UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

 

PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED):  MAY 29, 2003

 

QUANEX CORPORATION

(Exact name of registrant as specified in its charter)

 

DELAWARE

 

1-5725

 

38-1872178

(State or other jurisdiction
of incorporation)

 

(Commission File No.)

 

(I.R.S. Employer
Identification No.)

 

1900 West Loop South, Suite 1500, Houston, Texas  77027

(Address of principal executive offices and zip code)

 

Registrant’s telephone number, including area code:   (713) 961-4600

 

 



 

Item 7.  Financial Statements, ProForma Financial Information and Exhibits.

 

(a)                  Financial statements of businesses acquired.

 

Not applicable.

 

(b)                 Pro forma financial information.

 

Not applicable.

 

(c)                  Exhibits

 

99.1         Press Release dated May 29, 2003, announcing second quarter 2003 results.

 

Item 9. Regulation FD Disclosure.

 

The following information, which is intended to be furnished under Item 12 “Results of Operations and Financial Condition,” is being furnished under this Item 9 in accordance with SEC Release No. 34-47583.  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 May 29, 2003, Quanex Corporation issued a press release (“the Press Release”) reporting its earnings results for the second quarter ended April 30, 2003.  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.

 

2



 

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:  May 29, 2003

 

By:

/s/ Terry M. Murphy

 

 

 

 

 

Terry M. Murphy

 

 

 

 

Vice President – Finance and Chief

 

 

 

 

Financial Officer

 

 

 

 

(Principal Financial Officer)

 

3



 

INDEX TO EXHIBITS

 

Item
Number

 

Exhibit

 

 

 

99.1

 

Press Release dated May 29, 2003, announcing second quarter 2003 results.

 

4


Exhibit 99.1

NEWS RELEASE

 

Financial Contact:  Jeff Galow, 713/877-5327

Media Contact:  Valerie Calvert, 713/877-5305

 

Quanex Announces Fiscal Second Quarter 2003 Results

Best-Ever Second Quarter Sales From Continuing Operations

Company Buys Back 221,100 Common Shares

 

Houston, Texas, May 29, 2003 – Quanex Corporation (NYSE:NX) announced fiscal second quarter results for the period ending April 30, 2003.  Net sales were a record for the quarter at $254.6 million, 2% higher than a year ago and primarily attributable to slightly higher volumes and moderate price increases at MACSTEEL and Nichols Aluminum.  Income from continuing operations was down 12% to $9.4 million compared to last year’s record second quarter and resulted from decreased margins and profits in Quanex's non-core businesses.  The Company commented that MACSTEEL reported good results for the quarter, but that demand was much softer than expected at its Engineered Products business due to a harsh winter season, which slowed its customers’ activities in key market regions.  Diluted earnings per share for the quarter were $.58.  Income from continuing operations for the first six months of 2003 was $16.1 million, equal to the record set a year ago.

 

Net sales for the fiscal 2002 second quarter were $249.5 million.  Net income and diluted earnings per share a year ago were $10.6 million and $.70, respectively.

 

Highlights

Regarding the Company’s results, Raymond A. Jean, chairman and chief executive officer stated, “Second quarter results fell short of our expectations, and while we had a good quarter at MACSTEEL, severe winter weather in the Northeast and Midwest slowed construction activity and significantly impacted our door and window customers.  Normally, we are ramping up our Engineered Products business early in the second quarter, but this year the spring thaw came much later and stronger order rates did not kick-in until recently.”

 

“During the quarter, we also experienced production and quality problems at our Nichols Aluminum Alabama facility associated with the upgrade of our coating system, where painted coil was produced and shipped that did not fully meet our high quality standards,” continued Jean.  “Fortunately, production issues were resolved during the second quarter, painted coil demand is good and we expect painted sales for the third quarter at Alabama to exceed year ago levels.”

 

“During the quarter, we purchased 221,100 shares of our outstanding common stock.  With our positive long term outlook for our core businesses, look for us to continue buying back shares at today’s prices,” said Jean.

 

1



 

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

 

 

 

2nd qtr 2003

 

2nd qtr 2002

 

Net Sales

 

$

254.6

 

$

249.5

 

Operating Income

 

14.9

 

20.0

 

Net Income

 

9.4

 

10.6

 

EPS: Basic

 

$

.58

 

$

.77

 

EPS: Diluted

 

$

.58

 

$

.70

 

 

Segment Commentary

VEHICULAR PRODUCTS  ($ in millions)

 

 

 

2nd qtr 2003

 

2nd qtr 2002

 

Net sales:

 

$

118.0

 

$

117.6

 

Operating income:

 

14.3

 

16.4

 

 

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

 

“Despite the fact that North American builds were down 4% for the fiscal second quarter versus a year ago, MACSTEEL experienced a good quarter with higher sales and operating income, clearly outperforming their market.  Both sales and income were up over last year while operating margins remained the same.  Solid operating performance, a richer mix and some price relief enabled MACSTEEL to overcome significant year-over-year scrap and energy cost increases.  Toward the end of the second quarter, MACSTEEL’s backlog dropped and we entered the third quarter with softer releases compared to last quarter and a year ago, consistent with reductions in the OEMs’ recent build rates.  Nevertheless, Phase VI, our value-added MACPLUS program, is essentially sold out and management is exploring opportunities to incrementally increase capacity,” Jean said.

 

“Offsetting MACSTEEL’s earnings improvement, were operating losses at both Piper Impact and Temroc.  Piper results were negatively affected from the demand erosion of its aluminum airbag components.  The business, while posting a loss for the quarter, did report improved results over the prior two quarters, even with lower sales.  Piper has made good progress in lowering the breakeven point over the last 12 months.  While sales will be down significantly from 2002, Piper is on track to add about $10 million of new programs on an annualized basis.  We also look forward to other programs now in the pipeline to begin kicking in later this year,” said Jean.

 

BUILDING PRODUCTS  ($ in millions)

 

 

 

2nd qtr 2003

 

2nd qtr 2002

 

Net sales:

 

$

136.6

 

$

131.9

 

Operating income:

 

4.2

 

7.6

 

 

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 the quarter were well below our expectations.  Many of our larger door and window customers have strong positions in the Midwest and Northeast markets which were severely impacted by a long, wet and cold winter season.  Our customers simply couldn’t get any traction during this period, and in fact, business conditions remained slow until recently,” said Jean.

 

2



 

“Nichols Aluminum results for the quarter had the benefit of strong volume, higher selling prices and improved spread versus a year ago, which was more than offset by the poor operating performance at the Alabama (NAA) finishing facility, which in turn negatively impacted margins for the Building Products segment.  A capital project of about $2 million was approved last year to allow NAA to ramp up the capacity of its existing paint line.  However, due to a number of unexpected problems, low quality painted coil was produced and shipped.  During the second quarter, management changes were made, quality was restored, and we are currently working closely with customers sorting out remaining issues.  We do not expect these production issues at NAA to impact third quarter results in a material way,” continued Jean.

 

Outlook

The Company’s two target markets are vehicular products and building products.  North American light vehicle builds year-to-date are below year-ago levels, and the OEMs’ calendar second quarter build rates are now projected to be 10% below last year.  As a result, for the third quarter, the Company expects MACSTEEL to report slightly lower results compared to a year ago.  Share gains, higher prices and scrap surcharges will be a plus in the third quarter compared to last year, but will be offset by lower volume and higher scrap costs.  Demand is projected to rebound slightly later in the quarter.

 

Within the Building Products segment, the Company now expects Nichols to post flat sales and lower operating earnings for the third quarter.  Rising scrap prices, with little change in mill finish selling prices, will negatively impact their results.  Business activity at Engineered Products has returned to the healthy levels expected for this time of year and management anticipates third quarter results to be in line with a year ago.  New housing starts for 2003 are expected to be down about 5% from last year while remodeling expenditures are expected to be in line with 2002.

 

Because of the current uncertainty in the economy, near term results cannot be easily forecasted.  At this point, it is difficult to predict what North American light vehicle build rates will be for the remainder of 2003.  In addition, the Company also experienced further tightening in spread due to tight scrap supplies, particularly for its aluminum scrap.  Based on the factors discussed above, a broader earnings range is prudent.  Therefore, the Company now expects its third quarter diluted earnings per share to be in the range of $.65 to $.80.  For fiscal 2003, the Company now expects diluted earnings per share to be in the range of $2.65 to $2.90.

 

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 financial statements.  Expensing stock options would have reduced net income by about $378,000 and $325,000 for the second quarter of 2003 and 2002 respectively, and would have reduced diluted earnings per share by $.02 for both periods.

 

In December, 2002, the Company’s Board of Directors approved a program to purchase up to one million shares (6%) of its outstanding common stock.  During the second quarter, the Company purchased 221,100 shares at an average price of $30.72, and year-to-date, the Company has purchased 438,600 shares at an average price of $30.76.

 

3



 

Dividend Declared

The Board of Directors declared a quarterly cash dividend of $.17 per share on the Company’s common stock, payable June 30, 2003 to shareholders of record on June 16, 2003.

 

Corporate Profile

Quanex is an industry-leading manufacturer of engineered materials and components for the vehicular products and building products markets.

 

Financial Statistics as of 04/30/03

Book value per common share: $26.25; Total debt to capitalization: 16.33%; Return on invested capital: 12.25%; Return on common equity: 14.01%; Actual number of common shares outstanding: 16,031,494

 

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 5 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 5 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 and below 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 20, 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.

 

###

 

4



 

QUANEX CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

(Unaudited)

 

Three months ended
April 30,

 

 

 

Six months ended
April 30,

 

2003

 

2002

 

 

 

2003

 

2002

 

 

 

 

 

 

 

 

 

 

 

$

254,610

 

$

249,500

 

Net sales

 

$

484,119

 

$

453,743

 

 

 

 

 

 

 

 

 

 

 

213,368

 

204,371

 

Cost of sales

 

407,493

 

375,413

 

14,340

 

13,697

 

Selling, general and administrative expense

 

27,595

 

25,861

 

12,027

 

11,399

 

Depreciation and amortization

 

24,041

 

22,592

 

 

 

 

 

 

 

 

 

 

 

14,875

 

20,033

 

Operating income

 

24,990

 

29,877

 

 

 

 

 

 

 

 

 

 

 

(596

)

(4,668

)

Interest expense

 

(1,571

)

(8,109

)

 

803

 

Capitalized interest

 

 

1,533

 

353

 

446

 

Other, net

 

1,812

 

1,844

 

14,632

 

16,614

 

Income before income taxes

 

25,231

 

25,145

 

 

 

 

 

 

 

 

 

 

 

(5,267

)

(5,982

)

Income tax expense

 

(9,083

)

(9,053

)

 

 

 

 

 

 

 

 

 

 

$

9,365

 

$

10,632

 

Net income

 

$

16,148

 

$

16,092

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16,064

 

13,881

 

Basic

 

16,238

 

13,665

 

16,286

 

16,107

 

Diluted

 

16,470

 

15,848

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

0.58

 

$

0.77

 

Basic

 

$

0.99

 

$

1.18

 

 

 

 

 

 

 

 

 

 

 

$

0.58

 

$

0.70

 

Diluted

 

$

0.98

 

$

1.10

 

 

 

 

 

 

 

 

 

 

 

$

0.17

 

$

0.16

 

Cash dividends per share

 

$

0.34

 

$

0.32

 

 

5



 

QUANEX CORPORATION INDUSTRY SEGMENT INFORMATION

(In thousands)

(Unaudited)

 

Three months ended
April 30,

 

 

 

Six months ended
April 30,

 

2003

 

2002

 

 

 

2003

 

2002

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vehicular Products:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

118,018

 

$

117,640

 

Net sales

 

$

226,950

 

$

220,073

 

 

 

 

 

 

 

 

 

 

 

$

14,336

 

$

16,356

 

Operating income

 

$

24,223

 

$

27,098

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Building Products:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

136,592

 

$

131,860

 

Net sales

 

$

257,169

 

$

233,670

 

 

 

 

 

 

 

 

 

 

 

$

4,218

 

$

7,643

 

Operating income

 

$

8,385

 

$

10,017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate and Other:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

 

$

 

Intercompany sales elimination

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

$

(3,679

)

$

(3,966

)

Corporate charges

 

$

(7,618

)

$

(7,238

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

254,610

 

$

249,500

 

Net sales

 

$

484,119

 

$

453,743

 

 

 

 

 

 

 

 

 

 

 

$

14,875

 

$

20,033

 

Operating income

 

$

24,990

 

$

29,877

 

 

 

6



 

QUANEX CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

 

April 30,

 

 

 

October 31,

 

2003

 

2002

 

 

 

2002

 

2001

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

806

 

$

3,898

 

Cash and equivalents

 

$

18,283

 

$

29,573

 

 

 

 

 

 

 

 

 

 

 

125,917

 

113,290

 

Accounts and notes receivable, net

 

116,122

 

109,706

 

 

 

 

 

 

 

 

 

 

 

105,991

 

87,394

 

Inventories

 

90,756

 

83,109

 

 

 

 

 

 

 

 

 

 

 

12,398

 

14,636

 

Other current assets

 

10,640

 

14,490

 

 

 

 

 

 

 

 

 

 

 

245,112

 

219,218

 

Total current assets

 

235,801

 

236,878

 

 

 

 

 

 

 

 

 

 

 

343,980

 

360,019

 

Property, plant and equipment, net

 

353,132

 

357,635

 

 

 

 

 

 

 

 

 

 

 

66,436

 

66,726

 

Goodwill, net

 

66,436

 

59,226

 

 

 

 

 

 

 

 

 

 

 

34,926

 

47,228

 

Other assets

 

33,771

 

43,892

 

 

 

 

 

 

 

 

 

 

 

$

690,454

 

$

693,191

 

Total assets

 

$

689,140

 

$

697,631

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

83,763

 

$

87,051

 

Accounts payable

 

$

76,588

 

$

76,831

 

 

 

 

 

 

 

 

 

 

 

38,800

 

49,735

 

Accrued expenses

 

48,973

 

50,659

 

 

 

 

 

 

 

 

 

 

 

1,311

 

2,686

 

Income taxes payable

 

4,839

 

1,087

 

 

 

 

 

 

 

 

 

 

 

1,375

 

4,035

 

Other current liabilities

 

3,970

 

5,593

 

 

 

 

 

 

 

 

 

 

 

424

 

434

 

Current portion of long-term debt

 

434

 

420

 

 

 

 

 

 

 

 

 

 

 

125,673

 

143,941

 

Total current liabilities

 

134,804

 

134,590

 

 

 

 

 

 

 

 

 

 

 

81,694

 

171,037

 

Long-term debt

 

75,131

 

219,608

 

 

 

 

 

 

 

 

 

 

 

7,048

 

6,434

 

Deferred pension credits

 

4,960

 

7,962

 

 

 

 

 

 

 

 

 

 

 

8,182

 

7,811

 

Deferred postretirement welfare benefits

 

7,928

 

7,777

 

 

 

 

 

 

 

 

 

 

 

33,064

 

31,761

 

Deferred income taxes

 

29,210

 

29,282

 

 

 

 

 

 

 

 

 

 

 

13,997

 

17,277

 

Other liabilities

 

15,712

 

18,435

 

 

 

 

 

 

 

 

 

 

 

269,658

 

378,261

 

Total liabilities

 

267,745

 

417,654

 

 

 

 

 

 

 

 

 

 

 

420,796

 

314,930

 

Total stockholders’ equity

 

421,395

 

279,977

 

 

 

 

 

 

 

 

 

 

 

$

690,454

 

$

693,191

 

Total liabilities and stockholders’ equity

 

$

689,140

 

$

697,631

 

 

7



 

QUANEX CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOW

(In thousands)

(Unaudited)

 

Three months ended
April 30,

 

 

 

Six months ended
April 30,

 

2003

 

2002

 

 

 

2003

 

2002

 

 

 

 

 

Operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

9,365

 

$

10,632

 

Net income

 

$

16,148

 

$

16,092

 

 

 

 

 

 

 

 

 

 

 

(405

)

 

Gain on sale of Piper Utah property

 

(405

)

 

 

 

 

 

 

 

 

 

 

 

12,114

 

11,486

 

Depreciation and amortization

 

24,221

 

22,765

 

 

 

 

 

 

 

 

 

 

 

2,601

 

1,071

 

Deferred income taxes

 

3,855

 

2,480

 

 

 

 

 

 

 

 

 

 

 

4,902

 

59

 

Deferred pension and postretirement benefits

 

2,342

 

(1,494

)

 

 

 

 

 

 

 

 

 

 

28,577

 

23,248

 

 

 

46,161

 

39,843

 

 

 

 

 

 

 

 

 

 

 

(22,207

)

(20,414

)

Increase in accounts and notes receivable

 

(9,795

)

(1,715

)

 

 

 

 

 

 

 

 

 

 

(5,194

)

564

 

Decrease (Increase) in inventory

 

(15,235

)

(1,887

)

 

 

 

 

 

 

 

 

 

 

4,544

 

21,411

 

Increase in accounts payable

 

7,175

 

9,556

 

 

 

 

 

 

 

 

 

 

 

(712

)

5,139

 

Increase (Decrease) in accrued expenses

 

(10,173

)

(1,922

)

 

 

 

 

 

 

 

 

 

 

(5,869

)

161

 

Increase (Decrease) in income taxes payable

 

(3,528

)

1,599

 

 

 

 

 

 

 

 

 

 

 

(1,315

)

2,473

 

Other, net

 

(4,791

)

(424

)

 

 

 

 

 

 

 

 

 

 

(2,176

)

32,582

 

Cash provided (used) by operating activities

 

9,814

 

45,050

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17,365

)

Acquisition of Colonial Craft, net of cash acquired

 

 

(17,365

)

 

 

 

 

 

 

 

 

 

 

2,832

 

 

Proceeds from sale of Piper Utah property

 

2,832

 

 

 

 

 

 

 

 

 

 

 

 

(6,292

)

(8,819

)

Capital expenditures, net of retirements

 

(14,812

)

(20,109

)

 

 

 

 

 

 

 

 

 

 

(1,857

)

(171

)

Cash used by other investment activities

 

(3,004

)

(646

)

 

 

 

 

 

 

 

 

 

 

(5,317

)

(26,355

)

Cash used by investment activities

 

(14,984

)

(38,120

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11,700

 

(35,000

)

Bank borrowings (repayments), net

 

6,700

 

(40,000

)

 

 

 

 

 

 

 

 

 

 

 

(7,029

)

Prepayment of note payable

 

 

(7,029

)

 

 

 

 

 

 

 

 

 

 

(6,804

)

 

Purchases of Quanex common stock

 

(13,515

)

 

 

 

 

 

 

 

 

 

 

 

(2,741

)

(2,253

)

Common dividends paid

 

(5,379

)

(4,412

)

 

 

 

 

 

 

 

 

 

 

764

 

18,093

 

Issuance of common stock, net

 

1,574

 

20,453

 

 

 

 

 

 

 

 

 

 

 

(45

)

(1,318

)

Cash used by other financing activities

 

(1,687

)

(1,617

)

 

 

 

 

 

 

 

 

 

 

2,874

 

(27,507

)

Cash provided (used) by financing activities

 

(12,307

)

(32,605

)

 

 

 

 

 

 

 

 

 

 

(4,619

)

(21,280

)

Decrease in cash

 

(17,477

)

(25,675

)

 

 

 

 

 

 

 

 

 

 

5,425

 

25,178

 

Beginning of period cash and equivalents

 

18,283

 

29,573

 

 

 

 

 

 

 

 

 

 

 

$

806

 

$

3,898

 

End of period cash and equivalents

 

$

806

 

$

3,898

 

 

8