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:
Quanex Corporation Employee Savings Plan
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: Quanex Corporation Employee Savings Plan
We have audited the accompanying statements of net assets available for benefits
of the Quanex Corporation Employee 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 EMPLOYEE SAVINGS
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31,
---------------------------
1998 1997
------------ ------------
Assets:
Investment at fair value:
Mutual fund assets:
Fidelity Puritan Fund $ 7,236,131 $ 8,682,374
Fidelity Magellan Fund 10,870,892 10,370,199
Fidelity Contrafund 4,591,344 4,796,863
Fidelity Growth & Income Fund 7,068,547 6,782,645
Fidelity Retirement Growth Fund 224,938 --
Fidelity Overseas Fund 1,537,557 1,995,616
Fidelity Balanced Fund 407,967 527,322
Fidelity Blue Chip Fund 857,460 --
Fidelity Asset Manager Fund 47,290 --
Fidelity Low-Priced Stock Fund 162,209 --
Fidelity Government Money Market Fund 9,272,125 9,327,810
Templeton Foreign Fund 329,986 488,227
Newberger & Berman Partners Trust Fund 33,874 --
Quanex Corporation common stock 2,710,088 1,457,181
Common/commingled trust 1,911,158 1,662,256
------------ ------------
47,261,566 46,090,493
------------ ------------
Employee contributions receivable 291,616 405,287
Employer contributions receivable 92,112 113,412
------------ ------------
383,728 518,699
------------ ------------
Net Assets Available for Benefits $ 47,645,294 $ 46,609,192
============ ============
See notes to financial statements.
4
QUANEX CORPORATION EMPLOYEE SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31,
---------------------------
1998 1997
------------ ------------
Investment income:
Interest and dividends $ 2,862,491 $ 3,039,538
Net appreciation in fair value of investments 4,939,364 4,220,737
------------ ------------
7,801,855 7,260,275
------------ ------------
Contributions:
Employer 714,161 959,634
Less forfeitures 13,954 24,328
------------ ------------
700,207 935,306
Employee 2,672,086 3,623,254
------------ ------------
Total contributions 3,372,293 4,558,560
------------ ------------
Total additions 11,174,148 11,818,835
Benefit payments 10,138,046 5,904,125
------------ ------------
Increase in net assets available
for benefits 1,036,102 5,914,710
Net assets available for benefits:
Beginning of year 46,609,192 40,694,482
------------ ------------
End of year $ 47,645,294 $ 46,609,192
============ ============
See notes to financial statements.
5
QUANEX CORPORATION
EMPLOYEE SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
A. THE PLAN
The following brief description of the Quanex Corporation Employee Savings
Plan (the "Plan") is provided for general informational purposes only.
Participants should refer to the Plan agreement for more complete
information.
(1) General. The Plan became effective April 1, 1986, as amended and
restated effective January 1, 1989, and is sponsored by Quanex
Corporation (the "Company"). The Plan is a defined contribution plan
that is subject to the Employee Retirement Income Security Act of 1974
("ERISA"). The Plan is a voluntary savings plan in which employees of
the Company and its subsidiaries, excluding the Nichols-Homeshield
division and Piper Impact subsidiary, and those Quanex employees who
are covered by a collective bargaining agreement, are eligible to
participate after completing three months of active service. 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 Board of Directors of the Company,
serves as the Plan administrator.
(2) Contributions. Participants may elect to contribute up to 15% of their
pre-tax annual compensation or up to 15% of their after-tax annual
compensation limited to 15% of considered compensation as defined by
the Plan agreement. The Company matches 50% of the employee's
contribution up to, but not in excess of, 2.5% of the employee's
annual compensation.
(3) Participants Account. Each participant's account is credited with the
participant's contribution, the Company's matching contribution, and
an allocation of investment income, which is based on the
participant's account balance 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.
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.
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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 the related earnings. Vesting in the employer's
matching contributions for employees is 0% for less than one year of
service graduating to 100% for five or more years. Upon death,
retirement or total and permanent disability, the participant or
beneficiary becomes immediately 100% vested in the employer's
contribution. In the event of termination, nonvested portions of
employer's contributions are immediately forfeited by participants and
utilized to reduce future employer matching contributions.
(6) Payment of Benefits. Upon termination of service, the participant may
elect to receive a lump-sum amount 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 $520,601 and
$46,482, respectively, due to participants who had withdrawn from
participation in the Plan. Effective April 18, 1997, Quanex sold its
LaSalle Steel Company ("LaSalle") subsidiary to Niagara Corporation.
LaSalle employees in the Plan had the option of leaving their benefits
in the Plan or receiving a lump-sum distribution, which could be
rolled over into an individual retirement account, or into a new
qualified retirement plan set up by LaSalle. As of December 31, 1997,
$2,020,517 had been withdrawn from the Plan by LaSalle employees.
Effective December 3, 1997, Michigan Seamless Tube Company, the Gulf
States Tube and the Tube Group Office divisions of Quanex Corporation
(the "Tube Group") were sold to Vision Metals, Inc. The Tube Group
employees in the Plan had the option of leaving their benefits in the
Plan or receiving a lump-sum distribution, which could be rolled over
into an individual retirement account, or into a new qualified savings
plan set up by Vision Metals, Inc. As of December 31, 1998, $7,130,851
had been withdrawn from the Plan by Tube Group employees.
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 standards.
(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 using the last recorded sales
price. The fair value of the common/commingled trust is at face value.
(3) 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.
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(4) Administrative Expenses. The Company pays all administrative expenses.
(5) Payment of Benefits. Benefit payments are recorded when paid.
C. PLAN TERMINATION
Although it has not expressed any intent to do so, the Company has the
right under the Plan to terminate the Plan, subject to the provisions of
ERISA. In the event of termination of the Plan, 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 Internal Revenue Code ("Code") and, as a result, is exempt
from taxation under Section 501(a) of the Code. The Plan received a
favorable determination letter from the IRS dated October 3, 1996. 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 86,676 $1,778,903 15,184 $440,782
Sales 18,375 446,176 $534,218 29,930 629,783 $870,900
During the years ended December 31, 1998 and 1997, the Plan purchased and
sold shares of Fidelity mutual fund assets, as shown below:
1998 1997
---- ----
Shares Cost Sales Price Shares Cost Sales Price
------ ---------- ----------- ------ -------- -----------
Purchases 10,773,586 $27,640,471 7,010,550 $22,115,775
Sales 10,971,840 30,398,411 $32,827,451 7,886,016 19,551,882 $20,775,858
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 3,188,117 $3,188,117 2,269,094 $2,269,094
Sales 2,939,215 2,939,215 $ 2,939,215 1,414,786 1,414,786 $1,414,786
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F. SUPPLEMENTAL FUND INFORMATION
Contributions, benefit payments and investment income by fund are as
follows for the years ended December 31:
1998 1997
------------ ------------
Employer contributions:
Fidelity Puritan Fund $ 97,039 157,777
Fidelity Magellan Fund 153,663 192,569
Fidelity Contrafund 71,939 112,759
Fidelity Growth and Income Fund 110,469 129,559
Fidelity Retirement Growth Fund 2,596 0
Fidelity Overseas Fund 30,233 58,043
Fidelity Balanced Fund 12,747 17,119
Fidelity Blue Chip Fund 16,097 0
Fidelity Asset Manager Fund 1,048 0
Fidelity Low-Priced Stock Fund 6,255 0
Fidelity Government Money Market Fund 132,083 191,436
Templeton Foreign Fund 8,961 16,435
Newberger & Bermann Partners Trust Fund 3,076 0
Quanex Corporation common stock 33,438 35,832
Common/commingled trust 20,563 23,777
------------ ------------
$ 700,207 $ 935,306
============ ============
1998 1997
------------ ------------
Employee contributions:
Fidelity Puritan Fund $ 360,793 $ 597,524
Fidelity Magellan Fund 560,045 716,695
Fidelity Contrafund 302,918 450,107
Fidelity Growth and Income Fund 453,818 538,186
Fidelity Retirement Growth Fund 10,356 --
Fidelity Overseas Fund 123,337 219,539
Fidelity Balanced Fund 46,381 67,979
Fidelity Blue Chip Fund 75,469 --
Fidelity Asset Manager Fund 4,338 --
Fidelity Low-Priced Stock Fund 36,332 --
Fidelity Government Money Market Fund 476,659 735,626
Templeton Foreign Fund 31,000 71,702
Newberger & Bermann Partners Trust Fund 16,624 --
Quanex Corporation common stock 102,208 120,540
Common/commingled trust 71,806 105,356
------------ ------------
$ 2,672,086 $ 3,623,254
============ ============
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1998 1997
------------ ------------
Benefit payments:
Fidelity Puritan Fund $ 1,825,829 $ 1,268,575
Fidelity Magellan Fund 2,122,706 1,143,858
Fidelity Contrafund 1,256,466 193,382
Fidelity Growth and Income Fund 1,554,712 504,526
Fidelity Retirement Growth Fund 808 --
Fidelity Overseas Fund 400,241 226,282
Fidelity Balanced Fund 126,538 67,717
Fidelity Blue Chip Fund 59,667 --
Fidelity Asset Manager Fund -- --
Fidelity Low-Priced Stock Fund 30,694 --
Fidelity Government Money Market Fund 2,195,695 2,232,996
Templeton Foreign Fund 97,879 39,954
Newberger & Bermann Partners Trust Fund -- --
Quanex Corporation common stock 132,381 149,028
Common/commingled trust 334,430 77,807
------------ ------------
$ 10,138,046 $ 5,904,125
============ ============
1998 1997
------------ ------------
Investment income:
Fidelity Puritan Fund $ 1,162,589 $ 1,719,159
Fidelity Magellan Fund 2,896,519 2,213,591
Fidelity Contrafund 1,115,512 815,658
Fidelity Growth and Income Fund 1,592,651 1,450,917
Fidelity Retirement Growth Fund 25,337 --
Fidelity Overseas Fund 216,018 215,404
Fidelity Balanced Fund 87,512 113,599
Fidelity Blue Chip Fund 125,080 --
Fidelity Asset Manager Fund 2,952 --
Fidelity Low-Priced Stock Fund (7,458) --
Fidelity Government Money Market Fund 449,773 517,602
Templeton Foreign Fund (9,876) 46,464
Newberger & Bermann Partners Trust Fund 19 --
Quanex Corporation common stock 51,140 102,136
Common/commingled trust 94,087 65,745
------------ ------------
$ 7,801,855 $ 7,260,275
============ ============
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ITEM 27-a SCHEDULE OF ASSETS HELD FOR INVESTMENTS PURPOSES
EIN: 38-1872178; PN 012
QUANEX CORPORATION
EMPLOYEES SAVINGS PLAN
SUPPLEMENTAL SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
Shares/ Current
Par Value Cost Value
----------- ----------- -----------
Fidelity Mutual Assets Funds:
Puritan Fund* 360,545 $ 6,094,698 $ 7,236,131
Magellan* 89,976 7,352,043 10,870,892
Contrafund* 80,848 3,660,871 4,591,344
Growth and Income Fund* 154,200 4,986,781 7,068,547
Retirement Growth Fund* 10,967 217,583 224,938
Overseas Fund* 42,734 1,275,960 1,537,557
Balanced Fund* 24,937 371,700 407,967
Blue Chip Fund* 17,016 757,806 857,460
Asset Manager Fund* 2,719 51,144 47,290
Low-Priced Stock Fund* 7,099 173,735 162,209
Government Money Market Fund* 9,272,125 9,272,125 9,272,125
Templeton Foreign Fund 39,331 399,533 329,986
Newberger & Berman Partners Trust Fund 1,875 33,389 33,874
----------- -----------
Total Mutual Fund Assets $34,647,368 $42,640,320
Quanex Corporation common stock* 120,112 2,545,075 2,710,088
Common/commingled trust* 1,911,158 1,911,158 1,911,158
----------- -----------
Total Investments $39,103,601 $47,261,566
=========== ===========
* Party-in-Interest
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ITEM 27-d - SCHEDULE OF REPORTABLE (5%) TRANSACTIONS EIN 38-1872178; PN 012
QUANEX CORPORATION EMPLOYEES SAVINGS PLAN
SUPPLEMENTAL SCHEDULE OF 5% REPORTABLE TRANSACTIONS
DECEMBER 31, 1998
Series of Transactions
Current
Total Number of Total Number of Value on
Purchases During Purchase Sales During the Selling Cost of Transaction Net
Description the Plan Year Price Plan Year Price Asset Date Gain
----------- ---------------- -------- ---------------- ------- ------- ----------- ----
Puritan* 115 $1,746,039 91 $ 3,544,988 3,054,476 $ 3,544,988 $490,512
Magellan* 183 4,768,945 114 6,621,029 5,860,920 6,621,029 760,109
Contrafund* 159 2,811,779 99 3,792,117 3,435,433 3,792,117 356,684
Growth & Income* 170 4,306,353 110 5,221,325 4,549,932 5,221,325 671,393
Blue Chip* 131 1,792,570 53 1,027,613 1,034,764 1,027,613 (7,151)
Gov't Money Market* 159 10,347,619 139 10,403,305 10,403,305 10,403,305 --
Common Trust* 116 3,188,117 91 2,939,215 2,939,215 2,939,215 --
Quanex Common Stk* 48 1,778,903 32 534,218 446,176 534,218 88,042
* 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.
Quanex Corporation Employee Savings Plan
Date: June 28, 1999 /s/ Viren M. Parikh
---------------------------------------
Viren M. Parikh, Benefits Committee
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INDEX TO EXHIBITS
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.
33-38702 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 Quanex Corporation Employee
Savings Plan for the year ended December 31, 1998.
/s/ DELOITTE & TOUCHE LLP
- -------------------------
DELOITTE & TOUCHE LLP
Houston, Texas
June 28, 1999
