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Quanex Reports Earnings for Fiscal 2001 First Quarter

HOUSTON, Feb. 22 /PRNewswire/ -- Quanex Corporation (NYSE: NX) today announced fiscal 2001 first quarter results for the period ending January 31. Sales for the first quarter were $193.8 million, compared with sales of $199.3 million for fiscal 2000's first quarter. Net income, excluding a $.4 million extraordinary gain, was $3.7 million, representing basic and diluted earnings per share of 27 cents. This compares with net income of $4.2 million and basic and diluted earnings per share of 29 cents for the same period last year.

Fiscal First Quarter Business Results

The MACSTEEL(R) Group, Quanex's engineered steel bar business, had first quarter net sales of $71.6 million versus $79.7 million for the same period last year. Operating income for the quarter was $7.3 million, compared with $11.8 million reported in the prior year's quarter.

The Nichols Aluminum Group, the company's aluminum sheet products business, had first quarter net sales of $78.8 million versus $79.7 million for the same period last year. Operating income for the quarter was $.3 million, compared with $2.2 million reported in the prior year's quarter.

The Engineered Products Group, Quanex's formed metal products business, had first quarter net sales of $26.0 million versus $18.4 million for the same period last year. Operating income for the quarter was $1.9 million, compared with $1.8 million reported in the prior year's quarter.

The Piper Impact Group, the company's impact extrusion business, had first quarter net sales of $22.8 million versus $26.8 million for the same period last year. Operating income for the quarter was $1.1 million versus a loss of $3.5 million reported in the prior year's quarter.

Statements that use the word "expect," "should," "will," "might," or similar words reflecting future expectations or beliefs are forward-looking statements. The following statements 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 filing (fiscal 2000 10-K filed January 5, 2001) under the Securities Exchange act of 1934, in particular, the sections titled, "Private Securities Litigation Reform Act" contained therein.

Commentary

"We continue to experience slower demand for our automotive, building, and construction products during the first quarter of fiscal 2001 versus the first quarter of fiscal 2000," said Vernon E. Oechsle, chairman of the board and chief executive officer of Quanex. "Historically, this is the slowest period of the year for our businesses due to the seasonal nature of our markets, holiday shutdowns, and fewer production days. Making the period more difficult, of course, is the slow economy, particularly in the manufacturing area and a harsher winter than we've experienced in the last few years. When compared to business activity this time last year, demand now is certainly weaker across all product lines."

"MACSTEEL is currently operating at reduced levels but continues to maintain a five-day schedule. The slowing economy continues to negatively impact their primary markets, namely transportation and capital goods. We look for automotive builds in the 15.5 to 16 million range for 2001, down from the record 17.5 million the industry experienced in 2000. We expect only a modest improvement in their overall business activity for the second quarter but do look for an improving marketplace as the year progresses. MACSTEEL continues to maintain market share in its traditional areas and is also selling some bar products outside these markets as well. Given current business conditions, we believe Macsteel's operating results for the second quarter will fall short of last year's second quarter performance."

"Nichols Aluminum is also currently operating at a reduced capacity. Their reduced business activity is seen as a result of severe weather in addition to a general economic slowdown in the building and construction markets. Housing starts, while down from their peak last year, are still relatively strong. We look for more normalized spring season building activity. However, because of the general condition of the economy, we believe their second quarter operating results will trail last year's results."

"Engineered Products business activity remained fairly strong for the first quarter, given the state of the economy. We do, however, see some slowing in the second quarter. The group's results for the quarter also benefited from the acquisitions of Imperial Fabricated Products last year and Temroc Metals this past November. New products at AMSCO have allowed that business to move into more market areas. For the second quarter, we expect this group to show similar operating results compared to last year."

"Piper Impact experienced a much improved first quarter compared to last year. Sales are down versus this time last year as the group included sales at Piper Impact Europe, which was sold in the third quarter of 2000. Comparable net sales for Piper have them ahead about 13% for the first quarter. Meaningful operating improvements in the business allowed the group to report positive operating income, but a slowdown in air bag component sales is expected for Piper in the second half of the year."

Outlook

The second and fourth quarters are typically the Company's most profitable quarters. The first quarter is historically the least profitable for the reasons given above. For the second quarter, business activity in the Company's primary markets is expected to be down significantly when compared to the second quarter of 2000; hence, operating results are expected to lag the $0.61 fully diluted earnings per share reported in the second quarter last year.

The Company previously reported full year 2001 earnings guidance (quarterly update, January 19, 2001) indicating that the Company believed it would earn in excess of the $2.44 fully diluted earnings per share (excluding unusual items) reported for fiscal 2000. At this time, the Company no longer expects to exceed those results but believes its annual results will be near that level.

Other

In December 1999, Quanex announced a formal program to repurchase up to 2 million shares of the Company's common stock. The Company repurchased 45,900 shares of common stock, of which 20,000 settled in the first quarter. Since inception of the program, Quanex has purchased approximately 880,000 shares at a cost of $18.0 million.

During the quarter, the Company also purchased $4.6 million of its 6.88% convertible subordinated debentures for a total of $3.9 million.

At the annual meeting of Quanex shareholders held February 22, 2001, Carl E. Pfeiffer and Vincent R. Scorsone were elected to the board of directors for terms expiring in 2004.

Dividend Declared

The Board of Directors declared a regular quarterly dividend of $0.16 per share on the Company's common stock, payable March 30, 2001, to shareholders of record on March 16, 2001.

Growth Strategy

Our strategy for enhancing long-term shareholder value will be accomplished through enhanced sales and earnings growth. We will strive to achieve this by consistently earning a cash return in excess of our cost of capital; by being the low cost / high quality producers in our industries; and by investing in internal capital projects and acquisitions that will provide growth and high cash returns.

Corporate Profile

Quanex is a technological leader in the production of value-added, engineered steel bars; aluminum flat-rolled products; and engineered, formed- metal products for customers in the transportation, capital equipment, packaging, homebuilding and remodeling, defense, and other commercial markets.

Latest 12 Months Financial Information

(from continuing operations, excluding unusual items)

Sales: $928.7 million; EBITDA: $115.0 million; Operating income: $66.6 million; Net income: $35.4 million; Basic earnings per share: $2.61; Quarterly common dividend rate (per share): $.16; Book value per common share: $19.9; Long-term debt to capitalization: 45.5%; Return on common equity: 12.5%; Actual number of common shares outstanding: 13,418,102; Common stock price range (52 week hi - low): $23.69 - $14.38.

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

                                                      Three months ended
                                                          January 31
                                                    2001              2000
                                                          (Unaudited)

    Net sales                                     $193,825          $199,294
    Cost of sales                                  162,667           165,643
    Selling, general and administrative
     expense                                        11,728            13,282
    Depreciation and amortization                   11,236            12,162
    Operating income                                 8,194             8,207
    Interest expense                                (3,968)           (3,330)
    Capitalized interest                               314               544
    Other, net                                       1,130             1,002
    Income before income taxes and
     extraordinary gain                              5,670             6,423
    Income tax expense                              (1,985)           (2,248)
    Income before extraordinary gain                 3,685             4,175
    Extraordinary gain on early
     extinguishment of debt, net of
     income taxes                                      372               ---
    Net income                                      $4,057            $4,175

    Weighted average common shares
     outstanding:
             Basic                                  13,424            14,172
             Diluted                                13,562            14,360

    Earnings per common share:
        Basic:
           Income before extraordinary gain          $0.27             $0.29
           Extraordinary gain                         0.03               ---
                Total basic net earnings             $0.30             $0.29
        Diluted:
           Income before extraordinary gain          $0.27             $0.29
           Extraordinary gain                         0.03               ---
                Total diluted net earnings           $0.30             $0.29
    Common stock dividends per share                 $0.16             $0.16


     QUANEX CORPORATION INDUSTRY SEGMENT INFORMATION
     (In thousands)

                                                      Three months ended
                                                          January 31
                                                    2001              2000
                                                         (Unaudited)
         Engineered Steel Bars:
                Net sales                         $71,598           $79,742
                Operating income                   $7,335           $11,835
         Aluminum Mill Sheet Products:
                Net sales                         $78,816           $79,720
                Operating income                     $280            $2,203
         Engineered Products:
                Net sales                         $25,963           $18,418
                Operating income                   $1,933            $1,847
         Piper Impact:
                Net sales                         $22,849           $26,799
                Operating income / (loss)          $1,144           $(3,473)
         Corporate and Other:
                Net sales                         $(5,401)          $(5,385)
                Operating loss                    $(2,498)          $(4,205)
         Total:
                Net sales                        $193,825          $199,294
                Operating income                   $8,194            $8,207


     QUANEX CORPORATION
     CONSOLIDATED BALANCE SHEETS
     (In thousands)

           January 31                                           October 31
        2001        2000                                      2000      1999
           (Unaudited)    Assets                                 (Audited)
      $18,879     $21,955 Cash and equivalents              $22,409   $25,874
       94,579      91,816 Accounts and notes receivable,     98,465    87,204
                           net
      103,625      97,594 Inventories                       101,274    78,463
       15,210      13,505 Other current assets               13,798    20,846
      232,293     224,870    Total current assets           235,946   212,387

      344,362     416,543 Property, plant and equipment,    338,248   406,841
                           net
       61,316      47,715 Goodwill, net                      47,539    48,990
       26,083      23,812 Other assets                       24,126    22,228
     $664,054    $712,940 Total assets                     $645,859  $690,446

                          Liabilities and stockholders' equity
      $68,910     $79,004 Accounts payable                  $77,339   $70,187
          ---      13,462 Accrued payable - acquisition         ---       ---
       41,751      47,615 Accrued expenses                   50,189    54,305
        5,552       3,176 Income taxes payable                3,218     1,103
          688         --- Other current liabilities             ---       ---
          427       9,226 Current portion of long-term          256    10,545
                           debt
      117,328     152,483    Total current liabilities      131,002   136,140
      222,492     188,121 Long-term debt                    191,657   179,121
        6,601       7,004 Deferred pension credits            7,026     6,691
        7,708       7,452 Deferred postretirement welfare     7,634     7,490
                           benefits
       26,232      43,531 Deferred income taxes              27,620    43,910
       17,369      14,711 Other liabilities                  14,423    16,033
      397,730     413,302    Total liabilities              379,362   389,385

      266,324     299,638    Total stockholders' equity     266,497   301,061

     $664,054    $712,940 Total liabilities and            $645,859  $690,446
                           stockholders' equity


     QUANEX CORPORATION
     CONSOLIDATED STATEMENTS OF CASH FLOW
     (In thousands)

                                                       Three months ended
                                                           January 31
                                                     2001              2000
                                                          (Unaudited)
    Operating activities:
       Net income                                   $4,057            $4,175
       Extraordinary gain on early
        extinguishment of debt (net of
        taxes of $201)                                (372)              ---
       Depreciation and amortization                11,362            12,300
       Noncash income from derivative
        instruments                                 (1,064)              ---
       Deferred income taxes                           (41)               30
       Deferred pension and
        postretirement benefits                       (351)              273
                                                    13,591            16,778
       Decrease in accounts and notes
        receivable                                   7,210               811
       (Increase) decrease in inventory                292            (6,103)
       Increase (decrease) in accounts
        payable                                    (10,490)            4,150
       Decrease in accrued expenses                 (9,819)           (9,642)
       Other, net (including income tax
        refund)                                        154             8,107
    Cash provided by operating activities              938            14,101
    Investment activities:
       Acquisition of Golden Aluminum,
        net of cash acquired                           ---            (6,406)
       Acquisition of Temroc Metals, net
        of cash acquired                           (17,922)              ---
       Capital expenditures, net of
        retirements                                (11,974)          (14,458)
       Cash used by other investment
        activities                                  (1,590)             (892)
    Cash used by investment activities             (31,486)          (21,756)
    Financing activities:
       Bank borrowings, net                         33,000             9,169
       Purchase of subordinated
        debentures                                  (3,942)              ---
       Purchases of Quanex common stock               (364)           (3,785)
       Common dividends paid                        (2,167)           (2,296)
       Issuance of common stock, net                   800               620
       Cash used by other financing
        activities                                    (309)              (24)
    Cash provided by financing activities           27,018             3,684
    Effect of exchange rate changes on
     cash and equivalents                              ---                52
    Decrease in cash                                (3,530)           (3,919)
    Beginning of period cash and
     equivalents                                    22,409            25,874
    End of period cash and equivalents             $18,879           $21,955

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 201-369-3467
CONTACT: financial, Jeff Galow, 713-877-5327, or media, Marianne Gooch, 713-877-5389, both of Quanex Corporation
CAPTION: NXLOGO QUANEX CORPORATION LOGO Quanex Corporation logo. (PRNewsFoto)[HD] HOUSTON, TX USA 05/17/1999

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