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Quanex Announces Fiscal Second Quarter 2002 Results; Company Reports Record Second Quarter Earnings; Diluted Earnings Per Share Up 118% Versus a Year Ago; Company Announces Call for Redemption of Its 6.88% Debentures on May 9, 2002

HOUSTON, May 30 /PRNewswire-FirstCall/ -- Quanex Corporation (NYSE: NX) today announced fiscal second quarter results for the period ending April 30, 2002. Net sales for the quarter were $249.5 million, 13% higher than a year ago. The Company commented that the momentum in order entry experienced late in its first quarter was sustained throughout the second quarter. Both the Vehicular Products and Building Products segments turned in much better operating results for the quarter versus the first quarter 2002 and year ago results due, in part, to this improved demand. Operating income and net income for the second quarter were $20.0 million and $10.6 million respectively. EBITDA for the quarter improved 50% from a year ago to $31.9 million. Diluted earnings per share from continuing operations were $.70, a record for the quarter and 118% higher than a year ago.

Net sales for the second quarter 2001 were $220.3 million. Operating income and net income were $9.8 million and $4.3 million respectively. Diluted earnings per share were $.32.

Highlights

Regarding the Company's results, Raymond A. Jean, chairman and chief executive officer stated, "The Vehicular Products and Building Products segments each delivered improved results compared to last quarter and a year ago, and significantly outperformed their served markets. Higher volumes, strong operating leverage and cost reduction initiatives all contributed to Quanex's improved financial performance for the quarter. Demand in the Company's two primary markets, light vehicles and housing, remain at healthy levels. Industry estimates for 2002 North American light vehicle builds has increased from 15.2 million units to 15.8 million units and housing starts are now expected to remain in the 1.6 million range for the year."

"Financially, Quanex is in a strong and enviable position. Improved earnings, better working capital management and lower capital expenditures have all contributed to the Company's ability to pay off $40 million in debt in the first six months of the year. Moody's recognized this financial strength by recently upgrading the Company's debt rating; and we expect our financial position to continue to improve with the conversion of approximately $58 million of debt to equity in the third quarter combined with continued improved earnings," said Jean.

    Quarterly Financials   ($ in millions, except per share data)

                          2nd qtr 2002      2nd qtr 2001
    Net Sales               $ 249.5           $ 220.3
    EBITDA*                    31.9              21.4
    Operating Income           20.0               9.8
    Net Income                 10.6               4.3
    EPS: Basic                 $.77              $.32
    EPS: Diluted               $.70              $.32

    *EBITDA, defined as earnings before interest, taxes, depreciation and
     amortization, is calculated by adding back to the income before
     extraordinary item the amounts of income tax expense, interest expense
     (net of capitalized interest), depreciation and amortization.

Statements that use the words "expect," "should," "will," "might," or similar words reflecting future expectations or beliefs are forward-looking statements. The statements found above and below 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.

    Segment Commentary

    VEHICULAR PRODUCTS    ($ in millions)

                         2nd qtr 2002    2nd qtr 2001
    Net Sales              $ 117.6         $ 105.1
    Operating Income          16.4            10.0

The Vehicular Products segment includes MACSTEEL, Piper Impact and Temroc Metals. The segment's main driver is North American light vehicle builds. For fiscal year 2002, the Company expects MACSTEEL's sales and operating income to represent about 75% and 85% of the segment's results, respectively.

"On-going customer restocking efforts bolstered demand at MACSTEEL during the quarter, with volumes up 22% compared to last year," continued Jean. "MAC's traditional automotive customers came into the second quarter with seasonally low inventories, and these same customers continued to restock during the quarter in anticipation of another good year for light vehicle sales. North American light vehicle builds for 2002 are now expected to slightly exceed the 15.5 million units produced in 2001. A spike in the Class 8 heavy duty truck builds also contributed to higher demand for the division. Because of increased customer demand through the second quarter, MACSTEEL operated both plants at 6 days per week," said Jean.

"MACSTEEL's earnings also started to benefit from the additional value- added services at the Jackson facility, which included more heat treated products, higher MAC+ turned bar production and bar cutting services. Phase VI at the Fort Smith facility will be fully operational by the end of the third quarter, several months ahead of schedule. Management expects to have the additional capacity from the Fort Smith project sold out by the end of the fiscal year."

"MAC is currently involved in 7 new, major programs for its larger OEM customers, with 3 of those programs calling for value-added services. A relatively new program underway involves supplying one of the "Big Three" automakers with 100% of its steel camshaft blank needs. The on-going results of these very positive developments at MACSTEEL will be partially offset by rising steel scrap prices. Over half of MAC's business is based on one year fixed contracts, so their ability to recover rising scrap prices is somewhat limited on a near term basis."

"Piper Impact was profitable on slightly lower sales, with income up 10% over a year ago. Sales of aluminum air bag components declined from year ago levels, which was not unexpected, while new programs helped offset that decline. Piper is on-track to add about $10 million of new business this year. As further testimony to their ongoing productivity improvements, Piper Impact earned the "Excellence Award" for quality from the Mississippi Quality Awards Program. The Mississippi Quality Awards Program is a professional association providing structure for organizational self-assessment using the Malcolm Baldridge National Quality Award criteria. The annual awards are designed to encourage the application of continuous improvement principles and sharing of best practices."

    BUILDING PRODUCTS    ($ in millions)

                          2nd qtr 2002    2nd qtr 2001
    Net sales               $ 131.9         $ 115.1
    Operating income            7.6             3.8

The Building Products segment includes Engineered Products and Nichols Aluminum. The main drivers of the segment are residential housing starts and remodeling expenditures. For fiscal year 2002, the Company expects Engineered Products sales and operating income to represent about 30% and 65% of the segment's results, respectively.

"Engineered Products achieved record second quarter sales and operating income. The combination of an abbreviated winter, new products, low customer inventories, the acquisition of Colonial Craft and solid productivity improvements at the Homeshield operation all contributed to the group's excellent performance. It's important to highlight that the group would have achieved these operating records even without including the results of Colonial Craft, with 'same store' sales up about 6%. New programs continue to be a key driver in the success of Engineered Products. This year, the group has over a dozen major new programs underway with its customers. The integration of Colonial Craft is progressing well, and the business will be implementing a major new project with one of its leading window customers during the second half of the year."

"I'm pleased to report that the strength in orders we experienced at Nichols Aluminum late in the first quarter held up well through the second quarter, allowing Nichols to increase volumes by about 20% over last year. These higher volumes resulted in operating income for the division to be up more than double last year's level. However, scrap availability and pricing were an issue for Nichols during the quarter, with April being particularly difficult. With scrap pricing rising quicker than the group's ability to raise prices in the short term, spreads for the quarter deteriorated from both first quarter and year ago levels. The 2 rotary barrel furnaces at the casting plant helped mitigate some of this spread compression as they allowed for the use of a broader range of low grade scraps. With industry wide price increases firming and scrap availability beginning to loosen up, we expect Nichols to be able to increase spreads modestly throughout the remainder of the fiscal year," said Jean.

Outlook

Higher customer demand in the Company's two primary markets -- vehicular products and building products -- drove income from continuing operations to record levels for the second quarter. Diluted earnings per share for the first half of fiscal 2002 are up 85% over the first half of fiscal 2001.

First half fiscal 2001 operating results were well below historical levels as customers during that time were reducing inventories as the economy slowed. This compares to the rapid restocking activities the Company experienced during the first half of fiscal 2002.

Second half fiscal 2001 operating results were more typical as customer demand improved last year. For the second half of fiscal 2002, the Company expects to operate at strong demand levels and anticipates third quarter diluted earnings per share to be about 30% higher than year ago results of $.67. For fiscal 2002, the Company expects diluted earnings per share to be up some 40% over fiscal 2001 diluted earnings of $2.05. This earnings growth is primarily driven by new customer programs, increased market share, operating leverage and lean initiatives.

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 certain indicators arise. Goodwill amortization for the prior year ended October 31, 2001 was $2.3 million or $.10 diluted earnings per share. Also, in accordance with SFAS 142, the Company completed the transitional impairment test of goodwill during the second quarter of fiscal 2002, which indicated that no impairment of goodwill existed.

On May 10, 2002, Notice of Redemption was sent to the registered holders of the Quanex 6.88% Convertible Subordinated Debentures Due 2007. The Company set a Redemption Date of June 12, 2002 for all Debentures outstanding. Holders of the Debentures have the right to convert the Debentures into shares of common stock at a conversion price of $31.50 per share, which expires at the close of business on June 5, 2002.

Moody's Investor Services announced on May 10, 2002, that it upgraded its ratings for Quanex Corporation. The following ratings were upgraded: $250 million unsecured revolving credit facility to Ba1 from Ba2, the $59 million of 6.88% convertible subordinated debentures due 2007 to Ba3 from B1, its senior implied rating to Ba1 from Ba2, and senior unsecured issuer rating to Ba1 from Ba2. In support of the upgrade Moody's cited the Company's strong performance in a difficult industry and its prospects for further improved financial performance.

Dividend Declared

The Board of Directors declared a quarterly dividend of $.16 per share on the Company's common stock, payable June 28, 2002 to shareholders of record on June 14, 2002.

Corporate Profile

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

Latest 12 Months Financial Information (from continuing operations, excluding unusual charges and gains)

Sales: $957.9 million; EBITDA: $116.2 million; Operating income: $69.2 million; Net income: $36.9 million; Basic earnings per share: $2.74; Quarterly common dividend rate (per share): $.16; Book value per common share: $22.20; Long-term debt to capitalization: 35.20%; Return on common equity: 12.71%; Actual number of common shares outstanding: 14,185,707; Common stock price range (52-week hi - low): $38.35 - $20.75.

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


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


       Three months ended                                  Six months ended
           April 30,                                           April 30,
        2002        2001                                   2002        2001
           (Unaudited)                                       (Unaudited)

    $ 249,500   $ 220,257   Net sales                  $ 453,743   $ 420,199
      204,371     186,260   Cost of sales                375,413     355,044
       13,697      12,968   Selling, general and          25,861      24,696
                             administrative expense
       11,399      11,185   Depreciation and              22,592      22,421
                             amortization
       20,033       9,844   Operating income              29,877      18,038
       (4,668)     (4,122)  Interest expense              (8,109)     (8,283)
          803         432   Capitalized interest           1,533         746
          446         444   Other, net                     1,844       1,767
       16,614       6,598   Income before income          25,145      12,268
                             taxes and extraordinary
                             gain
       (5,982)     (2,309)  Income tax expense            (9,053)     (4,294)
       10,632       4,289   Income before                 16,092       7,974
                             extraordinary gain
          ---         ---   Extraordinary gain on            ---         372
                             early extinguishment of
                             debt, net of income taxes
    $  10,632   $   4,289   Net income                 $  16,092   $   8,346

                            Weighted average common
                             shares outstanding:
       13,881      13,389     Basic                       13,665      13,407
       16,107      13,481     Diluted                     15,848      13,523

                            Earnings per common share:
                              Basic:
    $    0.77   $    0.32      Income before           $    1.18   $    0.59
                                extraordinary gain
          ---         ---      Extraordinary gain            ---        0.03
    $    0.77   $    0.32         Total basic net      $    1.18   $    0.62
                                   earnings

                              Diluted:
    $    0.70   $    0.32      Income before           $    1.10   $    0.59
                                extraordinary gain
          ---         ---      Extraordinary gain            ---        0.03
    $    0.70   $    0.32         Total diluted net    $    1.10   $    0.62
                                   earnings

    $    0.16   $    0.16   Common stock dividends     $    0.32   $    0.32
                             per share


     QUANEX CORPORATION INDUSTRY SEGMENT INFORMATION
     (In thousands)

       Three months ended                                 Six months ended
           April 30,                                          April 30,
       2002        2001                                   2002        2001
          (Unaudited)                                        (Unaudited)
                            Vehicular Products:
    $ 117,640   $ 105,124     Net sales                $ 220,073   $ 204,200
    $  16,356   $  10,002     Operating income         $  27,098   $  18,375
                            Building Products:
    $ 131,860   $ 115,133     Net sales                $ 233,670   $ 215,999
    $   7,643   $   3,802     Operating income         $  10,017   $   6,121
                            Corporate and Other:
    $     ---   $     ---     Intercompany sales       $     ---   $     ---
                               elimination
    $ (3,966)   $  (3,960)    Corporate charges        $  (7,238)  $  (6,458)
                            Total:
    $ 249,500   $ 220,257     Net sales                $ 453,743   $ 420,199
    $  20,033   $   9,844     Operating income         $  29,877   $  18,038


     QUANEX CORPORATION
     CONSOLIDATED BALANCE SHEETS
     (In thousands)

            April 30,                                           October 31,
        2002        2001                                      2001      2000
          (Unaudited)           Assets                           (Audited)
    $   3,898   $  17,332 Cash and equivalents            $  29,573 $  22,409
      113,290     104,600 Accounts and notes receivable,    109,706    98,465
                           net
       87,394      98,880 Inventories                        83,109   101,274
       14,636      15,012 Other current assets               14,490    13,798
      219,218     235,824    Total current assets           236,878   235,946

      360,019     348,308 Property, plant and equipment,    357,635   338,248
                           net
       66,726      60,720 Goodwill, net                      59,226    47,539
       47,228      25,284 Other assets                       43,892    24,126
    $ 693,191   $ 670,136 Total assets                    $ 697,631 $ 645,859

                          Liabilities and stockholders' equity
    $  87,051   $  74,771 Accounts payable                $  76,831 $  77,339
       49,735      45,735 Accrued expenses                   50,659    50,189
        2,686       1,815 Income taxes payable                1,087     3,218
        4,035       2,153 Other current liabilities           5,593       ---
          434         421 Current portion of long-term debt     420       256
      143,941     124,895    Total current liabilities      134,590   131,002
      171,037     221,578 Long-term debt                    219,608   191,657
        6,434       5,882 Deferred pension credits            7,962     7,026
        7,811       7,701 Deferred postretirement welfare     7,777     7,634
                           benefits
       31,761      26,096 Deferred income taxes              29,282    27,620
       17,277      17,544 Other liabilities                  18,435    14,423
      378,261     403,696    Total liabilities              417,654   379,362
      314,930     266,440    Total stockholders' equity     279,977   266,497
    $ 693,191   $ 670,136 Total liabilities and           $ 697,631 $ 645,859
                           stockholders' equity


     QUANEX CORPORATION
     CONSOLIDATED STATEMENTS OF CASH FLOW
     (In thousands)

        Three months ended                                Six months ended
            April 30,                                         April 30,
        2002        2001                                  2002         2001
           (Unaudited)                                       (Unaudited)
                            Operating activities:
    $  10,632   $   4,289     Net income               $ 16,092    $   8,346
          ---         ---     Extraordinary gain on         ---         (372)
                               early extinguishments
                               of debt (net of taxes)
       11,486      11,313     Depreciation and           22,765       22,675
                               amortization
        1,071      (1,760)    Deferred income taxes       2,480       (1,801)
           59        (726)    Deferred pension and       (1,494)      (1,077)
                               postretirement benefits
       23,248      13,116                                39,843       27,771
      (20,414)    (10,021)    Increase in accounts and   (1,715)      (2,811)
                               notes receivable
          564       4,745     (Increase) decrease in     (1,887)       5,037
                                inventory
       21,411       5,861     Increase (decrease) in      9,556       (4,629)
                               accounts payable
        5,139       3,984     Increase (decrease) in     (1,922)      (5,835)
                               accrued expenses
        2,634        (363)    Other, net (including       1,175       (1,273)
                               income tax refund)
       32,582      17,322   Cash provided by operating   45,050       18,260
                             activities

                            Investment activities:
      (17,365)        ---     Acquisition of Colonial   (17,365)         ---
                               Craft, net of cash
                               acquired
          ---         ---     Acquisition of Temroc         ---      (17,922)
                               Metals, net of cash
                               acquired
       (8,819)    (14,511)    Capital expenditures,     (20,109)     (26,485)
                               net of retirements
         (171)        496     Cash provided (used) by      (646)      (1,094)
                               other investment
                               activities
      (26,355)    (14,015)  Cash used by investment     (38,120)     (45,501)
                             activities

                            Financing activities:
      (35,000)     (1,000)    Bank borrowings           (40,000)      32,000
                               (repayments), net
       (7,029)        ---     Prepayment of note         (7,029)         ---
                               payable
          ---         ---     Purchase of subordinated      ---       (3,942)
                               debentures
          ---      (1,626)    Purchases of Quanex           ---       (1,990)
                               common stock
       (2,253)     (2,155)    Common dividends paid      (4,412)      (4,322)
       18,093         730     Issuance of common         20,453        1,530
                               stock, net
       (1,318)       (803)    Cash used by other         (1,617)      (1,112)
                               financing activities
      (27,507)     (4,854)  Cash provided (used)        (32,605)      22,164
                             by financing activities
      (21,280)     (1,547)  Decrease in cash            (25,675)      (5,077)
       25,178      18,879   Beginning of period          29,573       22,409
                             cash and equivalents
    $   3,898   $  17,332   End of period cash and    $   3,898    $  17,332
                             equivalents

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

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SOURCE Quanex Corporation
Web site: http: //www.quanex.com
Photo: NewsCom: http: //www.newscom.com/cgi-bin/prnh/19990517/NXLOGO PRN Photo Desk, 888-776-6555 or 212-782-2840
Company News On-Call: http: //www.prnewswire.com/comp/117216.html
CONTACT: financial, Jeff Galow, +1-713-877-5327, or media, Valerie Calvert, +1-713-877-5305, both of Quanex Corporation
CAPTION: NXLOGO QUANEX CORPORATION LOGO Quanex Corporation logo. (PRNewsFoto)[HD] HOUSTON, TX USA 05/17/1999

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