial Information of Quanex Corporation
Pro Forma Consolidated Financial Statements (Unaudited) . . . . . . . . . . . . . . . . 11
Pro Forma Consolidated Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Pro Forma Consolidated Statement of Income - Year Ended
October 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Pro Forma Consolidated Statement of Income - Nine Months
Ended July 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Notes to Pro Forma Consolidated Financial Statements . . . . . . . . . . . . . . . . . . 15
</TABLE>
<PAGE> 3
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Piper Impact, Inc.
New Albany, Mississippi
We have audited the accompanying balance sheets of Piper Impact, Inc. (the
"Company"), as of December 31, 1995 and 1994 and the related statements of
earnings and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Piper Impact, Inc. as of December 31, 1995
and 1994, and the results of its operations and cash flows for the years then
ended.
/s/ Deloitte & Touche LLP
- -------------------------
DELOITTE & TOUCHE LLP
Houston, Texas
September 16, 1996
-1-
<PAGE> 4
PIPER IMPACT, INC.
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994 AND JULY 31, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
JULY 31, -------------------------
ASSETS 1996 1995 1994
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $14,029,023 $10,860,494 $ 7,135,127
Certificates of deposit 212,055 212,055 512,055
Marketable debt securities 1,105,653 1,126,040
Accounts receivable - trade 11,361,349 12,705,446 9,109,102
Notes receivable 6,131,000
Inventories 12,490,367 10,688,606 9,586,865
Prepaid expenses and other current assets 238,698 366,847 245,813
----------- ----------- -----------
Total current assets 45,568,145 35,959,488 26,588,962
----------- ----------- -----------
PROPERTY, PLANT AND EQUIPMENT:
Land 1,047,335 752,560 752,560
Buildings and improvements 10,690,512 10,232,617 10,186,542
Machinery and equipment 39,240,057 37,349,984 33,962,784
Office furniture and fixtures 516,700 462,934 455,034
Automobiles 141,195 141,195 62,570
Buildings and equipment in process 7,436,684 3,667,935 269,053
----------- ----------- -----------
59,072,483 52,607,225 45,688,543
Less accumulated depreciation 25,306,462 23,768,525 21,323,475
----------- ----------- -----------
33,766,021 28,838,700 24,365,068
----------- ----------- -----------
GOODWILL 4,922,944 5,118,743 5,454,398
----------- ----------- -----------
TOTAL $84,257,110 $69,916,931 $56,408,428
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $18,785,849 $ 10,688,133 $ 9,788,175
State income taxes payable 99,100 204,213 131,486
Deferred revenues, primarily progress billings 1,879,497 1,854,036 2,827,487
Current portion of long-term debt 1,788,464 1,716,376 1,647,194
----------- ----------- -----------
Total current liabilities 22,552,910 14,462,758 14,394,342
----------- ----------- -----------
LONG-TERM DEBT, LESS CURRENT PORTION 14,936,712 16,725,176 18,441,552
ENVIRONMENTAL ACCRUAL 20,000,000 20,000,000 20,000,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par value; authorized, issued
and outstanding 1,000 shares 1,000 1,000 1,000
Retained earnings 26,766,488 18,727,997 3,571,534
----------- ----------- -----------
Total stockholders' equity 26,767,488 18,728,997 3,572,534
----------- ----------- -----------
TOTAL $84,257,110 $69,916,931 $56,408,428
=========== =========== ===========
</TABLE>
See notes to financial statements.
-2-
<PAGE> 5
PIER IMPACT, INC.
STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 AND
THE SEVEN MONTH PERIODS ENDED JULY 31, 1996 AND 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEVEN MONTHS ENDED TWELVE MONTHS ENDED
JULY 31, DECEMBER 31,
------------------------------ -------------------------------
1996 1995 1995 1994
(Unaudited)
<S> <C> <C> <C> <C>
NET SALES $ 69,179,673 $ 61,249,348 $ 106,853,835 $ 95,298,121
COST OF SALES 51,798,209 44,642,680 76,220,723 66,772,122
------------- ------------- ------------- -------------
GROSS PROFIT 17,381,464 16,606,668 30,633,112 28,525,999
------------- ------------- ------------- -------------
OPERATING EXPENSES:
Selling expenses 311,813 326,015 521,984 893,252
General and administrative expenses 7,780,358 7,596,948 12,662,649 12,591,345
------------- ------------- ------------- -------------
Total operating expenses 8,092,171 7,922,963 13,184,633 13,484,597
------------- ------------- ------------- -------------
EARNINGS FROM OPERATIONS 9,289,293 8,683,705 17,448,479 15,041,402
------------- ------------- ------------- -------------
OTHER INCOME (EXPENSE):
Interest expense (1,176,003) (1,380,603) (2,327,264) (2,812,985)
Tax-exempt interest and dividend income 192,177 170,189 343,125 67,090
Other interest income 27,923 106,183 214,456 218,071
Other expense (195,799) (195,799) (335,655) (335,655)
------------- ------------- ------------- -------------
Total other income (expense) (1,151,702) (1,300,030) (2,105,338) (2,863,479)
------------- ------------- ------------- -------------
NET EARNINGS BEFORE INCOME TAXES 8,137,591 7,383,675 15,343,141 12,177,923
STATE INCOME TAXES 99,100 89,836 186,678 185,721
------------- ------------- ------------- -------------
NET EARNINGS $ 8,038,491 $ 7,293,839 $ 15,156,463 $ 11,992,202
============= ============= ============= =============
</TABLE>
See notes to financial statements.
-3-
<PAGE> 6
PIPER IMPACT, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 AND
THE SEVEN MONTH PERIODS ENDED JULY 31, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEVEN MONTHS ENDED TWELVE MONTHS ENDED
JULY 31, DECEMBER 31,
---------------------------- -----------------------------
1996 1995 1995 1994
(Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 8,038,491 $ 7,293,839 $ 15,156,463 $ 11,992,202
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 1,733,736 1,676,299 2,873,361 2,286,533
(Gain) loss on disposal of fixed assets -- 7,419 7,419 (3,000)
Amortization of bond premium -- -- 8,029 --
(Increase) decrease in assets:
Accounts receivable - trade 1,344,097 (1,013,115) (3,596,344) (1,262,169)
Notes receivable (6,131,000) -- -- --
Inventories (1,801,761) (864,050) (1,101,741) (2,691,088)
Prepaid expenses and other current assets 128,149 89,817 (121,034) (106,089)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 8,097,716 5,338,882 899,958 1,711,972
Deferred revenues - progress billings 25,461 (1,325,239) (973,451) 1,749,740
State income taxes payable (105,113) (41,650) 72,727 76,686
------------ ------------ ------------ ------------
Net cash provided by operating activities 11,329,776 11,162,202 13,225,387 13,754,787
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in certificate of deposit -- 300,000 300,000 --
Purchases of short-term debt investments -- (1,128,620) (1,149,069) --
Proceeds from maturity of short-term debt investments 20,387 -- 15,000 --
Cash received from sale of equipment -- 4,300 4,300 3,000
Payments for purchase of property and equipment (6,465,258) (1,758,273) (7,023,057) (5,196,578)
------------ ------------ ------------ ------------
Net cash used by investing activities (6,444,871) (2,582,593) (7,852,826) (5,193,578)
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of note payable -- 1,600,000 -- --
Repayment of notes payable and long-term debt (1,716,376) (1,647,194) (1,647,194) (5,580,800)
------------ ------------ ------------ ------------
Net cash used by financing activities (1,716,376) (47,194) (1,647,194) (5,580,800)
------------ ------------ ------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 3,168,529 8,532,415 3,725,367 2,980,409
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 10,860,494 7,135,127 7,135,127 4,154,718
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 14,029,023 $ 15,667,542 $ 10,860,494 $ 7,135,127
============ ============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH PAID FOR:
Interest $ 1,176,003 $ 1,380,603 $ 2,327,264 $ 2,812,985
State taxes 204,213 131,486 131,486 109,035
</TABLE>
See notes to financial statements.
-4-
<PAGE> 7
PIPER IMPACT, INC.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS AND SALE
Piper Impact, Inc. (the "Company") is engaged in the business of
manufacturing impact extrusions from aluminum, magnesium and steel and
has manufacturing facilities in New Albany, Mississippi and Park City,
Utah. Its major products include component parts of automotive passive
restraint systems and computers as well as aluminum and steel cartridge
casings for use by the United States ("U.S.") military. The Company's
most significant customer relates to the automotive passive restraint
systems portion of its business, and constituted approximately
ninety-percent of its sales in both 1995 and 1994. The Company sells and
grants credit to customers throughout the U.S.
The Company was formed on April 1, 1986 by the purchase of the operating
assets and the assumption of certain liabilities of the Impact Extrusion
Division of Piper Industries, Inc. for a purchase price which consisted
solely of notes payable to the seller (Note 5).
On May 29, 1996, the Company entered into a letter of intent for the
sale of the Company's assets and assumption of its liabilities ("Net
Assets") to Quanex Corporation ("Quanex") for an estimated total
purchase price of approximately $130 million, including assumption of
the Company's debt and obligations at March 31, 1996 by Quanex. On
August 9, 1996, the Company's Net Assets were acquired by Quanex for
approximately $130 million, pursuant to an asset purchase agreement
among the Company and Quanex. The Company's liabilities assumed by
Quanex included an estimated $20 million for specified environmental
remediation (Note 7). Additionally, the notes payable outstanding were
repaid at closing (Note 5).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INCOME TAXES - Effective April 1, 1991 Piper Impact, Inc. (the
"Company"), with the consent of its stockholders, elected to be an S
corporation. The Company is not subject to federal income taxes due to
the subchapter S election, but the stockholders are taxed on their
proportionate share of the Company's taxable income. As the Company
meets all requirements for treatment as an S Corporation, no provision
or liability is included in the financial statements.
Since Mississippi recognizes the subchapter S election, the Company is
not subject to Mississippi income tax but the stockholders are also
taxed on their proportionate share of the Company's Mississippi taxable
income. The Company incurs state income taxes in Tennessee and Utah.
Such taxes totaled $186,678 and $185,721 during the years ended December
31, 1995 and 1994, respectively.
-5-
<PAGE> 8
CASH AND CASH EQUIVALENTS - For purposes of the statement of cash flows,
the Company considers highly liquid investments purchased with a
maturity of three months or less to be cash equivalents. Cash and cash
equivalents are comprised as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1995 1994
<S> <C> <C>
Petty cash $ 400 $ 400
Cash, checking account 21,000 21,000
Cash, lock-box account 23,779 180,511
Short-term investments 10,696,000 6,892,000
Cash - other accounts 119,315 41,216
------------ ------------
Total $ 10,860,494 $ 7,135,127
============ ============
</TABLE>
Short-term investments consist of $6,046,000 and $6,892,000 at December
31, 1995 and 1994, respectively, in overnight investments in U.S.
Government and Agency obligations which were sold on January 3, 1996 and
January 3, 1995, respectively, and $4,650,000 at December 31, 1995 in
Nuveen preferred municipal bond funds which have a seven day maturity.
These investments, due to their high liquidity, are included in cash and
are valued at cost plus any accrued interest.
MARKETABLE DEBT SECURITIES - Marketable debt securities represent
investments of excess cash in pre-refunded municipal bonds with maturity
dates ranging from 1996 to 2010. The Company records these investments
at cost including premium or discounts paid. Premium or discount is
amortized using the yield to maturity method. Premium amortization
totaled $8,029 during 1995 and was recorded as an offset to interest
income. There was no discount amortization during 1995 and no premium or
discount amortization during 1994.
INVENTORY - Inventories are valued at the lower of cost or market. Costs
related to substantially all manufacturing inventories are determined by
the first-in, first-out ("FIFO") method (Note 3).
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment items are
carried at cost and depreciated using the straight line method as
follows:
<TABLE>
<CAPTION>
YEARS
<S> <C>
Buildings and improvements 19-40
Machinery and equipment 3-12
Office furniture and fixtures 5-7
Automobiles 3-5
</TABLE>
Expenditures which materially increase values or extend useful lives are
capitalized while replacements, maintenance and repairs which do not
improve or extend the lives of the respective assets are charged against
income as incurred.
Depreciation charged to cost of sales was $2,537,706 and $1,950,878 for
the years ended December 31, 1995 and 1994, respectively.
-6-
<PAGE> 9
GOODWILL - The cost in excess of the fair value of net assets acquired
resulted from the purchase of assets from Piper Industries, Inc. (Note
1). Goodwill is being amortized on a straight-line basis over 25 years.
Accumulated amortization as of December 31, 1995 and 1994 is $3,272,638
and $2,936,983, respectively. The Company evaluates any possible
impairment of goodwill using estimates of undiscounted future cash
flows.
REVENUE RECOGNITION - The Company recognizes a sale at the time of
shipment and delivery of the related goods. Revenues billed to customers
in advance of the shipping date are deferred and recorded as a current
liability.
BAD DEBTS - The Company provides for bad debts by writing off accounts
that are considered uncollectible. There were no bad debts during 1995
and 1994.
USE OF ESTIMATES - The preparation of the financial statements requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
ENVIRONMENTAL EXPENDITURES - Expenditures that relate to current
operations are expensed or capitalized, as appropriate. Expenditures
that relate to an existing condition caused by past operations, and
which do not contribute to future revenues, are expensed. Liabilities
are recorded when remedial efforts are probable and the costs can be
reasonably estimated (Note 7).
INTERIM FINANCIAL STATEMENTS - The Company's interim financial
statements are unaudited, but include all adjustments which the Company
deems necessary for a fair presentation of its financial position and
results of operations. All such adjustments are of a normal recurring
nature. Results of operations for interim periods are not necessarily
indicative of results to be expected for the full year. All significant
accounting policies for these financial statements conform to those set
forth above for the audited financial statements for the years ended
December 31, 1995 and 1994.
3. INVENTORIES
The Company values its inventories at the lower of cost (FIFO method) or
market. Inventories are summarized as follows:
<TABLE>
<CAPTION>
JULY 31, DECEMBER 31,
1996 ------------------------------
(Unaudited) 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Raw materials $ 3,775,591 $ 4,133,127 $ 2,712,761
Work-in-process 8,638,484 6,499,875 6,849,911
Finished goods 76,292 55,604 24,193
----------- ----------- -----------
Total $12,490,367 $10,688,606 $ 9,586,865
=========== =========== ===========
</TABLE>
-7-
<PAGE> 10
4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses are comprised as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1994
<S> <C> <C>
Accounts payable $ 4,378,795 $3,582,852
Accrued payroll 2,203,917 2,024,124
Accrued payroll taxes, including amounts withheld
from employees 233,705 227,089
Accrued warranty expense 2,800,000 2,800,000
Accrued insurance 508,061 763,811
Accrued profit sharing 66,906
Accrued taxes and licenses 464,855 359,453
Accrued commissions 6,557 9,985
Accrued other 25,337 20,861
----------- ----------
Total $10,688,133 $9,788,175
=========== ==========
</TABLE>
5. INDEBTEDNESS
The Company maintains a $200,000 line of credit note from a bank. The
note bears interest at 7%, is collateralized by a one-year $200,000
certificate of deposit and expires April 2, 1997. This line of credit
was obtained to provide financing as needed related to a $200,000
irrevocable letter of credit agreement required in connection with the
Company's workers' compensation plan. There were no amounts outstanding
against the line of credit or the letter of credit at December 31, 1995
or 1994.
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1995 1994
<S> <C> <C>
Notes payable, dated March 31, 1986 $11,691,552 $13,338,746
Notes payable, dated March 31, 1987 1,250,000 1,250,000
Notes payble, dated March 31, 1992 1,000,000 1,000,000
Note payable, dated July 1, 1991 4,500,000 4,500,000
----------- -----------
18,441,552 20,088,746
Less current portion 1,716,376 1,647,194
----------- -----------
Total $16,725,176 $18,441,552
=========== ===========
</TABLE>
The notes payable dated March 31, 1986 consists of nine separate notes
payable to owners of the predecessor company (Note 1), all of whom are
related parties. These notes bear interest at 12%, payable monthly.
Principal is payable in scheduled annual installments due March 31 of
each year through 2002. These notes are collateralized by a pledge of
all the shares of the Company's common stock and a security interest in
all real and personal property of the Company existing as of March 31,
1986.
The notes payable dated March 31, 1987 and March 31, 1992 are unsecured
and are due to a related party who also holds one of the notes payable
dated March 31, 1986. The note payable dated March 31, 1987 bears
interest, payable monthly, at the prime rate of the Republic Bank,
Waco, Texas, adjusted annually on March 31. The principal is due in full
on March 31, 2001.
-8-
<PAGE> 11
The note payable dated March 31, 1992 bears interest, payable monthly,
at the prime rate of the Republic Bank, Waco, Texas, adjusted quarterly
(8.5% at December 31, 1995). The principal isdue in full on
March 31, 2001.
The note payable dated July 1, 1991 is an unsecured $12,000,000 open
line of credit from a related party who was an owner of the predecessor
company. Total borrowings outstanding under this line of credit was
$4,500,000 at December 31, 1995 and 1994. The note bears interest at 12%
per annum and is payable on demand on or after August 1, 1997.
Interest expense incurred in connection with the above notes totaled
$2,184,433 and $2,676,355 for the years ended December 31, 1995 and 1994,
respectively.
Aggregate maturities under these agreements for the five years subsequent
to December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996 $ 1,716,376
1997 6,288,464
1998 1,863,579
1999 1,941,849
2000 2,023,407
Thereafter 4,607,877
-----------
$18,441,552
===========
</TABLE>
The Company's majority stockholder periodically loans funds to the
Company under informal agreements. Such amounts bear interest at 10% and
are payable on demand. Interest expense related to these loans totaled
$142,831 and $136,630 during December 31, 1995 and 1994, respectively.
See Note 1 regarding sale of the Company's net assets.
6. EMPLOYEE PROFIT SHARING PLAN
The Company implemented a 401(k) plan effective January 1, 1995. The
plan covers all full-time employees who have completed one year of
service. The plan allows participants to elect to have the Company
contribute a portion of their compensation to the Plan under a salary
reduction agreement. The Company makes matching contributions in an
amount equal to 25% of the first 6% of the participant's compensation
under the salary reduction agreement. Contribution expense for the year
ended December 31, 1995 totaled $121,997.
7. ENVIRONMENTAL ACCRUAL
The Company has accrued an estimated $20 million related to costs for
further investigation and specified environmental remediation. Expected
costs include charges for additional studies, remediation, renovations
to affected facilities and equipment, and other compliance expenditures.
The estimated range of costs is $15 million to $25 million of which the
accrual represents management's best estimate of total costs expected to
be incurred. Actual expenditures could differ from current estimates as
additional studies are completed and revisions to the remediation and
restoration plan are required.
-9-
<PAGE> 12
8. LEASE COMMITMENTS
The Company leases its telephone system and one automobile under
separate three year operating lease agreements. In addition, the Company
leases various equipment and temporary office space under month-to-month
arrangements, as needed. Lease expense totaled $60,512 and $60,712 in
1995 and 1994, respectively. Future minimum lease payments under the two
non-cancelable operating leases with initial lease terms of one year or
greater are as follows:
<TABLE>
<S> <C>
1996 $20,000
-------
$20,000
=======
</TABLE>
The Company also leases the land on which a portion of the Mississippi
plant is located for $750 per year. This lease runs for approximately 70
years or more.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reflected in the balance sheets for cash and cash
equivalents, certificates of deposit, accounts receivable and accounts
payable approximate the respective fair values due to the short
maturities of those instruments. The fair value for marketable debt
securities is based upon quoted market prices for those instruments. The
carrying value of all debt instruments approximates fair value except
for the $11,691,552 note and the $4,500,000 line of credit note (Note 5)
which have been estimated by computing the present value using the prime
rate of 8.5% at December 31, 1995. A comparison of the carrying value of
those financial instruments, none of which are held for trading
purposes, is as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
1995 VALUE VALUE
<S> <C> <C>
Marketable debt securities $ 1,126,040 $ 1,108,152
Notes payable, dated March 31, 1986 (Note 5) 11,691,552 12,705,548
Note payable, dated July 1, 1991 (Note 5) 4,500,000 4,658,578
</TABLE>
The estimated fair values above have been determined by the Company
using appropriate valuation methodologies and information available to
management at the time. Considerable judgment is required in developing
these estimates and, accordingly, no assurance can be given that the
estimated values presented herein are indicative of the amounts that
would be realized in a free market exchange.
10. PURCHASE COMMITMENTS
The Company has entered into two agreements with suppliers to purchase
aluminum ingot over the period beginning April 1996 and ending April
1999. The Company has committed to purchase 13,625,000 pounds of
aluminum ingot for $.72 per pound and 28,450,000 pounds at $.78 per
pound, for a total commitment of approximately $32,000,000.
******
-10-
<PAGE> 13
Quanex Corporation
Pro Forma Consolidated Financial Statements
(Unaudited)
On August 9, 1996, Quanex Corporation ("the Company") acquired the assets of
Piper Impact, Inc. ("Piper"), net of various liabilities, for approximately
$130 million in cash, cash equivalents, and notes. To finance the acquisition,
the Company entered into an unsecured revolving credit/term loan facility with
a group of five banks which provides for the borrowing of up to $250 million.
This agreement replaced the Company's $75 million revolving credit facility.
The following unaudited pro forma consolidated statements of income for the
twelve months ended October 31, 1995 and the nine months ended July 31, 1996
give effect to the purchase by the Company of the net assets of Piper as if the
acquisition and related financing occurred on November 1, 1994 (the beginning
of fiscal 1995). The following unaudited pro forma consolidated balance sheet
as of July 31, 1996 gives effect to the purchase of Piper as if the acquisition
and related financing occurred as of that date.
The pro forma financial information is based on the historical consolidated
financial statements of the Company and the historical financial statements of
Piper and should be read in conjunction with such financial statements and
accompanying notes. Piper's historical statements of income are for the year
ended December 31, 1995 and the nine months ended July 31, 1996. Net sales and
income from continuing operations for the two months ended December 31, 1995 of
$20,289,000 and $4,323,000, respectively, have been included in the results of
operations for both the year ended December 31, 1995 and the nine months ended
July 31, 1996. The purchase method of accounting was used to prepare the pro
forma financial statements using estimated fair values of the net assets. The
purchase accounting adjustments to reflect the fair values of the net assets
were based on management's evaluation as of this filing date and are subject to
change pending final evaluation of the fair values of the assets acquired and
liabilities assumed.
The pro forma financial information does not purport to be indicative of either
a) the results of operations which would have actually been obtained if the
acquisition had occurred on the dates indicated, or b) the results of operations
which will be reported in the future.
-11-
<PAGE> 14
Quanex Corporation
Pro Forma Consolidated Balance Sheet
July 31, 1996
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Pro- Pro-
Quanex Piper Forma Forma
ASSETS Corporation Impact, Inc. Adjustments Consolidated
- ------ ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Current assets:
Cash and equivalents ....................... $ 31,533 $ 15,347 $ (18,724) (2) $ 28,156
Accounts and notes receivable, net ......... 89,214 17,492 (6,178) (1) 100,528
Inventories ................................ 94,104 12,490 -- 106,594
Deferred income taxes ...................... 6,779 -- 1,651 (1) 8,430
Prepaid expenses ........................... 1,061 239 -- 1,300
------------ ------------ ------------ ------------
Total current assets ............... 222,691 45,568 (23,251) 245,008
Property, plant and equipment ................ 548,324 59,072 31,807 (1) 639,203
Less accumulated depreciation
and amortization ....................... (293,488) (25,306) 25,306 (1) (293,488)
------------ ------------ ------------ ------------
Property, plant and equipment, net ........... 254,836 33,766 57,113 345,715
Goodwill, net ................................ 31,349 4,923 41,771 (1) 78,043
Other assets ................................. 16,929 -- -- 16,929
------------ ------------ ------------ ------------
$ 525,805 $ 84,257 $ 75,633 $ 685,695
============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Notes payable .............................. $ -- $ -- $ 121,845 (1) $ 121,845
Accounts payable ........................... 84,438 8,163 (47) (1) 92,554
Income taxes payable ....................... 3,127 99 2,537 (1) 5,763
Accrued expenses ........................... 37,578 12,503 (2,617) (1) 47,464
Current maturities of long-term debt ....... -- 1,788 (1,788) (2) --
------------ ------------ ------------ ------------
Total current liabilities .......... 125,143 22,553 119,930 267,626
(14,936) (2)
Long-term debt ............................... 118,195 14,936 5,207 (1) 123,402
Deferred pension credits ..................... 16,110 -- -- 16,110
Deferred postretirement welfare benefits ..... 54,833 -- -- 54,833
Deferred income taxes ........................ 27,461 -- (7,800) (1) 19,661
Environmental liability ...................... -- 20,000 -- 20,000
------------ ------------ ------------ ------------
Total liabilities .................. 341,742 57,489 102,401 501,632
Stockholders' equity:
Common stock, $.50 par value ............... 6,763 1 (1) (1) 6,763
Additional paid-in capital ................. 93,165 -- -- 93,165
Retained earnings .......................... 87,144 26,767 (26,767) (1) 87,144
Unearned compensation ...................... (277) -- -- (277)
Adjustment for minimum pension liability ... (2,732) -- -- (2,732)
------------ ------------ ------------ ------------
Total stockholders' equity ......... 184,063 26,768 (26,768) 184,063
------------ ------------ ------------ ------------
$ 525,805 $ 84,257 $ 75,633 $ 685,695
============ ============ ============ ============
</TABLE>
SEE NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
-12-
<PAGE> 15
Quanex Corporation
Pro Forma Consolidated Statement of Income
Year Ended October 31, 1995
(In Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Pro- Pro-
Quanex Piper Forma Forma
Corporation Impact, Inc. Adjustments Consolidated
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Net Sales .................................... $ 891,195 $ 106,854 $ (482) (1) $ 997,567
Costs and expenses:
Cost of sales .............................. 778,067 76,221 4,265 (1),(2) 858,553
Selling, general and administrative ........ 46,647 13,185 (8,092) (3) 51,740
------------ ------------ ------------ ------------
Operating income ............................. 66,481 17,448 3,345 87,274
Other income (expense):
Interest expense ........................... (10,742) (2,327) (8,197) (4) (21,266)
Capitalized interest ....................... 1,872 - - 1,872
Other, net ................................. 769 222 (1,532) (5) (541)
------------ ------------ ------------ ------------
Income before income taxes and
extraordinary charge ....................... 58,380 15,343 (6,384) 67,339
Income tax expense ........................... (24,520) (187) (6) (3,575) (6) (28,282)
- ---------------------------------------------- ------------ ------------ ------------ ------------
Income before extraordinary charge ........... 33,860 15,156 (9,959) 39,057
Preferred dividends .......................... (3,957) - - (3,957)
------------ ------------ ------------ ------------
Net income attributable to common
stockholders before extraordinary charge ... $ 29,903 $ 15,156 $ (9,959) $ 35,100
============ ============ ============ ============
Earnings per common share before
extraordinary charge:
Primary .................................. $ 2.20 $ 2.58
============ ============
Fully diluted ............................ $ 2.20 $ 2.47
============ ============
Weighted average number
of shares outstanding:
Primary .................................. 13,580 13,580
Assuming full dilution ................... 13,580 16,304
</TABLE>
SEE NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
-13-
<PAGE> 16
Quanex Corporation
Pro Forma Consolidated Statement of Income
Nine Months Ended July 31, 1996
(In Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Pro- Pro-
Quanex Piper Forma Forma
Corporation Impact, Inc. Adjustments Consolidated
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net Sales .............................. $ 632,576 $ 89,469 $ (1,046) (1) $ 720,999
Costs and expenses:
Cost of sales ........................ 551,209 65,359 2,457 (1),(2) 619,025
Selling, general and administrative .. 39,586 10,172 (6,424) (3) 43,334
------------ ------------ ------------ ------------
Operating income ....................... 41,781 13,938 2,921 58,640
Other income (expense):
Interest expense ..................... (7,453) (1,547) (6,346) (4) (15,346)
Capitalized interest ................. 287 0 0 287
Other, net ........................... 2,151 122 (1,149) (5) 1,124
------------ ------------ ------------ ------------
Income before income taxes and
extraordinary charge ................. 36,766 12,513 (4,574) 44,705
Income tax expense ..................... (15,442) (152) (6) (3,182) (6) (18,776)
------------ ------------ ------------ ------------
Income before extraordinary charge ..... $ 21,324 $ 12,361 $ (7,756) $ 25,929
============ ============ ============ ============
Earnings per common share before
extraordinary charge:
Primary ............................ $ 1.57 $ 1.90
============ ============
Fully diluted ...................... $ 1.47 $ 1.75
============ ============
Weighted average number
of shares outstanding:
Primary ............................ 13,630 13,630
Assuming full dilution ............. 16,326 16,326
</TABLE>
SEE NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
-14-
<PAGE> 17
Quanex Corporation
Notes To Pro Forma Consolidated Financial Statements
For the Year Ended October 31, 1995 and the Nine Months Ended July 31, 1996
(Unaudited)
Balance Sheet
- -------------
The pro forma adjustments to the consolidated balance sheet reflect the
following:
(1) Allocation of purchase price (in thousands):
<TABLE>
<S> <C>
Cash and notes $ 129,052
Transaction costs 2,500
---------
131,552
Piper stockholders' equity (26,768)
Settlement of stockholders' receivable and payable 3,551
---------
Excess purchase price to be allocated 108,335
Deferred tax assets (9,451)
Adjustment to fixed asset value (57,113)
Elimination of Piper historical goodwill 4,923
---------
Goodwill $ 46,694
=========
</TABLE>
The purchase accounting adjustments to reflect the fair value of the net
assets were based on management's evaluation as of this filing date and
are subject to change pending final evaluation of the assets acquired and
liabilities assumed. It is not expected that the final allocation of
purchase price will produce materially different results from those
presented herein.
To finance the acquisition, the Company entered into an unsecured
revolving credit/term loan facility which provides for the borrowing of up
to $250 million. This agreement replaced the Company's $75 million
revolving credit facility. In September 1996, the Company increased its
borrowings under the agreement from $30 million to $150 million in order
to liquidate approximately $120 million in short-term notes used to
partially fund the acquisition. Approximately $5 million of the
balance of the purchase price is payable during the first quarter of
fiscal 1996, with the remaining balance payable in the year 2004.
The Company recorded deferred tax assets and liabilities based on the
purchase price allocation.
Intercompany receivables and payables between MacSteel Division of the
Company and Piper have been eliminated.
(2) At closing, the Company retired existing Piper notes payable of
$16,724,000 and paid $2,000,000 in cash toward the purchase price.
Income Statement
- ----------------
(1) To eliminate intercompany sales between MacSteel Division of the Company
and Piper.
(2) To adjust depreciation expense from $2,538,000 to $7,285,000 in 1995, and
from $1,960,000 to $5,463,000 in 1996, respectively, based upon the
estimated fair value of the assets over the estimated useful lives ranging
from 3 to 25 years.
(3) To adjust Piper's officers compensation expense to reflect current terms
of employment.
(4) To eliminate Piper's interest expense on debt repaid and record interest
expense at 8%, which approximates the interest rate in effect during the
periods presented, on the approximately $130 million borrowed to finance
the purchase of Piper.
(5) To adjust the historical goodwill amortization expense of Piper based on
the goodwill resulting from the acquisition on a straight line basis over
a 25 year period.
(6) Piper Impact, Inc. was not subject to federal income taxes due to its
subchapter S status. This entry is to adjust the consolidated effective
total tax rate to 42%.
-15-
