Investor Press Release

<< Back

Quanex Announces Fiscal Third Quarter 2002 Results

Reports Record Third Quarter Diluted EPS of $.88 excluding a $.54 Life Insurance Benefit; Company Completes Conversion of Its 6.88% Debentures;

Company to Certify Its Third Quarter 10-Q Financial Statements

HOUSTON, Aug. 29 /PRNewswire-FirstCall/ -- Quanex Corporation (NYSE: NX) today announced fiscal third quarter results for the period ended July 31, 2002. Net sales for the quarter were $266.9 million, 8% higher than a year ago. The Company commented that both the Vehicular Products segment and the Building Products segment reported better operating results for the third quarter versus a year ago. Demand for the Company's vehicular and building products remained strong throughout the period. Operating income and net income for the third quarter were $25.0 million and $24.3 million respectively. Net income included a $9.0 million life insurance benefit resulting from the death of a retired executive. Excluding the benefit, net income was $15.3 million, up 59% from a year ago. Diluted earnings per share were $1.42. Excluding the benefit, diluted earnings per share from continuing operations were $.88, a record for the quarter and 31% higher than a year ago.

Net sales for the third quarter 2001 were $248.1 million. Operating income and net income were $18.4 million and $9.6 million respectively. Diluted earnings per share from continuing operations were $.67.

Highlights

Regarding the Company's results, Raymond A. Jean, chairman and chief executive officer stated, "Quanex had a great quarter and demand in our two primary markets, light vehicles and housing, remains at strong levels. Industry estimates for 2002 North American light vehicle builds have increased of late to over 16.5 million units, and through July, vehicle builds are up about 7% over last year. Housing starts for the quarter remained strong and are expected to stay in the 1.6 million range for the remainder of the year. Productivity improvements, a better product mix and strong operating leverage enabled us to deliver significant earnings growth.

"The Company continues to improve its strong financial position. During the quarter, about 98% of our 6.88% debentures were converted to common stock. Converting the debentures to stock will not impact our diluted earnings per share but will save the Company approximately $4 million in interest payments per year. For the first nine months of fiscal 2002, Quanex also paid down $59 million of bank debt, some $19 million in this quarter alone, which leaves us with a total debt to capitalization ratio of 18% at quarter-end. Our excellent balance sheet and strong cash flow give us the firepower to support internal growth initiatives and acquisitions.

"The Company will also certify its financial statements with the SEC in accordance with the Sarbanes-Oxley Act of 2002 when we file our third quarter 10-Q," continued Jean. "Quanex has always prided itself on the quality of its financial disclosures and the conservative nature of its accounting. We have no off-balance sheet financing and our cash flow tracks with our reported earnings. We support all logical efforts to restore investor confidence in today's financial marketplace," continued Jean.

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

                                     3rd qtr 2002  3rd qtr 2001  incr (decr)
     Net Sales                          $ 266.9     $ 248.1        7.6%
     Operating Income                      25.0        18.4       35.9%
     Operating Cash Flow*                  36.3        29.0       25.2%
     Net Income                            24.3         9.6      153.1%
     Net Income w/o insurance benefit      15.3         9.6       59.4%
     EPS: Basic                           $1.56        $.72      116.7%
     EPS: Basic w/o insurance benefit     $ .98        $.72       36.1%
     EPS: Diluted                         $1.42        $.67      111.9%
     EPS: Diluted w/o insurance benefit   $ .88        $.67       31.3%

*Operating cash flow is defined as operating income adding back depreciation and amortization expenses.

     Segment Commentary

     VEHICULAR PRODUCTS    ($ in millions)

                          3rd qtr 2002    3rd qtr 2001     incr (decr)
     Net Sales              $ 117.4        $ 114.1           2.9%
     Operating Income          14.7           13.7           7.3%

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

"Robust North American light vehicle sales and a healthier heavy duty truck market continue to drive the demand for MACSTEEL's engineered steel bar products. The outlook for build units this fiscal year continues to be robust. Both steel mills were down eight days for their regularly scheduled annual maintenance during July and returned to service right on schedule to a six days per week operation. Lean initiatives continue to contribute to the success at MACSTEEL. Both facilities reported record productivity and improved yields for the quarter. The outlook for the fourth quarter at MAC is excellent," said Jean.

"MACSTEEL's new MAC+ turned bar operation at its Jackson facility is currently operating at full capacity. The bar cutting facility at Jackson is fully operational and contributed during the quarter. The new MAC+ line at Fort Smith underwent 'shakedown' in the quarter and we look for operating benefits to kick-in during the fourth quarter. Management expects to have the additional capacity from the Fort Smith project sold out by the end of the calendar year.

"The other businesses within the segment each reported positive operating income for the quarter on lower sales. Piper Impact, the largest of these businesses, faces a greater than anticipated decline in aluminum air bag sales and they are accelerating efforts to backfill this decline with new business," continued Jean.

     BUILDING PRODUCTS    ($ in millions)

                              3rd qtr 2002      3rd qtr 2001    incr (decr)
     Net sales                  $ 149.5            $ 134.0        11.6%
     Operating income              14.3                8.7        64.4%

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' results for net sales and operating income were best ever third quarter results. In fact, results each quarter this year for Engineered Products have been record-setting. Housing starts have remained robust all year. New products and programs continue to bolster results. On- going productivity improvements throughout the division also contributed to their excellent performance. Excluding the results of Colonial Craft, operating income for the group on a comparable basis was up 13%. As anticipated, Colonial Craft is delivering results that will be accretive this year.

"Nichols Aluminum continues to show good improvement in sequential quarterly results for this year and compared to year ago results. Volume for the group was up almost 10% versus a year ago while operating income was up about 150%. As noted, demand in their primary building and construction market has remained strong, and the pickup in demand from other aluminum markets has helped sheet pricing recover. Combined with a small reduction in scrap costs, Nichols was able to improve their spread compared to a year ago," said Jean.

Outlook

The Company's primary drivers -- vehicle builds, home construction and remodeling expenditures -- are expected to remain at high levels for the remainder of the fiscal year. Along with strong underlying demand in its core markets, earnings growth for 2002 is also being driven by new customer programs, increased market share, improved operating leverage and lean initiatives. Based on this outlook, Quanex continues to expect its diluted earnings per share for fiscal 2002 to be up about 40% over fiscal 2001 diluted earnings of $2.07.

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 fiscal year ended October 31, 2001 was $2.3 million, or $.10 diluted earnings per share.

The Company continues to account for the stock options using the current transition provisions of SFAS No. 123. Accordingly, it does not reflect the option expense in its income statement or earnings per share. However, the Company will disclose the impact on net income and earnings per share in the footnotes to its SEC financial statements. For the third quarter, expensing stock options would have reduced net income by $347,000 and reduced diluted earnings per share by $.02.

Dividend Declared

The Board of Directors declared a quarterly dividend of $.16 per share on the Company's common stock, payable September 30, 2002 to shareholders of record on September 16, 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 (from continuing operations, excluding unusual charges and gains)

Sales: $976.7 million; Operating income: $75.8 million; Net income from continuing operations: $51.7 million; Basic earnings per share: $3.58; Quarterly common dividend rate (per share): $.16; Book value per common share: $24.76; *Return on invested capital: 11.75%; Total debt to capitalization: 18.46%; Return on common equity: 16.57%; Actual number of common shares outstanding: 16,354,614; Common stock price range (52-week hi - low): $44.20 - $20.75.

*Return on invested capital is defined as net income + 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 found 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 .


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


       Three months ended                                   Nine months ended
            July 31,                                           July 31,
        2002        2001                                    2002       2001

    $ 266,891  $  248,121   Net sales                   $ 720,634  $ 668,320
      216,469     205,581   Cost of sales                 591,882    560,625
                            Selling, general
       14,099      13,492    and administrative expense    39,960     38,188
       11,292      10,695   Depreciation and amortization  33,884     33,116
       25,031      18,353   Operating income               54,908     36,391
       (1,070)     (4,129)  Interest expense               (9,179)   (12,412)
          346         349   Capitalized interest            1,879      1,095
                            Retired executive life insurance
        9,020         ---    benefit                        9,020        ---
         (375)        208   Other, net                      1,469      2,547
       32,952      14,781   Income before income taxes     58,097     27,621
       (8,615)     (5,173)  Income tax expense            (17,668)    (9,667)
    $  24,337  $    9,608   Net income                  $  40,429  $  17,954

                    Weighted average common shares outstanding:

       15,560      13,377   Basic                          14,303     13,397
       16,557      15,428   Diluted                        16,093     15,420

                    Earnings per common share:

    $    1.56  $     0.72   Basic net income per share  $    2.83  $    1.34

                            Diluted net income
    $    1.42  $     0.67    per share                  $    2.55  $    1.30
                            Common stock dividends
    $    0.16  $     0.16    per share                  $    0.48  $    0.48


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

     Three months ended                           Nine months ended
             July 31,                                      July 31,
         2002       2001                               2002         2001
                        Vehicular Products:

     $ 117,416   $ 114,127   Net sales             $  337,489   $  318,327
     $  14,709   $  13,717   Operating income      $   41,807   $   32,092

                        Building Products:

     $ 149,475   $ 133,994   Net sales             $  383,145   $  349,993
     $  14,330   $   8,680   Operating income      $   24,347   $   14,801

                        Corporate and Other:

     $     ---   $     ---   Intercompany sales
                              elimination          $      ---   $      ---
     $  (4,008)  $  (4,044)  Corporate charges     $  (11,246)  $   (10,502)

                        Total:

     $ 266,891   $ 248,121   Net sales             $  720,634   $   668,320
     $  25,031   $  18,353   Operating income      $   54,908   $    36,391


                              QUANEX CORPORATION
                         CONSOLIDATED BALANCE SHEETS
                                (In thousands)
                                 (Unaudited)
           July 31,                                              October 31,
       2002          2001                                      2001      2000
                          Assets

       $1,340     $31,805 Cash and equivalents              $29,573   $22,409
                          Accounts and notes receivable,
      110,684     101,893  net                              109,706    98,465
       26,041         --- Other receivables                     ---       ---
       93,229      91,423 Inventories                        83,109   101,274
       15,244      14,112 Other current assets               14,490    13,798

      246,538     239,233    Total current assets           236,878   235,946
                          Property, plant and equipment,
      356,754     354,743  net                              357,635   338,248
       66,436      60,127 Goodwill, net                      59,226    47,539
       30,869      44,865 Other assets                       43,892    24,126

     $700,597    $698,968 Total assets                     $697,631  $645,859

                          Liabilities and stockholders' equity

      $81,123     $77,289 Accounts payable                  $76,831   $77,339
       51,931      48,222 Accrued expenses                   50,659    50,189
        3,544       3,740 Income taxes payable                1,087     3,218
        4,945       3,582 Other current liabilities           5,593       ---
       81,434         420 Current portion of long-term
                           debt                                 420       256

      222,977     133,253    Total current liabilities      134,590   131,002
       10,203     236,487 Long-term debt                    219,608   191,657
        6,281       5,158 Deferred pension credits            7,962     7,026
        7,848       7,718 Deferred postretirement welfare
                          benefits                            7,777     7,634
       32,595      25,301 Deferred income taxes              29,282    27,620
       15,820      17,605 Other liabilities                  18,435    14,423
      295,724     425,522    Total liabilities              417,654   379,362

      404,873     273,446    Total stockholders' equity     279,977   266,497

                          Total liabilities and
     $700,597    $698,968  stockholders' equity            $697,631  $645,859


                              QUANEX CORPORATION
                     CONSOLIDATED STATEMENTS OF CASH FLOW
                                (In thousands)
                                 (Unaudited)
       Three months ended                                  Nine months ended
            July 31,                                             July 31,
        2002       2001                                      2002       2001

                    Operating activities:

     $ 24,337   $  9,608   Net income                    $  40,429   $ 17,954
                           Loss (gain) on early
          922        ---    extinguishment of debt             922       (573)
                           Retired Executive life
       (9,020)       ---    insurance benefit               (9,020)       ---
       11,342     10,779   Depreciation and amortization    34,107     33,454
          (43)      (795)  Deferred income taxes             2,437     (2,395)
                           Deferred pension
         (116)      (707)   and postretirement benefits     (1,610)    (1,784)
       27,422     18,885                                    67,265     46,656
                           Decrease in accounts
        2,008      6,601    and notes receivable               293      3,790
       (5,835)     7,457   (Increase) decrease in inventory (7,722)    12,494
                           Increase (decrease)
       (5,878)     2,518    in accounts payable              3,678     (2,111)
                           Increase (decrease)
        1,225      2,487    in accrued expenses               (697)    (3,348)
                           Other, net (including
        1,543       (121)   income tax refund)               2,718     (1,394)

                           Cash provided by operating
       20,485     37,827    activities                      65,535     56,087

                    Investment activities:

                           Acquisition of Colonial Craft,
           82        ---    net of cash acquired           (17,283)       ---
                           Acquisition of Temroc Metals,
          ---        ---    net of cash acquired               ---    (17,922)
                           Capital expenditures,
       (7,991)   (16,513)   net of retirements             (28,100)   (42,998)
                           Cash used by other investment
         (497)    (2,429)   activities                      (1,143)    (3,523)
                           Cash used by investment
       (8,406)   (18,942)   activities                     (46,526)   (64,443)

                    Financing activities:

                           Bank borrowings
      (19,000)    15,000    (repayments), net              (59,000)    47,000
                           Repayment of borrowings
          ---    (17,273)   against insurance policies         ---    (17,273)
          ---        ---   Prepayment of note payable       (7,029)       ---
                           Redemption and purchase
       (1,314)       ---    of subordinated debentures      (1,314)    (3,942)
          ---        ---   Purchases of Quanex common stock    ---     (1,990)
       (2,600)    (2,147)  Common dividends paid            (7,012)    (6,469)
       10,263        283   Issuance of common stock, net    30,716      1,813
                           Cash used by other financing
       (1,986)      (275)   activities                      (3,603)    (1,387)
                           Cash provided (used)
      (14,637)    (4,412)   by financing activities        (47,242)    17,752
       (2,558)    14,473   Increase (decrease) in cash     (28,233)     9,396
                           Beginning of period cash
        3,898     17,332    and equivalents                 29,573     22,409
                           End of period cash
     $  1,340  $  31,805    and equivalents               $  1,340   $ 31,805


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

                    MAKE YOUR OPINION COUNT -  Click Here
               http://tbutton.prnewswire.com/prn/11690X86867633

SOURCE Quanex Corporation
Web site: http: //www.quanex.com
Photo: http: //www.newscom.com/cgi-bin/prnh/19990517/NXLOGO PRN Photo Desk, +1-888-776-6555 or +1-212-782-2840
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

X