December 05, 2002
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