1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 11-K Annual Report Pursuant to Section 15(d) of the Securities Exchange Act of 1934 (X) Annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1999 Commission File Number 1-5725 A. Full title of the plan and the address of the plan, if different from that of the issuer named below: Nichols 401(k) Savings Plan B. Name of the issuer of the securities held pursuant to the plan and the address of its principal executive office: Quanex Corporation 1900 West Loop South, Suite 1500 Houston, TX 77027 (713) 961-4600
2 INDEPENDENT AUDITORS' REPORT The Benefits Committee Quanex Corporation Houston, Texas Re: Nichols 401(k) Savings Plan We have audited the accompanying statements of net assets available for benefits of the Nichols 401(k) Savings Plan ("the Plan") as of December 31, 1999 and 1998, and the related statements of changes in net assets available for benefits for the years then ended. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 1999 and 1998, and the changes in net assets available for benefits for the years then ended in conformity with accounting principles generally accepted in the United States of America. Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplemental schedule of investments as of December 31, 1999 is presented for the purpose of additional analysis and is not a required part of the basic financial statements but is supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The supplemental schedule is the responsibility of the Plan's management. This supplemental schedule has been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, are fairly stated in all material respects when considered in relation to the basic financial statements taken as a whole. /s/ DELOITTE & TOUCHE, LLP - -------------------------- DELOITTE & TOUCHE, LLP June 2, 2000
3 QUANEX CORPORATION NICHOLS 401(k) SAVINGS PLAN STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS DECEMBER 31, ------------------------------- 1999 1998 ------------ ------------ Assets: Investments at fair value (see Note C) $ 48,402,820 $ 38,026,247 Participant loans 1,337,227 1,229,915 Employee contributions receivable 247,411 234,379 Employer contributions receivable 166,134 164,861 ------------ ------------ 413,545 399,240 ------------ ------------ Net assets available for benefits $ 50,153,592 $ 39,655,402 ============ ============ See notes to financial statements.
4 QUANEX CORPORATION NICHOLS 401(k) SAVINGS PLAN STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS DECEMBER 31, --------------------------- 1999 1998 ----------- ----------- Investment income: Interest and dividends $ 3,862,136 $ 2,080,681 Net appreciation in fair value of investments (see Note C) 3,642,196 4,948,885 ----------- ----------- 7,504,332 7,029,566 ----------- ----------- Contributions: Employer (net of forfeitures) 1,514,639 1,416,755 Employee 2,159,361 1,811,540 ----------- ----------- 3,674,000 3,228,295 ----------- ----------- Interest on participant loans 104,839 101,302 Transfer of assets and participants' loans from the Decatur Aluminum Corp. Salaried Employees 401(k) Plan 1,126,088 -- ----------- ----------- Total additions 12,409,259 10,359,163 ----------- ----------- Benefit payments 1,904,939 2,454,009 Administrative fees (see Note D) 6,130 6,191 ----------- ----------- Total deductions 1,911,069 2,460,200 ----------- ----------- Increase in net assets available for benefits 10,498,190 7,898,963 Net assets available for benefits: Beginning of year 39,655,402 31,756,439 ----------- ----------- End of year $50,153,592 $39,655,402 =========== =========== See Notes to financial statements.
5 QUANEX CORPORATION NICHOLS 401(k) SAVINGS PLAN NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1999 AND 1998 A. DESCRIPTION OF THE PLAN The following description of the Nichols 401(k) Savings Plan (the "Plan") provides only general information. Participants should refer to the Plan document for more complete information. (1) General. The Plan, sponsored by Quanex Corporation (the "Company") and Nichols Aluminum - Alabama, Inc., was established on October 1, 1987, and was amended and restated in its entirety in June 1999. The Plan is a defined contribution plan that is subject to the provisions of the Employee Retirement Income Security Act of 1974 ("ERISA"). It covers substantially all salaried and non-union hourly employees at the Nichols Aluminum divisions and Fabricating Products division and bargaining unit employees at the Lincolnshire, Illinois plant. The assets of the Plan are held in trust by Fidelity Management Trust Company ("Fidelity" or the "Trustee"). The Benefits Committee (the "Committee"), appointed by the Company's Board of Directors, serves as the Plan administrator. Effective January 1, 1999 the name of the Plan was changed to the Nichols 401(k) Savings Plan. Effective July 1, 1999 the Decatur Aluminum Corp. Salaried Employees' 401(k) Retirement Plan was merged into the Plan. (2) Contributions. Participants may elect salary deferrals between 1% and 15% of compensation as defined by the Plan agreement. The Company makes contributions on behalf of employees who have at least one year of service. The Company contribution is based on Company profits and is calculated based on a percentage of the employee's compensation. (3) Participant Accounts. Each participant's account is credited with the participant's contribution, the employer's contribution, and an allocation of investment income. Investment income allocations are based on individual participant account balances as of the end of the period in which the income is earned. (4) Vesting. Participants are immediately vested in their voluntary contributions and earnings thereon. Vesting in the employer contribution is based on years of credited service. A participant is 20% vested for each year of credited service and fully vested after five years. If a participant terminates employment prior to becoming fully vested, the nonvested portion of the employer contributions are immediately forfeited by the participant and utilized to reduce future employer contributions. (5) Payment of Benefits. The Plan is intended for long-term savings but provides for early withdrawals and loan arrangements under certain conditions. Upon termination of service, a participant may elect to receive a cash lump-sum distribution equal to the amount of vested benefits in his or her account. Terminated participants with account balances of less than $5,000 will automatically receive a lump sum distribution. (6) Loans. Loans may be granted to a participant of the Plan at the Committee's discretion. Loan terms range up to five years or seven years if used for the purchase of a primary residence. The loans bear a reasonable rate of interest established by the Committee. Interest on the loan is allocated to the borrower's participant account.
6 B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) Accounting Basis. The financial statements of the Plan are prepared on the accrual basis of accounting in accordance with generally accepted accounting principles. (2) Investment Valuation. The Plan recognizes net appreciation or depreciation in the fair value of its investments. Investments are reflected at fair value in the financial statements. Fair value of mutual fund assets is determined using a quoted net asset value. Fair value for Quanex Corporation common stock, which is listed on the New York Stock Exchange, is determined by using the last recorded sales price. The recorded value of the common/commingled trust is at face value, which is fair value. (3) Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and changes therein and disclosure of contingent assets and liabilities. Actual results could differ from these estimates. (4) Administrative Expenses. The Company pays the administrative expenses of the Plan, except loan set up and carrying fees and redemption fees imposed on certain Fidelity funds. (5) Payment of Benefits. Benefit payments are recorded when paid. C. INVESTMENTS The following presents investments that represent 5 percent or more of the Plan's net assets. December 31, December 31, 1999 1998 ----------- ----------- Fidelity Magellan Fund $11,269,697 $ 8,491,981 Fidelity Contrafund 6,531,426 5,061,757 Fidelity Growth & Income Fund 10,115,115 10,278,570 Fidelity Balanced Fund 3,357,817 2,331,697 Fidelity Government Money Market Fund 8,358,926 6,824,432 During the years ended 1999 and 1998, the Plan's investments (including gains and losses on investments bought and sold, as well as held during the year) appreciated in value by $3,642,196 and $4,948,885, respectively, as follows: 1999 1998 ---------- ---------- Fidelity mutual funds $2,788,078 $4,896,639 Quanex unitized common stock 854,118 52,246 Common / Commingled trust -- -- ---------- ---------- $3,642,196 $4,948,885 ========== ========== D. RELATED PARTY TRANSACTIONS Certain Plan investments are shares of mutual funds managed by Fidelity. Fidelity is the trustee as defined by the Plan and, therefore, these transactions qualify as party-in-interest transactions. Fees paid by the Plan for the investment management services amounted to $ 6,130 and $ 6,191 for the years ended December 31, 1999 and 1998, respectively. In addition, the Plan invests in shares of Quanex Corporation unitized common stock. Quanex Corporation is the Plan sponsor as defined by the Plan and, therefore, these transactions also qualify as party-in-interest transactions. As of December 31, 1999 and 1998, the value of Quanex Corporation common stock held by the Plan was $1,990,592 and $1,785,718, respectively.
7 E. PLAN TERMINATION Although it has not expressed any intention to do so, the Company has the right under the Plan to terminate the Plan at any time subject to the provisions set forth in ERISA. In the event of Plan termination, the assets held by the Trustee under the Plan will be valued and fully vested, and each participant will be entitled to distributions respecting his or her account. F. FEDERAL INCOME TAX STATUS The Plan is subject to specific rules and regulations related to employee benefit plans under the Department of Labor and the Internal Revenue Service (the "IRS"). The Plan has received a favorable letter of tax determination dated December 22, 1994. As such, the Plan is a qualified trust under Sections 401(a) and 401(k) of the Internal Revenue Code (the "Code") and, as a result, is exempt from federal income tax under Section 501(a) of the Code. The Company believes the Plan is currently designed and being operated in compliance with the applicable requirements of the Code. The Company believes the Plan was qualified and the related trust was tax-exempt as of the financial statement dates. G. TRANSFER OF ASSETS The assets and participant loans of the Decatur Aluminum Corp. Salaried Employees 401(k) Retirement Plan were transferred to the Plan on July 1, 1999. H. SUBSEQUENT EVENTS Effective February 14, 2000 the employees of Nichols Aluminum - Golden, Inc. became participants in the Plan. Effective June 1, 2000 the employees of Imperial Products, Inc. became participants in the Plan.
8 SCHEDULE OF ASSETS HELD FOR INVESTMENTS PURPOSES EIN: 38-1872178; PN 017 QUANEX CORPORATION NICHOLS 401(k) SAVINGS PLAN SUPPLEMENTAL SCHEDULE OF INVESTMENTS DECEMBER 31, 1999 Shares/ Current Par Value Cost Value --------- ----------- ----------- Fidelity Mutual Fund Assets: Puritan Fund* 22,967 438,974 437,062 Magellan Fund* 82,483 7,570,510 11,269,697 Contrafund* 108,821 5,006,248 6,531,426 Growth & Income Fund* 214,485 6,578,366 10,115,115 Retirement Growth Fund* 17,943 396,212 463,826 Overseas Fund* 40,427 1,789,144 1,940,898 Balanced Fund* 218,608 3,240,359 3,357,817 Blue Chip Fund* 29,437 1,577,960 1,769,472 Asset Manager Fund* 4,875 86,652 89,612 Low-Priced Stock Fund* 1,752 40,573 39,656 Government Money Market Fund* 8,358,926 8,358,926 8,358,926 Templeton Foreign Fund 27,270 281,032 305,965 Neuberger & Berman Partners Trust Fund 775 14,454 13,926 ----------- ----------- Total Mutual Fund Assets 35,379,410 44,693,398 Quanex Corporation unitized common stock* 161,574 1,781,997 1,990,592 Common/commingled trust* 1,718,830 1,718,830 1,718,830 Participant loans (bearing interest rates from 7.85% to 11%) 1,337,227 1,337,227 ----------- ----------- Total Investments $40,217,464 $49,740,047 =========== =========== * Party-in-Interest
9 SIGNATURES The Plan. Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees (or other persons who administer the employee benefit plan) have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized. Nichols 401(k) Savings Plan Date: June 19, 2000 /s/ Viren M. Parikh ----------------------------------------- Viren M. Parikh, Benefits Committee
10 INDEX TO EXHIBITS Exhibit No. Description - ------- ----------- 23.1 Independent Auditor's Consent
1 EXHIBIT 23.1 INDEPENDENT AUDITOR'S CONSENT We consent to the incorporation by reference in Registration Statement No. 33-54081 of Quanex Corporation on Form S-8 of our report dated June 2, 2000, appearing in the Annual Report of Form 11-K of the Nichols 401(k) Savings Plan for the year ended December 31, 1999. /s/ DELOITTE & TOUCHE LLP - ------------------------- DELOITTE & TOUCHE LLP Houston, Texas June 19, 2000