UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 8K

 

CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

 

Date of Report (Date of earliest event reported) February 26, 2004

 

QUANEX CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware		1-5725		38-1872178
(State or other jurisdiction of incorporation or organization)		(Commission file number)		(I.R.S. Employer Identification No.)

 

 

 

Item 1.  Changes in Control of Registrant
	Not applicable.
Item 2.  Acquisition or Disposition of Assets
	Not applicable
Item 3.  Bankruptcy or Receivership
	Not applicable.
Item 4. Changes in Registrant’s Certifying Accountant
	Not applicable.
Item 5.  Other Events and Regulation FD Disclosure
	Not applicable.
Item 6.  Resignations of Registrant’s Directors
	Not applicable.
Item 7.  Financial Statements and Exhibits
(a) Financial Statements of Businesses Acquired
	Not applicable.
(b) Pro Forma Financial Information
	Not applicable.

 

(c) Exhibits
99.1		Press Release dated February 26, 2004, announcing first quarter of fiscal year 2004 results.

 

Item 8.  Change in Fiscal Year
	Not applicable.

 

Item 9.  Regulation FD Disclosure

 

This information shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

 

On February 26, 2004, Quanex Corporation issued a press release (the “Press Release”) reporting its earnings results for the first quarter of fiscal year 2004.  The foregoing is qualified by reference to the Press Release which is filed as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference.

 

Item 10.  Amendments to the Registrant’s Code of Ethics, or Waiver of a Provision of the Code of Ethics
	Not applicable.
Item 11.  Temporary Suspension of Trading Under Registrant’s Employee Benefit Plans
	Not applicable.
Item 12.  Results of Operations and Financial Condition
	Not applicable.

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

		Quanex Corporation
Date:	February 26, 2004		By:	/s/ Terry M. Murphy
			Terry M. Murphy
			Vice President – Finance and Chief Financial Officer
			(Principal Financial Officer)

 

 

INDEX TO EXHIBITS

 

Exhibit Number		Description of Exhibits
99.1*		Press Release dated February 26, 2004, announcing first quarter of fiscal year 2004 results.

 

*              Filed herewith

 

Exhibit 99.1

 

NEWS RELEASE

Financial Contact:  Jeff Galow, 713/877-5327

Media Contact:  Valerie Calvert, 713/877-5305

 

Quanex Announces Fiscal First Quarter 2004 Results
Engineered Products Reports Record First Quarter Operating Income
Integration of MACSTEEL Monroe and TruSeal Technologies Proceeding Well

 

Houston, Texas, February 26, 2004 – Quanex Corporation (NYSE:NX) announced fiscal first quarter results for the period ending January 31, 2004.  Net sales for the quarter were $281.2 million, 23% higher than a year ago.  Net sales included one month’s results from the Company’s acquisitions of MACSTEEL Monroe and TruSeal Technologies of $27.4 million.  The Company commented that first quarter demand at its Vehicular Products and Building Products segments was very strong and that backlogs for the second quarter remained at high levels.  Net income for Quanex was $6.4 million, down 6% compared to last year’s record first quarter.  Diluted earnings per share were $.39, the Company’s second best first quarter.  Monroe and TruSeal contributed about $.05 (after interest expense) to the diluted earnings per share figure in January and the first quarter.

 

Net sales for the first quarter 2003 were $229.5 million.  Net income and diluted earnings per share for the first quarter 2003 were $6.8 million and $.41, respectively.

 

Highlights

Regarding the Company’s results, Raymond A. Jean, chairman and chief executive officer stated, “We delivered near record first quarter results, driven by very strong customer demand across most product lines.  During the quarter, we continued to be challenged by runaway steel scrap costs and the severe impact those costs had on the otherwise solid operating results at MACSTEEL.  North American light vehicle builds were about flat compared to a year ago.  Heavy duty truck builds continue to post gains, with builds up some 25% during the quarter versus a year ago.  Housing activity remained brisk through calendar year-end, which allowed Engineered Products, excluding TruSeal, to post record first quarter operating income,” Jean said.

 

“We have made excellent progress to date integrating Monroe and TruSeal into Quanex.  We are very impressed by the quality of the management teams and are excited by the long term earnings potential of both businesses.  We are comfortable with our previous guidance that the two acquisitions will contribute $.40 to $.50 to our fiscal 2004 diluted earnings per share.”

 

 

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Segment Commentary

 

 

The Vehicular Products segment includes MACSTEEL, along with the newly acquired North Star Steel Monroe facility, Piper Impact and Temroc Metals.  The segment’s main drivers are North American light vehicle builds and heavy duty truck builds.

 

“North American light vehicle builds remained at healthy levels during the quarter, and MACSTEEL benefited from improving heavy duty truck production.  Excluding Monroe, MACSTEEL shipments were up about 10% for the quarter, while operating income was down some 20%.  Skyrocketing steel scrap costs were an issue during the quarter as MACSTEEL’s scrap costs were up some $65 per ton over a year ago.  Offsetting part of this cost increase was MACSTEEL’s higher scrap surcharge effective January 1, 2004, productivity gains from lean initiatives and higher value added product sales.  Further bolstering demand has been a strengthening of the secondary markets from the oil patch to defense.  We see real strength in MACSTEEL’s business going forward with our backlog some 50% higher than a year ago,” Jean said.

 

“Piper Impact continues to struggle with the reduction of their base business.  They narrowed the loss during the quarter versus the year ago period, and we are getting closer to finalizing a review of our strategic options,” said Jean.

 

 

The Building Products segment includes Engineered Products, including the recent acquisition of TruSeal Technologies, and Nichols Aluminum.  The main drivers of the segment are residential housing starts and remodeling expenditures.

 

“Engineered Products, excluding TruSeal’s excellent first month results, reported record income in our first quarter even though January’s inclement winter did begin to slow the business,” continued Jean.  “Housing starts and remodeling activity ended the calendar year at very high levels and the momentum has clearly carried over into 2004.  This level of activity is an excellent indicator of the underlying strength in this business segment.”

 

“Nichols Aluminum had a good sales quarter and operating income was slightly improved from a year ago.  Shipments remained strong to our traditional building and construction markets and our

higher margin coated sheet was sold out in the quarter.  The Golden facility, which supplies food packaging and container products, also reported good customer activity.  As with Engineered

 

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Products, Nichols’ first quarter is seasonally their slowest sales period.  Currently, we have a good backlog of business and customer activity in the secondary markets is improving,” said Jean.

 

Outlook

Demand in the Company’s two target markets, vehicular products and building products, continues to be bolstered by a rebounding economy and favorable interest rates.  Business conditions and the economy are expected to continue to gain strength throughout 2004.

 

In Quanex’s Vehicular Products segment, business activity looks very promising going forward; however, the unprecedented sharp spikes in scrap prices remain an ongoing concern at MACSTEEL.  The January and February cost increases have been particularly painful because of their sheer magnitude, and are well in excess of our current scrap surcharge.  This situation will result in a temporary, yet significant reduction in margins at MACSTEEL in the second quarter.

 

In the Building Products segment, order activity remains strong, and while weather sensitive, the Company expects better second quarter results, excluding TruSeal, compared to a year ago.

At Nichols Aluminum, both rising London Metal Exchange (LME) ingot prices and scrap prices remain an issue, however, sales prices have also increased, mitigating part of an expected second quarter margin squeeze.  Housing starts for 2004 are expected to moderate only slightly from last year’s record 1.85 million units.  Building Products’ other driver, remodeling expenditures, is also expected to remain at healthy levels.

 

Taken together, the sales outlook remains positive.  However, uncertainties surrounding the cost of steel and aluminum scrap in the second quarter and their eventual recovery complicates the Company’s ability to accurately forecast its earnings for both the second quarter and the year.  At this time, Quanex expects its fiscal second quarter 2004 diluted earnings per share to be down significantly from the year ago period.  The Company will publish second quarter diluted earnings per share guidance when it releases its second quarter update in April.  Guidance for the year will be provided once the Company has a better sense of its annualized cost of steel scrap.

 

Other

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.  Expensing stock options would have reduced net income by about $563,000 and $357,000 for the first quarter of 2004 and 2003 respectively, and would have reduced diluted earnings per share by $.03 and $.02, respectively.

 

Dividend Declared

The Board of Directors declared the Company’s quarterly cash dividend of $.17 per share on the Company’s common stock, payable March 31, 2004 to shareholders of record on March 15, 2004.

 

Corporate Profile

Quanex is a $1.3 billion industry-leading manufacturer of value-added engineered materials and components serving the Vehicular Products and Building Products markets.

 

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Financial Statistics as of 1/31/04

Book value per common share: $27.74; Total debt to capitalization: 33.51%; Return on invested capital: 8.32%; Return on common equity: 9.78%; Actual number of common shares outstanding: 16,421,724

 

Definitions

Book value per common share – calculated as total stockholders’ equity as of balance sheet date divided by actual number of common shares outstanding;

Total debt to capitalization – calculated as the sum of both the current and long term portion of debt, as of balance sheet date, divided by the sum of both the current and long term portion of debt plus total stockholders’ equity as of balance sheet date;

Return on invested capital – calculated as the total of the prior 12 months net income plus prior 12 months after-tax interest expense and capitalized interest, the sum of which is divided by the trailing five quarters average total debt (current and long term) and total stockholders’ equity;

Return on common equity – calculated as the prior 12 months net income, divided by the trailing five quarters average common stockholders’ equity.

 

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 (December 29, 2003) 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’s website at www.quanex.com.

 

###

 

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QUANEX CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

(Unaudited)

 

		Three months ended January 31,
		2004			2003
Net sales		$	281,156		$	229,509
Cost of sales		245,086			194,525
Selling, general and administrative expense		13,108			12,855
Depreciation and amortization		12,730			12,014
Gain on sale of land		(454		)	—
Operating income		10,686			10,115
Interest expense		(820		)	(975		)
Other, net		335			1,459
Income before income taxes		10,201			10,599
Income tax expense		(3,774		)	(3,816		)
Net income		$	6,427		$	6,783
Weighted average common shares outstanding:
Basic		16,318			16,406
Diluted		16,589			16,648
Earnings per common share:
Basic		$	0.39		$	0.41
Diluted		$	0.39		$	0.41
Cash dividends per share		$	0.17		$	0.17

 

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QUANEX CORPORATION

INDUSTRY SEGMENT INFORMATION

(In thousands)

(Unaudited)

 

		Three months ended January 31,
		2004			2003
Net sales:
Vehicular Products		$	140,979		$	108,932
Building Products		140,177			120,577
Net sales		$	281,156		$	229,509
Operating income:
Vehicular Products		$	8,680		$	9,887
Building Products		5,511			4,167
Corporate and Other		(3,505		)	(3,939		)
Operating Income		$	10,686		$	10,115

 

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QUANEX CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

 

January 31,								October 31,
2004			2003					2003			2002
						Assets
$	10,182		$	5,425		Cash and equivalents		$	22,108		$	18,283
165,393			103,710			Accounts and notes receivable, net		123,185			116,122
125,436			100,797			Inventories		79,322			90,756
16,609			12,600			Other current assets		8,116			10,640
317,620			222,532			Total current assets		232,731			235,801
408,315			349,674			Property, plant and equipment, net		335,904			353,132
137,730			66,436			Goodwill, net		66,436			66,436
60,121			35,604			Other assets		30,792			33,771
$	923,786		$	674,246		Total assets		$	665,863		$	689,140
						Liabilities and stockholders’ equity
$	117,728		$	79,219		Accounts payable		$	89,435		$	76,588
47,647			39,512			Accrued liabilities		39,209			48,973
7,043			7,180			Income taxes payable		7,381			4,839
—			2,746			Other current liabilities		46			3,970
3,727			445			Current portion of long-term debt		3,877			434
176,145			129,102			Total current liabilities		139,948			134,804
225,902			70,051			Long-term debt		15,893			75,131
945			2,176			Deferred pension credits		8,323			4,960
7,824			8,152			Deferred postretirement welfare benefits		7,845			7,928
41,446			30,464			Deferred income taxes		34,895			29,210
15,962			14,196			Other liabilities		13,800			15,712
468,224			254,141			Total liabilities		220,704			267,745
455,562			420,105			Total stockholders’ equity		445,159			421,395
$	923,786		$	674,246		Total liabilities and stockholders’ equity		$	665,863		$	689,140

 

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QUANEX CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOW

(In thousands)

(Unaudited)

 

		Three months ended January 31,
		2004			2003
Operating activities:
Net income		$	6,427		$	6,783
Adjustments to reconcile net income to cash provided by operating activities:
Gain on sale of land		(454		)	—
Depreciation and amortization		12,838			12,107
Deferred income taxes		1,501			1,254
Deferred pension and postretirement benefits		(7,399		)	(2,560		)
		12,913			17,584
Changes in assets and liabilities, net of effects from acquisitions and dispositions:
Decrease (Increase) in accounts and notes receivable		(1,790		)	12,412
(Increase) in inventory		(6,416		)	(10,041		)
Increase in accounts payable		6,370			2,631
Increase (Decrease) in accrued liabilities		2,380			(9,461		)
Increase (Decrease) in income taxes payable		(487		)	2,341
Other, net		(2,078		)	(3,476		)
Cash provided by operating activities		10,892			11,990
Investment activities:
Acquisitions , net of cash acquired		(231,913		)	—
Proceeds from sale of land		637			—
Capital expenditures, net of retirements		(4,166		)	(8,520		)
Other, net		(602		)	(1,147		)
Cash used for investment activities		(236,044		)	(9,667		)
Financing activities:
Bank revolver and note repayments, net		210,000			(5,000		)
Purchases of Quanex common stock		—			(6,711		)
Common dividends paid		(2,789		)	(2,638		)
Issuance of common stock, net		6,715			810
Other, net		(709		)	(1,642		)
Cash used for financing activities		213,217			(15,181		)
Effect of exchange rate changes on cash and equivalents		9			—
(Decrease) in cash		(11,926		)	(12,858		)
Beginning of period cash and equivalents		22,108			18,283
End of period cash and equivalents		$	10,182		$	5,425

 

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