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
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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