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Quanex Announces Fiscal Fourth Quarter and Fiscal 2002 Annual Results

Company Reports Best-Ever Quarterly Diluted Earnings Per Share of $.97 And Best-Ever Yearly Diluted Earnings Per Share of $2.96 (excluding a $.56 Life Insurance Benefit)

Engineered Products Group Reports Best-Ever Operating Income for the Quarter

And Year

HOUSTON, Dec. 5 /PRNewswire-FirstCall/ -- Quanex Corporation (NYSE: NX) today announced fiscal 2002 fourth quarter and annual results for the period ending October 31, 2002. Net sales for the quarter were $273.8 million and $994.4 million for the year, both new records. The Company commented that sales for the quarter were very robust in Quanex's two business segments -- Vehicular Products and Building Products. Net income and diluted earnings per share for the quarter were $15.1 million and $.97, respectively. For the year, excluding the executive life insurance benefit of $9.0 million, net income and diluted earnings per share were $46.5 million and $2.96, respectively. These figures are records from continuing operations and demonstrate Quanex's ability to generate healthy earnings notwithstanding the somewhat weak broad-based economic climate.

Net sales for the fourth quarter 2001 were $256.0 million, and for the year, $924.4 million. Net income for the year ago quarter was $11.2 million and $29.2 million for the year. Diluted earnings per share for the fourth quarter 2001 were $.77 and for the year were $2.07.

Highlights

Regarding the Company's results, Raymond A. Jean, chairman and chief executive officer stated, "Quanex had an excellent fourth quarter to cap a record setting year. End market demand was strong and we delivered a 43% improvement in diluted earnings per share year over year while continuing to deliver outstanding service to our customers. Strong operating leverage, an unrelenting attack on reducing costs, and the introduction of new programs and products allowed us to achieve these excellent results."

"We continue to improve an already strong financial position," continued Jean. "At the start of the fiscal year, our total debt to capitalization was 44%, and we finished the year at 15.2%. This is a tremendous achievement for the Company and it gives us the financial strength and flexibility needed to support internal growth initiatives and to make meaningful acquisitions. Our principle focus for any future acquisition is to grow our two core businesses, MACSTEEL (MAC) and Engineered Products, and any acquisition must return in excess of its cost of capital," said Jean.

     Quarterly and Yearly Financials ($ in millions, except per share data,
     excluding life ins. benefit)

                           4th qtr  4th qtr inc/dcr  FY 2002 FY 2001 inc/dcr
                             2002     2001
    Net Sales              $273.8   $256.0     7%    $994.4   $924.4    8%
    Operating Cash Flow*     38.2     32.2    19%     127.0    101.7   25%
    Operating Income         28.4     20.9    36%      83.3     57.3   45%
    Net Income               15.1     11.2    35%      46.5     29.2   59%

    EPS: Basic              $ .92    $ .84    10%    $ 3.13   $ 2.18   44%
    EPS: Diluted            $ .97    $ .77    26%    $ 2.96   $ 2.07   43%

    *Operating cash flow is defined as operating income with depreciation,
     amortization expenses and other unusual items added back.

    Segment Commentary

     VEHICULAR PRODUCTS - ($ in millions)

                  4th qtr 2002  4th qtr 2001    FY2002     FY2001
    Net sales:       $122.0        $121.0       $459.5     $439.3
    Opr. income:       15.8          15.4         57.6       47.5

The Vehicular Products segment includes MACSTEEL, Piper Impact, Temroc Metals and Nitro Steel. The segment's main driver is North American light vehicle builds.

"Strong North American light vehicle builds continue to drive demand for MACSTEEL's engineered steel bar products. This year's light vehicle builds, which had been estimated to be about 15.2 million builds this time a year ago, will finish the year closer to 16.8 million, exceeding 2001 builds by some 8%. On top of these excellent build rates, MACSTEEL remains the supplier of choice and continues to capture new programs. Ongoing lean initiatives contribute to MAC's success and both facilities reported record productivity gains again this quarter," said Jean.

"Phase VI, MACSTEEL's $50 million capital program to expand its value- added MAC+ product at its two facilities, is complete. The latest MAC+ line at Fort Smith completed its 'shakedown' last quarter and contributed to operating results during the fourth quarter. They expect to have this additional 45,000 tons of MAC+ capacity sold out by early next year."

"With the exception of Piper Impact, the other businesses within the segment each reported positive operating income for the quarter. Piper Impact experienced a $1.0 million loss on 8% lower sales compared to the third quarter as the decline in aluminum air bag sales accelerated. New business prospects look promising, but meaningful sales volumes are slower to ramp-up than expected," continued Jean.

     BUILDING PRODUCTS - ($ in millions)

                   4th qtr 2002   4th qtr 2001     FY 2002     FY 2001
    Net sales:       $151.7         $135.1          $534.9      $485.0
    Opr. income:       13.6            8.9            38.0        23.7

The Building Products segment includes Engineered Products and Nichols Aluminum. The main drivers of the segment are residential housing starts and remodeling expenditures.

"Engineered Products reported best-ever net sales and record operating income for the quarter. Steadfast consumers continue to invest in new homes and continue to upgrade existing ones. The outlook going forward remains positive. The combination of improved productivity through 'lean' efforts, new component programs and a great acquisition all contributed to an outstanding performance for 2002. At Colonial Craft, we look forward to operating benefits resulting from consolidating two facilities into a single, more efficient operation during the first quarter 2003," continued Jean.

"For the quarter, Nichols Aluminum operating income was up some 135% from a year ago on a 6% increase in pounds shipped. A more favorable spread combined with excellent shop floor performance led to the sharply improved results. Nichols Aluminum Alabama increased its value-added painted sheet capacity by 17% on an annualized basis, and they benefited from this incremental investment during the quarter. Demand increased throughout the year, and along with the rationalization of industry capacity, allowed some pricing recovery," said Jean.

Other

As of November 1, 2001, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets". Under SFAS 142, goodwill is no longer amortized, but is reviewed for impairment annually or more frequently if indicators arise.

The Company continues to account for stock options using the current transition provisions of SFAS No. 123. Accordingly, Quanex does not reflect the option expense in its income statement or diluted earnings per share. However, the Company does disclose the impact on net income and diluted earnings per share in the footnotes to its SEC financial statements. For the fourth quarter and fiscal year, expensing stock options would have reduced net income by about $430,000 and $1.4 million, respectively, and would have reduced diluted earnings per share by $.03 and $.09, respectively.

Relative to the Company's pension plans, assumptions were adjusted during fiscal 2002 to accurately reflect current conditions. Including these assumption changes and the amortization of actual investment losses, year over year, pension expense increased by approximately $1 million pre-tax.

In addition, in the fourth quarter, the Company revised its third quarter estimate of interest expense associated with the conversion of the Company's 6.88% debentures by $1.1 million (after-tax) which reduced basic, but not diluted, earnings per share in the fourth quarter by $.07. There was no impact on basic and diluted earnings per share for the year.

The Board of Directors approved a program to repurchase shares of the Company's outstanding common stock. Under terms of the program, Quanex may purchase up to a total of one million shares (6%) of its common stock in the open market or in privately negotiated transactions. The Company indicated that it would be active in the buyback program during its first fiscal quarter 2003.

On November 26, the Company renewed its Revolving Credit Facility on favorable terms. The Facility makes available a $200 million secured line of credit over a 3 year term.

Outlook

For 2003, Quanex is in a great position to outperform the markets it serves. The Company does expect its primary drivers to be down slightly for fiscal 2003 when compared to 2002 levels. However, it expects to more than offset any nominal market weakness with more value-added products at both MACSTEEL and Nichols Aluminum, price relief at MAC and new programs at Engineered Products. Market share gains at several business units will also bolster revenues. On the cost side, lean manufacturing initiatives are expected to contribute to margin improvement.

The Company's fiscal first quarter (November, December and January) is historically its least profitable as there are fewer production days due to the holidays, customers manage year-end inventories tightly and the winter months reduce building product sales. Because last year's strong inventory replenishment activity during the first quarter is not forecast to repeat, fiscal first quarter 2003 diluted earnings per share are expected to approximate this year's $.39. Assuming a slowly recovering economy, the Company would expect to report sequentially better operating results compared to 2002 for the other quarters.

Dividend Declared

The Board of Directors declared a quarterly dividend of $.16 per share on the Company's common stock, payable December 31, 2002 to shareholders of record on December 21, 2002.

Corporate Profile

Quanex is an industry-leading manufacturer of engineered materials and components serving the Vehicular Products and Building Products markets.

Latest 12 Months Financial Information (excluding unusual charges and gains)

Sales: $994.4 million; Operating income: $83.3 million; Net income: $55.5 million; Basic earnings per share: $3.74; Quarterly common dividend rate (per share): $.16; Book value per common share: $25.67; *Return on invested capital: 12.85%; Total debt to capitalization: 15.2%; Return on common equity: 16.25%; Actual number of common shares outstanding: 16,413,095; Common stock price range (52 week hi - low): $44.20 - $25.70.

*Return on invested capital is defined as net income + net interest expense (after tax) divided by average equity and average debt.

Statements that use the words "expect," "should," "will," "might," or similar words reflecting future expectations or beliefs are forward-looking statements. The statements above are based on current expectations. Actual results or events may differ materially from this release. Factors that could impact future results may include, without limitation, the effect of both domestic and global economic conditions, the impact of competitive products and pricing, and the availability and cost of raw materials. For a more complete discussion of factors that may affect the Company's future performance, please refer to the Company's most recent 10-K filing (January 4, 2002) under the Securities Exchange Act of 1934, in particular the sections titled, "Private Securities Litigation Reform Act" contained therein.

    For further information visit the Company website at www.quanex.com .

     Financial Contact:  Jeff Galow, 713/877-5327
     Media Contact:  Valerie Calvert, 713/877-5305

     QUANEX CORPORATION
     CONSOLIDATED STATEMENTS OF INCOME
     (In thousands, except per share data)
     (Unaudited)


      Three months ended                              Twelve months ended
         October 31,                                      October 31,
       2002       2001                                2002           2001

    $273,753   $256,033     Net sales              $994,387       $924,353
     221,067    208,703     Cost of sales           812,949        769,328
      14,448     16,014     Selling, general and     54,408         54,202
                             administrative expense
       9,846     10,391     Depreciation and         43,730         43,507
                             amortization

      28,392     20,925     Operating income         83,300         57,316

      (5,633)    (4,143)   Interest expense         (14,812)       (16,555)
         ---        571    Capitalized interest       1,879          1,666
         ---        ---    Retired executive life     9,020            ---
                            insurance benefit
         758        648    Other, net                 2,227          3,195
      23,517     18,001    Income before income      81,614         45,622
                            taxes
      (8,464)    (6,761)   Income tax expense       (26,132)       (16,428)
    $ 15,053   $ 11,240    Net income              $ 55,482       $ 29,194

                           Weighted average common
                            shares outstanding:
      16,364     13,404       Basic                  14,823         13,399
      16,660     15,455       Diluted                16,237         15,426

                           Earnings per common share:
    $   0.92   $   0.84    Basic net income        $   3.74       $   2.18
                            per share
    $   0.97   $   0.77    Diluted net income      $   3.52       $   2.07
                            per share
    $   0.16   $   0.16    Common stock dividends  $   0.64       $   0.64
                            per share


     QUANEX CORPORATION INDUSTRY SEGMENT INFORMATION
     (In thousands)
     (Unaudited)

      Three months ended                             Twelve months ended
         October 31,                                     October 31,
       2002       2001                               2002           2001
                          Vehicular Products:
    $122,042   $120,980     Net sales              $459,531       $439,307
    $ 15,799   $ 15,374     Operating income       $ 57,606       $ 47,466
                          Building Products:
    $151,711   $135,053     Net sales              $534,856       $485,046
    $ 13,638   $  8,861     Operating income       $ 37,985       $ 23,662
                          Corporate and Other:
    $    ---   $    ---     Intercompany sales     $    ---       $    ---
                             elimination
    $ (1,045)  $ (3,310)    Corporate charges      $(12,291)      $(13,812)
                          Total:
    $273,753   $256,033     Net sales              $994,387       $924,353
    $ 28,392   $ 20,925     Operating income       $ 83,300       $ 57,316


     QUANEX CORPORATION
     CONSOLIDATED BALANCE SHEETS
     (In thousands)
     (Unaudited)
                                                          October 31,
                                                     2002              2001
    Assets
    Cash and equivalents                         $  18,283         $  29,573
    Accounts and notes receivable, net             116,122           109,706
    Inventories                                     90,756            83,109
    Other current assets                            10,640            14,490
       Total current assets                        235,801           236,878

    Property, plant and equipment, net             353,132           357,635
    Goodwill, net                                   66,436            59,226
    Other assets                                    33,771            43,892
       Total assets                              $ 689,140         $ 697,631

    Liabilities and stockholders' equity
    Accounts payable                             $  76,588         $  76,831
    Accrued expenses                                48,973            50,659
    Income taxes payable                             4,839             1,087
    Other current liabilities                        3,970             5,593
    Current portion of long-term debt                  434               420
       Total current liabilities                   134,804           134,590

    Long-term debt                                  75,131           219,608
    Deferred pension credits                         4,960             7,962
    Deferred postretirement welfare benefits         7,928             7,777
    Deferred income taxes                           29,210            29,282
    Other liabilities                               15,712            18,435
       Total liabilities                           267,745           417,654
       Total stockholders' equity                  421,395           279,977
    Total liabilities and stockholders'
     equity                                      $ 689,140         $ 697,631


     QUANEX CORPORATION
     CONSOLIDATED STATEMENTS OF CASH FLOW
     (In thousands)
     (Unaudited)

     Three months ended                                 Twelve months ended
         October 31,                                        October 31,
       2002      2001                                     2002        2001
                        Operating activities:
    $ 15,053  $ 11,240    Net income                   $ 55,482    $ 29,194
         ---       ---    Loss (gain) on early              922        (573)
                           extinguishment of debt
         ---       ---    Adjustment for retired         (9,020)        ---
                           executive life insurance
                           benefit
       9,880    10,456    Depreciation and amortization  43,987      43,910
        (107)    6,731    Deferred income taxes           2,330       4,154
      (3,124)      553    Deferred pension and           (4,734)     (1,231)
                           postretirement benefits
      21,702    28,980                                   88,967      75,454
      (5,437)   (7,813)   Increase in accounts and       (5,144)     (7,917)
                           notes receivable
       2,473     8,314    (Increase) decrease in         (5,249)     20,808
                           inventory
      (4,535)     (458)   Decrease in accounts payable     (857)     (2,569)
      (2,958)    2,437    Increase (decrease) in         (3,655)       (911)
                           accrued expenses
       4,331    (2,597)   Other, net (including income    7,049          85
                           tax refund)

      15,576    28,863  Cash provided by operating       81,111      84,950
                         activities

                        Investment activities:
         ---       ---    Acquisition of Colonial       (17,283)        ---
                           Craft, net of cash acquired
         ---       ---    Acquisition of Temroc Metals,     ---     (17,922)
                           net of cash acquired
      (6,171)  (12,577)   Capital expenditures, net     (34,271)    (55,575)
                           of retirements
      26,111       ---    Retired executive life         26,111         ---
                           insurance proceeds
      (3,222)      (74)   Cash used by other investment  (4,365)     (3,597)
                           activities

      16,718   (12,651) Cash provided (used) by         (29,808)    (77,094)
                         investment activities

                        Financial activities:
     (16,000)  (17,000)   Bank borrowings               (75,000)     30,000
                           (repayments), net
         ---       ---    Repayment of borrowings           ---     (17,273)
                           against insurance policies
         ---       ---    Prepayment of note payable     (7,029)        ---
         ---       ---    Redemption and purchase of     (1,314)     (3,942)
                           subordinated debentures
         ---      (236)   Purchases of Quanex common        ---      (2,226)
                           stock
      (2,625)   (2,152)   Common dividends paid          (9,637)     (8,621)
       3,232       660    Issuance of common stock,      33,948       2,473
                           net
          42       284    Cash provided (used) by        (3,561)     (1,103)
                           other financing activities

     (15,351)  (18,444) Cash used by financing          (62,593)       (692)
                         activities
      16,943    (2,232) Increase (decrease) in cash     (11,290)      7,164
       1,340    31,805  Beginning of period cash         29,573      22,409
                         and equivalents
    $ 18,283  $ 29,573  End of period cash and         $ 18,283    $ 29,573
                         equivalents

                     

SOURCE Quanex Corporation

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