1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
ANNUAL REPORT
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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-Homeshield 401(k) Savings Plan - Davenport
B. Name of issuer of the securities held pursuant to the Plan and the
address of the principal executive office:
Quanex Corporation
1900 West Loop South, Suite 1500
Houston, Texas 77027
(713) 961-4600
2
INDEPENDENT AUDITORS' REPORT
The Benefits Committee
Quanex Corporation
Houston, Texas
Re: Nichols Homeshield 401(k) Savings Plan
We have audited the accompanying statements of net assets available for
benefits of the Nichols Homeshield 401(k) Savings Plan (the "Plan") as of
December 31, 1998 and 1997 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 generally accepted auditing
standards. 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,
1998 and 1997 and the changes in net assets available for benefits for the
years then ended in conformity with generally accepted accounting principles.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying supplemental schedules
of (1) investments as of December 31, 1998 and (2) 5% reportable transactions
for the year ended December 31, 1998 are presented for the purpose of
additional analysis and are not a required part of the basic financial
statements but are 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 information by fund in
the statements on net assets available for benefits is presented for the
purpose of additional analysis rather than to present the net assets available
for benefits of the individual funds. The supplemental schedules and the
supplemental information by fund is the responsibility of the Plan's
management. Such supplemental schedules and supplemental information by fund
have been subjected to the auditing procedures applied in our audit 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 1, 1999
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QUANEX CORPORATION
NICHOLS-HOMESHIELD 401(K) SAVINGS PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
December 31,
-------------------------------
1998 1997
------------ ------------
Assets:
Investments at fair value Mutual fund assets:
Fidelity Puritan Fund $ 446,080 $ 397,572
Fidelity Magellan Fund 8,491,981 6,336,645
Fidelity Contrafund 5,061,757 4,445,215
Fidelity Growth and Income Fund 10,278,570 8,237,910
Fidelity Retirement Growth Fund 75,555 --
Fidelity Overseas Fund 511,026 935,104
Fidelity Balanced Fund 2,331,697 1,951,329
Fidelity Blue Chip Fund 170,690 --
Fidelity Asset Manager Fund 19,368 --
Fidelity Low Priced Stock Fund 12,177 --
Fidelity Government Money Market Fund 6,824,432 6,234,283
Templeton Foreign Fund 184,526 237,963
Neuberger & Berman Partners Trust Fund 9,241 --
Quanex Corporation common stock 1,785,718 708,813
Common/commingled trust 1,823,429 682,073
------------ ------------
38,026,247 30,166,907
Participant loans 1,229,915 1,311,591
------------ ------------
Total 39,256,162 31,478,498
------------ ------------
Employee contributions receivable 234,379 170,839
Employer contributions receivable 164,861 107,102
------------ ------------
Total 399,240 277,941
------------ ------------
Net assets available for benefits $ 39,655,402 $ 31,756,439
============ ============
See notes to financial statements.
4
QUANEX CORPORATION
NICHOLS-HOMESHIELD 401(k) SAVINGS PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE
FOR BENEFITS
December 31,
-------------------------------
1998 1997
------------ ------------
Investment income:
Interest and dividends $ 2,080,681 $ 1,924,289
Net appreciation in fair value of investments 4,948,885 3,025,902
------------ ------------
Total income 7,029,566 4,950,191
------------ ------------
Contributions:
Employer 1,488,307 1,375,887
Less forfeitures 71,552 36,396
------------ ------------
1,416,755 1,339,491
Employee 1,811,540 1,766,898
------------ ------------
Total contributions 3,228,295 3,106,389
------------ ------------
Interest on participant loans 101,302 90,456
------------ ------------
Total additions 10,359,163 8,147,036
------------ ------------
Benefit payments 2,454,009 1,524,355
Loan processing fees 6,191 6,478
------------ ------------
Total deductions 2,460,200 1,530,833
------------ ------------
Increase in net assets available
for benefits 7,898,963 6,616,203
Net assets available for benefits:
Beginning of year 31,756,439 25,140,236
------------ ------------
End of year $ 39,655,402 $ 31,756,439
============ ============
See notes to financial statements
5
QUANEX CORPORATION
NICHOLS-HOMESHIELD 401(k) SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
A. DESCRIPTION OF THE PLAN
The following description of the Nichols-Homeshield 401(k) Savings
Plan (the "Plan") is provided for general informational purposes only.
Participants should refer to the Plan document for more complete
information.
(1) General. The Plan was established on October 1, 1987, and was
amended and restated effective January 1, 1989, as a defined
contribution plan under Section 401(k) of the Internal
Revenue Code ("Code") which covers substantially all salaried
and non-union hourly employees at the Nichols-Homeshield
division of Quanex Corporation (the "Company") and bargaining
unit employees at the Lincolnshire, Illinois plant. The Plan
is subject to the provisions of the Employee Retirement
Income Security Act of 1974 ("ERISA"). 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.
(2) Contributions. Employees are eligible to make salary deferral
contributions to the Plan on the entry date next following
the date that the employee completes one month of service.
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) Investment Options. Participants may direct allocation of
their contributions to the following funds:
Fidelity Puritan Fund - invests in domestic and foreign
common stocks, preferred stocks and bonds.
Fidelity Magellan Fund - invests in equity and debt
securities of foreign and domestic companies.
Fidelity Contrafund - invests in equities of foreign and
domestic companies.
Fidelity Growth and Income Fund - invests in equity and debt
securities of foreign and domestic companies.
Fidelity Retirement Growth Fund - invests in common stocks
and other securities.
Fidelity Overseas Fund - invests in foreign equity and debt
securities.
Fidelity Balanced Fund - invests in common and preferred
stocks and bonds.
Fidelity Blue Chip Fund - invests in domestic and foreign
common stocks.
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Fidelity Asset Manager Fund - invests in domestic and foreign
stocks, bonds and short-term obligations.
Fidelity Low-Priced Stock Fund - invests in domestic and
foreign stocks.
Fidelity Government Money Market Fund - composed of
short-term U.S. government obligations.
Templeton Foreign Fund - invests in foreign securities.
Neuberger & Berman Partner Trust Fund - invests in common
stocks.
Quanex Corporation Common Stock - invests exclusively in the
common stock of Quanex Corporation.
Common/Commingled Trust - invests in investment contracts
issued by insurance companies, banks and other financial
institutions.
(5) 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.
(6) 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. As of December 31, 1998 and 1997, net assets
available for benefits included benefits of $321,162 and
$3,479, respectively, due to participants who had withdrawn
from participation in the Plan.
(7) 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. The
participant pays loan set-up fees and carrying fees to
Fidelity.
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) Administrative Expenses. The Company pays the administrative
expenses of the Plan.
(3) 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 fair value of the common/commingled trust is
at face value.
(4) Use of Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles
requires the use of estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of changes in
the net assets available for benefits during the reporting
period. The Plan's financial statements include amounts that
are based on management's best estimates and judgments.
Actual results could differ from these estimates.
(5) Payment of Benefits. Benefit payments are recorded when paid.
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C. 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.
D. 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 ("IRS"). The Plan is a qualified trust under Sections
401(a) and 401(k) of the Code and, as a result, is exempt from
taxation under Section 501(a) of the Code. The Plan received a
favorable determination letter dated December 22, 1994 from the IRS.
The Company believes that the Plan is currently designed and being
operated in compliance with the applicable requirements of the Code.
Therefore, it believes the Plan was qualified and the related trust
was tax-exempt as of the financial statement dates.
E. RELATED PARTY TRANSACTIONS
During the years ended December 31, 1998 and 1997, the Plan purchased
and sold shares of Quanex Corporation common stock, as shown below:
1998 1997
---- ----
Shares Cost Sales Price Shares Cost Sales Price
------ ---- ----------- ------ ---- -----------
Purchases 62,027 $ 1,262,916 11,896 $ 334,213
Sales 8,086 190,640 $ 238,257 5,620 138,365 $ 175,262
During the years ended December 31, 1998 and 1997, the Plan purchased
and sold shares of Fidelity mutual funds, as shown below:
1998 1997
---- ----
Shares Cost Sales Price Shares Cost Sales Price
------ ---- ------------ ------ ---- ------------
Purchases 3,016,797 $ 42,968,889 2,068,366 $ 27,387,956
Sales 2,410,436 40,918,790 $ 42.206.577 2,308,384 23,537,694 $ 24,173,502
During the years ended December 31, 1998 and 1997, the Plan purchased
and sold shares of Fidelity Common/Commingled Trust, as shown below:
1998 1997
---- ----
Shares Cost Sales Price Shares Cost Sales Price
------ ---- ------------ ------ ---- ------------
Purchases 34,826,675 $ 34,826,675 17,350,916 $ 17,350,916
Sales 33,685,319 33,685,319 $ 33,685,319 17,433,012 17,433,012 $ 17,433,012
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F. SUPPLEMENTAL FUND INFORMATION
Contributions, benefit payments and investment income by fund were as
follows for the years ended December 31:
1998 1997
----------- -----------
Employer Contributions:
Fidelity Puritan Fund $ 35,282 $ 24,300
Fidelity Magellan Fund 328,759 287,744
Fidelity Contrafund 204,725 205,277
Fidelity Growth and Income Fund 303,491 274,829
Fidelity Retirement Growth Fund 2,797 --
Fidelity Overseas Fund 26,434 26,937
Fidelity Balanced Fund 125,467 126,436
Fidelity Blue Chip Fund 7,473 --
Fidelity Asset Manager Fund 1,220 --
Fidelity Low-Priced Stock Fund 1,788 --
Fidelity Government Money Market Fund 295,714 322,674
Templeton Foreign Fund 13,161 11,331
Neuberger & Berman Partners Trust Fund 1,210 --
Quanex Corporation common stock 32,658 28,513
Common/commingled trust 36,576 31,450
----------- -----------
$ 1,416,755 $ 1,339,491
=========== ===========
1998 1997
----------- -----------
Employee Contributions:
Fidelity Puritan Fund $ 44,212 $ 48,109
Fidelity Magellan Fund 393,153 366,386
Fidelity Contrafund 286,530 293,331
Fidelity Growth and Income Fund 427,033 404,124
Fidelity Retirement Growth Fund 5,705 --
Fidelity Overseas Fund 46,670 50,026
Fidelity Balanced Fund 140,135 161,137
Fidelity Blue Chip Fund 32,934 --
Fidelity Asset Manager Fund 4,738 --
Fidelity Low-Priced Stock Fund 8,656 --
Fidelity Government Money Market Fund 288,720 301,382
Templeton Foreign Fund 25,348 30,357
Neuberger & Berman Partners Trust Fund 3,938 --
Quanex Corporation common stock 52,661 37,702
Common/commingled trust 51,107 74,344
----------- -----------
$ 1,811,540 $ 1,766,898
=========== ===========
9
1998 1997
----------- -----------
Benefit payments:
Fidelity Puritan Fund $ 16,974 $ 27,309
Fidelity Magellan Fund 494,247 265,735
Fidelity Contrafund 455,611 173,081
Fidelity Growth and Income Fund 473,940 362,756
Fidelity Retirement Growth Fund 162 --
Fidelity Overseas Fund 101,398 21,351
Fidelity Balanced Fund 110,637 75,691
Fidelity Blue Chip Fund 2,157 --
Fidelity Asset Manager Fund 220 --
Fidelity Low-Priced Stock Fund -- --
Fidelity Government Money Market Fund 550,151 547,972
Templeton Foreign Fund 5,714 842
Neuberger & Berman Partners Trust Fund -- --
Quanex Corporation common stock 70,806 2,853
Common/commingled trust 171,992 46,765
----------- -----------
$ 2,454,009 $ 1,524,355
=========== ===========
1998 1997
----------- -----------
Investment income:
Fidelity Puritan Fund $ 62,780 $ 69,603
Fidelity Magellan Fund 2,145,849 1,263,804
Fidelity Contrafund 1,288,892 784,366
Fidelity Growth and Income Fund 2,301,995 1,835,146
Fidelity Retirement Growth Fund 7,889 --
Fidelity Overseas Fund 338,220 207,707
Fidelity Balanced Fund 393,028 358,885
Fidelity Blue Chip Fund 23,861 --
Fidelity Asset Manager Fund 2,539 --
Fidelity Low-Priced Stock Fund (100) --
Fidelity Government Money Market Fund 336,310 336,082
Templeton Foreign Fund (6,592) 3,587
Neuberger & Berman Partners Trust Fund 2 --
Quanex Corporation common stock 75,842 44,145
Common/commingled trust 59,051 46,866
----------- -----------
$ 7,029,566 $ 4,950,191
=========== ===========
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ITEM 27-A SCHEDULE OF ASSETS HELD FOR INVESTMENTS PURPOSES
EIN: 38-1872178; PN 017
QUANEX CORPORATION
NICHOLS-HOMESHIELD 401(k) SAVINGS PLAN
SUPPLEMENTAL SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
Shares/ Current
Par Value Cost Value
------------ ------------ ------------
Fidelity Mutual Fund Assets:
Puritan Fund* 22,226 $ 404,723 $ 446,080
Magellan* 70,286 5,743,954 8,491,981
Contrafund* 89,131 3,633,160 5,061,757
Growth and Income Fund* 224,227 6,381,217 10,278,570
Retirement Growth Fund * 3,684 75,142 75,555
Overseas Fund* 14,203 458,399 511,026
Balanced Fund* 142,524 2,013,907 2,331,697
Blue Chip Fund* 3,387 151,837 170,690
Asset Manager Fund* 1,114 20,175 19,368
Low-Priced Stock Fund* 533 13,092 12,177
Government Money Market Fund* 6,824,432 6,824,432 6,824,432
Templeton Foreign Fund 21,994 230,033 184,526
Neuberger & Berman Partners Trust Fund 511 9,468 9,241
------------ ------------
Total Mutual Fund Assets $ 25,959,539 $ 34,417,100
Quanex Corporation Common Stock* 79,144 1,690,723 1,785,718
Common/Commingled Trust* 1,823,429 1,823,429 1,823,429
Participant loans (bearing interest rates
from 7.85% to 11%) 1,229,915 1,229,915
------------ ------------
Total Investments $ 30,703,606 $ 39,256,162
============ ============
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ITEM 27-D - SCHEDULE OF REPORTABLE (5%) TRANSACTIONS EIN 38-1872178; PN 017
NICHOLS-HOMESHIELD 401(k)SAVINGS PLAN
SUPPLEMENTAL SCHEDULE OF 5% REPORTABLE TRANSACTIONS
DECEMBER 31, 1998
Series of Transactions
---------------------- Current
Total Number of Total Number of Value on Net
Purchases During Purchase Sales During the Selling Cost of Transaction Gain
Description the Plan Year Price Plan Year Price Asset Date (Loss)
----------- ---------------- ----------- ---------------- ----------- ----------- ----------- ---------
Magellan* 104 $ 1,572,487 69 $ 1,162,852 $ 974,084 $ 1,162,852 $ 188,768
Contrafund* 97 1,715,401 63 2,013,205 1,980,680 2,013,205 32,525
Growth & Income* 135 4,709,800 85 4,402,232 3,977,551 4,402,232 424,681
Overseas* 137 31,972,258 73 32,727,270 32,415,244 32,727,270 312,026
Commingled Fund* 155 34,826,675 91 33,685,319 33,685,319 33,685,319 --
Gov't Money Mkt* 90 1,882,259 76 1,292,110 1,292,110 1,292,110 --
* Party-in-Interest
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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-Homeshield 401 (k) Savings Plan
Date: June 28, 1999 /s/ Viren M. Parikh
-------------------
Viren M. Parikh, Benefits Committee
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INDEX TO EXHIBITS
Exhibit
No. Description
- ------- -----------
23.1 Independents 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 1, 1999,
appearing in the Annual Report of Form 11-K of the Nichols-Homeshield 401 (k)
Savings Plan for the year ended December 31, 1998.
/s/ DELOITTE & TOUCHE LLP
- -------------------------
DELOITTE & TOUCHE LLP
Houston, Texas
June 28, 1999
