<PAGE>
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, 1997
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, 1997
- --------------------------------------- -------------------------------
Common Stock, par value $0.50 per share 13,677,576
<PAGE>
QUANEX CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
Part I. Financial Information:
Item 1: Financial Statements
Consolidated Balance Sheets - January 31, 1997 and
October 31, 1996 .................................. 1
Consolidated Statements of Income - Three Months
Ended January 31, 1997 and 1996 ................... 2
Consolidated Statements of Cash Flow - Three Months
Ended January 31, 1997 and 1996 ................... 3
Notes to Consolidated Financial Statements ............ 4-6
Item 2: Management's Discussion and Analysis of Results of
Operations and Financial Condition .................... 7-11
Part II. Other Information
Item 5: Other Information ..................................... 12
Item 6: Exhibits and Reports on Form 8-K ...................... 12
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
QUANEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
January 31, October 31,
1997 1996
---------- ----------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents ............................$ 37,192 $ 35,975
Accounts and notes receivable, net .............. 82,736 90,583
Inventories ..................................... 89,845 89,938
Deferred income taxes ........................... 9,988 10,019
Prepaid expenses ................................ 2,113 121
---------- ----------
Total current assets .................... 221,874 226,636
Property, plant and equipment ..................... 638,273 620,058
Less accumulated depreciation and amortization ....(294,006) (284,723)
---------- ----------
Property, plant and equipment, net ................ 344,267 335,335
Goodwill, net ..................................... 83,568 84,343
Net assets of discontinued operations ............. 17,822 7,217
Other assets ...................................... 17,140 17,152
---------- ----------
$684,671 $670,683
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable ................................... $ - $ 5,575
Accounts payable ................................ 66,309 73,958
Income taxes payable ............................ 5,991 3,807
Accrued expenses ................................ 34,788 44,286
Current maturities of long-term debt ............ 402 -
---------- ----------
Total current liabilities ............... 107,490 127,626
Long-term debt .................................... 284,052 253,513
Deferred pension credits .......................... 11,931 11,827
Deferred postretirement welfare benefits .......... 28,391 28,033
Deferred income taxes ............................. 32,441 33,743
Other liabilities ................................. 19,861 20,000
---------- ----------
Total liabilities ....................... 484,166 474,742
Stockholders' equity:
Preferred stock, no par value ................... - -
Common stock, $.50 par value .................... 6,839 6,795
Additional paid-in capital ...................... 96,496 94,251
Retained earnings ............................... 98,898 96,623
Unearned compensation ........................... (185) (185)
Adjustment for minimum pension liability ........ (1,543) (1,543)
---------- ----------
Total stockholders' equity .............. 200,505 195,941
---------- ----------
$684,671 $670,683
========== ==========
</TABLE>
(1)
<PAGE>
QUANEX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended January 31,
-----------------------------
1997 1996
----------- ----------
(Unaudited)
<S> <C> <C>
Net sales ............................................. $194,934 $151,147
Cost and expenses:
Cost of sales ....................................... 173,013 133,093
Selling, general and administrative expense ......... 12,314 11,049
----------- ----------
Operating income ...................................... 9,607 7,005
Other income (expense):
Interest expense .................................... (4,851) (2,880)
Capitalized interest ................................ 618 49
Other, net .......................................... (384) 132
----------- ----------
Income from continuing operations before income taxes.. 4,990 4,306
Income tax expense .................................... (1,747) (1,809)
----------- ----------
Income from continuing operations ..................... 3,243 2,497
Income from discontinued operations, net of
income taxes ....................................... 1,083 1,550
----------- ----------
Income before extraordinary charge .................... 4,326 4,047
Extraordinary charge - early extinguishment of debt ... - (2,522)
----------- ----------
Net income ............................................ $ 4,326 $ 1,525
=========== ==========
Earnings per common share:
Continuing operations .............................. $ 0.23 $ 0.18
Discontinued operations ............................ 0.08 0.12
Extraordinary charge ............................... - (0.19)
----------- ----------
Net earnings per share .......................... $ 0.31 $ 0.11
=========== ==========
Weighted average shares outstanding ................... 13,932 13,595
=========== ==========
</TABLE>
(2)
<PAGE>
QUANEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended January 31,
------------------------------
1997 1996
--------- ---------
(Unaudited)
<S> <C> <C>
Operating activities:
Net income ................................................... $ 4,326 $ 1,525
Adjustments to reconcile net income
to cash provided by continuing operations:
Income from discontinued operations ..................... (1,083) (1,550)
Depreciation and amortization ........................... 10,275 8,927
Deferred income taxes ................................... (1,302) (1,730)
Deferred pension costs .................................. 104 (485)
Deferred postretirement welfare benefits ................ 358 277
--------- ---------
12,678 6,964
Changes in assets and liabilities net of effects from
acquisitions and dispositions:
Decrease in accounts and notes receivable ............... 7,847 8,181
Decrease (increase) in inventory ........................ 93 (11,884)
Decrease in accounts payable ............................ (7,649) (13,254)
Decrease in accrued expenses ............................ (9,498) (5,237)
Other, net .............................................. 84 1,323
--------- ---------
Cash provided by (used in) continuing operations ..... 3,555 (13,907)
Cash used in discontinued operations ................. (9,414) (3,192)
--------- ---------
Cash used in operating activities .................... (5,859) (17,099)
Investment activities:
Capital expenditures, net of retirements ..................... (18,215) (3,573)
Capital expenditures of discontinued operations .............. (108) (929)
Other, net ................................................... (5,780) 15
--------- ---------
Cash used in investment activities ................. (24,103) (4,487)
Cash used in operating and --------- ---------
investment activities ........................... (29,962) (21,586)
Financing activities:
Notes payable repayments ..................................... - (10,000)
Purchase of Senior Notes ..................................... - (44,667)
Bank borrowings .............................................. 30,000 50,000
Common dividends paid ........................................ (2,051) (2,028)
Other, net ................................................... 3,230 631
--------- ---------
Cash provided by (used in) financing activities .... 31,179 (6,064)
Increase (decrease) in cash and equivalents .................... 1,217 (27,650)
Cash and equivalents at beginning of period .................... 35,975 45,205
--------- ---------
Cash and equivalents at end of period .......................... $37,192 $17,555
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest ....................................................... $ 6,448 $ 5,369
Income taxes ................................................... $ 1,140 $ 273
</TABLE>
(3)
<PAGE>
QUANEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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. 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 conform to those
previously set forth in the Company's fiscal 1996 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
1997 classifications.
2. Inventories
- --------------
<TABLE>
<CAPTION>
Inventories consist of the following: January 31, October 31,
1997 1996
---------- ----------
(In thousands)
<S> <C> <C>
Raw materials .......................... $26,839 $28,426
Finished goods and work in process...... 54,619 52,768
---------- ---------
81,458 81,194
Other................................... 8,387 8,744
---------- ---------
$89,845 $89,938
========== =========
The values of inventories in the consolidated balance sheets are based on the
following accounting methods:
LIFO ................................... $67,442 $69,234
FIFO ................................... 22,403 20,704
---------- ----------
$89,845 $89,938
========== ==========
</TABLE>
With respect to inventories valued using the LIFO method, replacement cost
exceeded the LIFO value by approximately $16 million at January 31, 1997, and
$15 million at October 31, 1996.
3. Long-Term Debt and Financing Arrangements
- --------------------------------------------
On July 23, 1996, the Company replaced its $75 million Revolving Credit and
Letter of Credit Agreement with an unsecured $250 million Revolving Credit and
Term Loan Agreement ("Bank Agreement"). The Bank Agreement consists of a
revolving line of credit ("Revolver") and up to two term loans not to exceed
$100 million in the aggregate and repayable at a time selected by the Company
to be no later than July 23, 2004. Any term loan elections reduce the amount
available under the Revolver. The Bank Agreement expires July 23, 2001, and
provides for up to $25 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 (i) the prime rate or
the federal funds rate plus one percent, whichever is higher, or (ii) a
Eurodollar based rate. At January 31, 1997, the Company had $190 million
outstanding under the Revolver and no term loans outstanding.
In December 1995, the Company acquired the remaining $44.7 million
principal amount of its Senior Notes for a purchase price equal to 107.5% of the
principal amount plus accrued interest. The acquisition and related
expenses resulted in an after-tax extraordinary charge of approximately $2.5
million ($4.3 million before tax) in the first quarter of 1996.
(4)
<PAGE>
QUANEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Discontinued Operations
- ---------------------------
In January 1997, the Company entered into a non-binding letter of intent to
sell its LaSalle Steel Company ("LaSalle") subsidiary. Completion of the sale
is expected to occur during the Company's second fiscal quarter. Accordingly,
effective with the issuance of the first quarter 1997 financial statements,
LaSalle's results of operations and net assets have been classified as
discontinued operations and prior periods have been restated. For business
segment reporting purposes, LaSalle's data was previously reported as the
segment "Cold Finished Steel Bars".
Income from discontinued operations for the three months ended January 31,
1997 and 1996, included revenues of $38.2 million and $37.6 million,
respectively. Income from discontinued operations for the three months ended
January 31, 1997 and 1996, is reported net of income taxes of $583,000 and
$1.1 million, respectively.
January 31, October 31,
1997 1996
---------- -----------
(In thousands)
Net Assets of Discontinued Operations
-------------------------------------
Current assets............................. $42,607 $36,702
Property, plant and equipment, net......... 15,876 16,211
Other assets............................... 1,827 1,827
Current liabilities........................ (20,696) (25,440)
Deferred pension credits................... (5,456) (5,466)
Deferred postretirement welfare benefits... (27,743) (27,595)
Deferred income taxes...................... 10,139 9,710
Adjustment for minimum pension liability... 1,268 1,268
------- -------
Net assets of discontinued operations... $17,822 $ 7,217
======= =======
(5)
<PAGE>
QUANEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. Industry Segment Information
- -------------------------------
Quanex is principally a specialized metals and metal products producer. The
Company's operations primarily consist of three segments: hot rolled steel bars,
bars, steel tubes, and aluminum products.
<TABLE>
<CAPTION>
Corporate
Three Months Ended Hot Rolled Steel Aluminum and Consoli-
January 31, 1997 Steel Bars Tubes Products(1) Other(2) dated
------------------ ---------- ---------- ---------- ---------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C>
Units shipped:
To unaffiliated companies 125.5 Tons 24.0 Tons 64,788 Lbs.
Intersegment............ 6.3 - -
------- ------- -------
Total.................... 131.8 Tons 24.0 Tons 64,788 Lbs.
======= ======= =======
Net Sales:
To unaffiliated companies $67,117 $28,057 $99,760 - $194,934
Intersegment(3)......... 3,737 - - $(3,737) -
------- ------- ------- ------- -------
Total.................... $70,854 $28,057 $99,760 $(3,737) $194,934
======= ======= ======= ======= =======
Operating income (loss).. $ 9,145 $ 296 $ 3,989 $(3,823) $ 9,607
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Corporate
Three Months Ended Hot Rolled Steel Aluminum and Consoli-
January 31, 1996 Steel Bars Tubes Products Other(2) dated
------------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Units shipped:
To unaffiliated companies 103.2 Tons 22.9 Tons 49,633 Lbs.
Intersegment............ 7.6 - -
------- ------- -------
Total.................... 110.8 Tons 22.9 Tons 49,633 Lbs.
======= ======= =======
Net Sales:
To unaffiliated companies $57,108 $30,150 $63,889 - $151,147
Intersegment(3)......... 4,443 - - $(4,443) -
------- ------- ------- ------- -------
Total.................... $61,551 $30,150 $63,889 $(4,443) $151,147
======= ======= ======= ======= =======
Operating income (loss).. $ 7,335 $ 1,955 $ 1,651 $(3,936) $ 7,005
======= ======= ======= ======= =======
</TABLE>
(1) 1997 includes Piper Impact, Inc.
(2) Included in "Corporate and Other" are intersegment eliminations and
corporate expenses.
(3) Intersegment sales are conducted on an arm's-length basis.
(6)
<PAGE>
Item 2 - Management's Discussion and Analysis of
Results of Operations and Financial Condition
RESULTS OF OPERATIONS
- ---------------------
The Company classifies its operations into three business segments: hot
rolled 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 residential and
commercial building industries.
In January 1997, the Company entered into a non-binding letter of
intent to sell its LaSalle Steel Company ("LaSalle") subsidiary. Completion of
the sale is expected to occur during the Company's second fiscal quarter.
Accordingly, effective with the issuance of the first quarter 1997 financial
statements, LaSalle's results of operations and net assets have been classified
as discontinued operations and prior periods have been restated. For business
segment reporting purposes, LaSalle's data was previously classified as "Cold
Finished Steel Bars".
The Company's hot rolled steel business reflected improvements in net
sales and operating income for the first quarter of fiscal 1997 as compared to
the first quarter of fiscal 1996. The improvements were due primarily to higher
sales volume. The improved results in the Company's hot rolled steel business
reflect the benefits realized from the Company's capital improvement programs,
which have allowed the Company to increase production, improve quality and
manage manufacturing costs.
The Company's aluminum products business achieved higher sales and
operating income primarily due to the acquisition in August 1996 of Piper
Impact, Inc. ("Piper") and its higher margin operations. The Company's
Nichols-Homeshield Division was affected by weaker margins between selling
prices and raw material costs. These margins, referred to herein as "price
spreads", are a key financial performance indicator in the aluminum products
business.
The Company currently expects that overall business levels for the
remainder of fiscal 1997 should be similar to those experienced during 1996.
However, domestic and global market factors will impact the Company and any
slowdown in the U.S. economy could affect demand and pricing for many of the
Company's products. The acquisition of Piper is expected to result in higher
fiscal 1997 sales and, assuming no material declines in the markets in which it
serves, be accretive to earnings. Upon completion of the sale of LaSalle, income
for the remainder of fiscal 1997 will be affected by the difference between the
amount LaSalle would have earned and the income resulting from reinvestment of
the proceeds from the sale. Improved financial results will be dependent upon,
among other things, whether the continued strength of the economy can be
sustained, improvements in the markets which the Company serves and improvement
in the price spreads of aluminum products.
(7)
<PAGE>
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 three
business segments:
Three Months Ended
January 31,
-----------------------
1997 1996
------- -------
(In thousands)
Hot Rolled Steel Bars:
Units shipped (Tons)...................... 131.8 110.8
Net Sales................................. $ 70,854 $ 61,551
Operating income.......................... $ 9,145 $ 7,335
Depreciation and amortization............. $ 3,405 $ 4,590
Identifiable assets....................... $169,444 $168,405
Steel Tubes:
Units shipped (Tons)...................... 24.0 22.9
Net Sales................................. $ 28,057 $ 30,150
Operating income.......................... $ 296 $ 1,955
Depreciation and amortization............. $ 627 $ 595
Identifiable assets....................... $ 48,021 $ 43,857
Aluminum Products:
Units shipped (Pounds).................... 64,788 49,633
Net Sales................................. $ 99,760 $ 63,889
Operating income.......................... $ 3,989 $ 1,651
Depreciation and amortization............. $ 6,070 $ 3,483
Identifiable assets....................... $405,124 $232,616
Consolidated net sales for the three months ended January 31, 1997,
were $194.9 million representing an increase of $43.8 million, or 29% when
compared to the same period last year. The increase was due principally to the
inclusion of Piper's sales in 1997 and higher sales volumes in the hot rolled
steel bar business.
Net sales from the Company's hot rolled steel bar business for the
three months ended January 31, 1997, were $70.9 million as compared to $61.6
million for the same 1996 period. This increase of $9.3 million, or 15% was
attributable to a 19% increase in volume and was partially offset by a 3%
decrease in average selling prices. The volume increase is principally due to
continued market strength in durable goods, particularly transportation and
capital goods.
Net sales from the Company's steel tube business for the three months
ended January 31, 1997, decreased 7% from $30.2 million in 1996 to $28.1 million
for the first fiscal quarter of 1997. The decrease was attributable to 11% lower
average selling prices partly offset by 5% higher volume. Lower selling prices
were primarily attributable to price pressure in the welded tube market and a
lower priced product mix.
Net sales from the Company's aluminum products business for the three
months ended January 31, 1997, were $99.8 million as compared to $63.9 million
for the same 1996 period. This increase of $35.9 million, or 56%, was
principally attributable to the inclusion of Piper's sales. Volume at the
Company's Nichols-Homeshield division was up 20% for the first quarter of fiscal
1997 compared to same prior year period, while average selling prices were down
10% compared to last year. Aluminum prices were beginning to increase during the
first quarter of fiscal 1997.
(8)
<PAGE>
Item 2 - Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
Consolidated operating income for the three months ended January 31,
1997, was $9.6 million, representing an increase of $2.6 million, or 37%, when
compared to the same period last year. This increase was primarily due to the
inclusion of Piper's results and improved operating income in the hot rolled
steel bar business, partly offset by lower operating income in the steel tubes
business.
Operating income from the Company's hot rolled steel bar business for
the three months ended January 31, 1997, was $9.1 million as compared to $7.3
million for the same 1996 period. This increase of approximately 25% was due to
higher volume and lower depreciation charges.
Operating income from the Company's steel tube business for the three
months ended January 31, 1997, was $296,000 as compared to $2.0 million for the
same period last year. The decrease in operating income resulted from lower
selling prices and a less profitable sales mix.
Operating income from the Company's aluminum products business for the
three months ended January 31, 1997, was $4.0 million as compared to $1.7
million for the same 1996 period. This increase resulted principally from the
inclusion of Piper's results, partially offset by lower spreads at
Nichols-Homeshield. Piper's results for the first quarter were affected by
increased training and development costs associated with several new products.
Selling, general and administrative expenses increased by $1.3 million,
or 11%, for the three months ended January 31, 1997, as compared to the same
period of 1996, primarily due to the inclusion of Piper's selling, general and
administrative expenses. However, as a percentage of net sales, selling, general
and administrative expenses were 6.3% in the first quarter of fiscal 1997
compared to 7.3% in the prior year period.
Interest expense increased by $2.0 million, to $4.9 million, for the
three months ended January 31, 1997, as compared to the same period of 1996
primarily as a result of increased bank borrowings associated with the Piper
acquisition, partly offset by decreased expense due to the early extinguishment
of the Company's remaining senior notes late in the first quarter of fiscal
1996.
Net income for the three months ended January 31, 1997, was $4.3
million as compared to $1.5 million for the same 1996 period. The improvement
was principally attributable to the inclusion of the results of Piper.
Capitalized interest increased to $618,000 in the first quarter of fiscal 1997
compared to $49,000 for the same period last year due to ongoing construction
related to the expansion programs at MacSteel and Piper. Income taxes were
applied at the Company's expected annual effective rate. The Company's effective
income tax rate was 35% for the first quarter of fiscal 1997 compared to 42% in
the prior year period.
Income from discontinued operations, net of income taxes, for the three
months ended January 31, 1997, was $1.1 million as compared to $1.6 million for
the same 1996 period. The decrease was primarily attributable to lower margins
between selling prices and raw material costs, partly offset by higher sales
volume.
(9)
<PAGE>
Item 2 - Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's principal sources of funds are cash on hand, cash flow
from operations, and borrowings under an unsecured $250 million Revolving Credit
and Term Loan Agreement ("Bank Agreement"). The Bank Agreement replaced the
Company's former $75 million Revolving Credit and Letter of Credit Agreement
(the "Old Bank Agreement"), effective July 23, 1996. The Bank Agreement consists
of a revolving line of credit ("Revolver") and up to two term loans not to
exceed $100 million in the aggregate and repayable at a date selected by the
Company to be no later than July 23, 2004. Any term loan elections reduce the
amount available under the Revolver. The Bank Agreement expires July 23, 2001,
and provides for up to $25 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 (i) the prime rate or the
federal funds rate plus one percent, whichever is higher, or (ii) a Eurodollar
based rate. In the fourth quarter of fiscal 1996, the Company entered into
interest rate swap agreements, which effectively converted $100 million of its
variable rate debt under the Bank Agreement to fixed rate. Under these
agreements, payments are made based on a fixed rate ($50 million at 7.025%, and
$50 million at 6.755%) and payments are received on a LIBOR based variable rate
(5.53125% at January 31, 1997). Differentials to be paid or received under the
agreements are recognized as interest expense. The agreements mature in 2003.
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. Under the Bank Agreement, at January 31, 1997, there were $190
million of outstanding Revolver borrowings.
In December 1995, the Company acquired all of its outstanding 10.77%
Senior Notes for a purchase price equal to 107.5% of the principal amount plus
accrued interest. The acquisition and related expenses resulted in an after-tax
extraordinary charge of approximately $2.5 million in the first quarter of 1996.
The acquisition was funded with cash and additional borrowings under the Old
Bank Agreement.
On June 30, 1995, the Company exercised its right under the terms of its
Cumulative Convertible Exchangeable Preferred Stock to exchange such stock for
an aggregate of $84,920,000 of its 6.88% Convertible Subordinated Debentures due
June 30, 2007 ("Debentures"). Interest is payable semi-annually on June 30 and
December 31 of each year. The Debentures are subject to mandatory annual sinking
fund payments sufficient to redeem 25% of the Debentures issued on each of June
30, 2005 and June 30, 2006, to retire a total of 50% of the Debentures before
maturity. The Debentures are subordinate to all senior indebtedness of the
Company and are convertible, at the option of the holder, into shares of the
Company's common stock at a conversion price of $31.50 per share.
On August 9, 1996, the Company completed the acquisition of substantially
all of the assets of Piper. Piper's assets, net of various liabilities, were
acquired for approximately $130 million in cash, cash equivalents, and notes.
This acquisition was financed with existing cash and bank borrowings. Subsequent
to the acquisition, the Company's Board of Directors approved additional capital
expenditures at Piper totaling approximately $55 million. These expenditures are
expected to provide the capacity needed to supply major new customer programs
phasing in over the next two years.
(10)
<PAGE>
Item 2 - Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
At January 31, 1997, the Company had commitments of $27 million for the
purchase or construction of capital assets, primarily relating to the Company's
continued expansion at MacSteel and the expansion at Piper. The capital project
at MacSteel also includes significant upgrades to pollution control systems to
ensure compliance with EPA standards under the Clean Air Act. The MacSteel
expansion is expected to cost approximately $60 million and is expected to be
completed during fiscal year 1998. The Company plans to fund this capital
investment through cash flow from operations and, if necessary, additional
borrowings.
The Company believes that it has sufficient funds and adequate financial
sources available to meet its anticipated liquidity needs. The Company also
believes that cash flow from operations, cash balances and available borrowings
will be sufficient for the foreseeable future to finance anticipated working
capital requirements, capital expenditures, debt service requirements,
environmental expenditures and dividends.
Operating Activities
Cash used in operating activities during the three months ended January
31, 1997, was $5.9 million as compared to $17.1 million during the three months
ended January 31, 1996. The decrease in cash used by operating activities was
principally due to improved income and decreased working capital requirements,
partially offset by increased cash used by discontinued operations.
Investment Activities
Net cash used in investment activities during the three months ended
January 31, 1997, was $24.1 million as compared to $4.5 million for the same
1996 period. The increase in cash used by investment activities was principally
due to increased capital expenditures and payment of the remaining notes related
to the Piper acquisition. The Company estimates that fiscal 1997 capital
expenditures will be approximately $70 to $80 million.
Financing Activities
Cash provided by financing activities for the three months ended
January 31, 1997, was $31.2 million, principally consisting of $30.0 million of
bank borrowings, offset by $2.1 million in common dividends paid.
Private Securities Litigation Reform Act
Certain forward looking information contained herein is being provided in
accordance with the provisions of the Private Securities Litigation Reform Act.
Such information is subject to certain assumptions and beliefs based on current
information known to the Company and is subject to factors that could result in
actual results differing materially from those anticipated in the forward
looking statements contained in this report. Such factors include domestic and
international economic activity, prevailing prices of steel and aluminum scrap
and other raw material costs, interest rates, the continuation of countervailing
import duties on certain of the Company's competitors, construction delays,
market conditions for the Company's customers, any material changes in purchases
by the principal customers of AMSCO and Piper, environmental regulations and
changes in estimates of costs for known environmental remediation projects and
situations, world-wide political stability and economic growth, the Company's
successful implementation of its internal operating plans, performance issues
with key customers, suppliers and subcontractors, and regulatory changes and
legal proceedings. Accordingly, there can be no assurance that the
forward-looking statements contained herein will occur or that objectives will
be achieved.
(11)
<PAGE>
PART II. OTHER INFORMATION
Item 5 - Other Information
- --------------------------
None
Item 6 - Exhibits and Reports on Form 8-K.
- -----------------------------------------
Exhibit 11 Statement re computation of per share earnings.
Exhibit 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
/s/ Viren M. Parikh
-------------------
Viren M. Parikh
Controller (Chief Accounting Officer)
Date March 11, 1997
--------------
(12)
EXHIBIT 11
QUANEX CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended January 31,
------------------------------
1997 1996
-------- ---------
(Unaudited)
<S> <C> <C>
Income from continuing operations .................... $3,243 $2,497
Income from discontinued operations, net of
income taxes ...................................... 1,083 1,550
-------- ---------
Income before extraordinary charge ................... 4,326 4,047
Extraordinary charge - early extinguishment of debt .. - (2,522)
-------- ---------
Net income ........................................... $4,326 $1,525
======== =========
Weighted average shares
outstanding-primary ................................ 13,932 13,595
======== =========
Earnings per common share:
Primary:
Income from continuing operations ................ $ 0.23 $ 0.18
Income from discontinued operations .............. 0.08 0.12
Extraordinary charge ............................. - (0.19)
-------- ---------
Earnings per common share ...................... $ 0.31 $ 0.11
======== =========
Income from continuing operations .................... $3,243 $2,497
Income from discontinued operations, net of
income taxes ...................................... 1,083 1,550
-------- ---------
Income before extraordinary charge ................... 4,326 4,047
Extraordinary charge - early extinguishment of debt .. - (2,522)
-------- ---------
Net income ........................................... $4,326 $1,525
======== =========
Interest on 6.88% convertible subordinated
debentures and amortization of related issuance
costs, net of applicable income taxes .............. 999 893
-------- ---------
Adjusted net income .................................. $5,325 $ 2,418
======== =========
Weighted average shares
outstanding-primary ................................ 13,932 13,595
Effect of common stock equivalents
arising from stock options ......................... - 18
Subordinated debentures assumed
converted to common stock .......................... 2,696 2,696
-------- ---------
Weighted average shares
outstanding-fully diluted .......................... 16,628 16,309
======== =========
Earnings per common share:
Assuming full dilution:
Income from continuing operations ................ $ 0.26 $ 0.21
Income from discontinued operations .............. 0.07 0.10
Extraordinary charge ............................. - (0.15)
-------- ---------
Earnings per common share ...................... $ 0.33 $ 0.16
======== =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
balance sheet as of January 31, 1997 and the income statement for the
three months ended January 31, 1997 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-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> JAN-31-1997
<CASH> 37,192
<SECURITIES> 0
<RECEIVABLES> 82,736
<ALLOWANCES> 0
<INVENTORY> 89,845
<CURRENT-ASSETS> 221,874
<PP&E> 638,273
<DEPRECIATION> 294,006
<TOTAL-ASSETS> 684,671
<CURRENT-LIABILITIES> 107,490
<BONDS> 284,052
0
0
<COMMON> 6,839
<OTHER-SE> 193,666
<TOTAL-LIABILITY-AND-EQUITY> 684,671
<SALES> 194,934
<TOTAL-REVENUES> 194,934
<CGS> 173,013
<TOTAL-COSTS> 173,013
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,851
<INCOME-PRETAX> 4,990
<INCOME-TAX> 1,747
<INCOME-CONTINUING> 3,243
<DISCONTINUED> 1,083
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,326
<EPS-PRIMARY> 0.310
<EPS-DILUTED> 0.330
</TABLE>
