SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 11-K

 

ý

Annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934

 

 

 

 

For the fiscal year ended December 31, 2002

 

 

 

 

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:

 

 

 

 

 

Piper Impact 401 (k) 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

 

 



 

INDEPENDENT AUDITORS’ REPORT

 

The Benefits Committee

Quanex Corporation

Houston, Texas

 

Re:  Piper Impact 401(k) Plan

 

We have audited the accompanying statements of net assets available for benefits of the Piper Impact 401(k) Plan (“the Plan”) as of December 31, 2002 and 2001, 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, 2002 and 2001, 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, 2002 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

 

Houston, Texas

June 25, 2003

 

2



 

QUANEX CORPORATION

PIPER IMPACT 401(k) PLAN

 

STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS

 

 

 

DECEMBER 31,

 

 

 

2002

 

2001

 

Assets:

 

 

 

 

 

Investments at fair value (see Note C)

 

$

6,658,159

 

$

7,050,373

 

 

 

 

 

 

 

Participant loans

 

447,827

 

424,617

 

 

 

 

 

 

 

Employee contributions receivable

 

56,232

 

64,502

 

Employer contributions receivable

 

11,810

 

40,373

 

 

 

68,042

 

104,875

 

 

 

 

 

 

 

Net assets available for benefits

 

$

7,174,028

 

$

7,579,865

 

 

See notes to financial statements.

 

3



 

QUANEX CORPORATION

PIPER IMPACT 401(k) PLAN

 

STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE
FOR BENEFITS

 

 

 

DECEMBER 31,

 

 

 

2002

 

2001

 

Investment income:

 

 

 

 

 

Interest and dividends

 

$

104,573

 

$

138,081

 

Net depreciation in fair value of investments (see Note C)

 

(1,022,151

)

(800,919

)

 

 

(917,578

)

(662,838

)

 

 

 

 

 

 

Contributions:

 

 

 

 

 

Employer (net of forfeitures)

 

340,744

 

503,960

 

Employee

 

847,428

 

969,125

 

 

 

1,188,172

 

1,473,085

 

 

 

 

 

 

 

Interest on participant loans

 

32,082

 

33,672

 

Total additions

 

302,676

 

843,919

 

 

 

 

 

 

 

Benefit payments

 

702,398

 

666,657

 

Administrative fees (see Note D)

 

6,115

 

6,008

 

Total deductions

 

708,513

 

672,665

 

 

 

 

 

 

 

Increase (decrease) in net assets available for benefits

 

(405,837

)

171,254

 

 

 

 

 

 

 

Net assets available for benefits:

 

 

 

 

 

Beginning of year

 

7,579,865

 

7,408,611

 

End of year

 

$

7,174,028

 

$

7,579,865

 

 

See notes to financial statements.

 

4



 

QUANEX CORPORATION

PIPER IMPACT 401(k) PLAN

Schedule H, Line 4i - Schedule of Assets (Held At End of Year)

December 31, 2002

 

(a)

 

(b) Identity of issue

 

(c) Description of investment

 

(d) Cost (1)

 

Current
Value

 

*

 

Fidelity Puritan Fund

 

Mutual fund

 

 

 

$

664,364

 

*

 

Fidelity Magellan Fund

 

Mutual fund

 

 

 

164,524

 

*

 

Fidelity Contrafund

 

Mutual fund

 

 

 

998,547

 

*

 

Fidelity Growth & Income Fund

 

Mutual fund

 

 

 

61,512

 

*

 

Fidelity Independence Fund

 

Mutual fund

 

 

 

462,584

 

*

 

Fidelity Overseas Fund

 

Mutual fund

 

 

 

21,844

 

*

 

Fidelity Balanced Fund

 

Mutual fund

 

 

 

56,075

 

*

 

Fidelity Blue Chip Fund

 

Mutual fund

 

 

 

1,928,576

 

*

 

Fidelity Asset Manager Fund

 

Mutual fund

 

 

 

267,463

 

*

 

Fidelity Low-Priced Stock Fund

 

Mutual fund

 

 

 

92,065

 

*

 

Fidelity Government Money Market Fund

 

Mutual fund

 

 

 

867,189

 

*

 

Fidelity Common/Commingled trust

 

Mutual fund

 

 

 

725,747

 

 

 

Templeton Foreign Fund

 

Mutual fund

 

 

 

10,966

 

 

 

Neuberger & Berman Partners Trust Fund

 

Mutual fund

 

 

 

1,006

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Mutual Fund Assets

 

 

 

 

 

6,322,462

 

 

 

 

 

 

 

 

 

 

 

*

 

Quanex Corporation

 

Unitized common stock

 

 

 

335,697

 

 

 

 

 

 

 

 

 

 

 

 

 

Participant loans

 

Loans to participants, bearing interest rates from 5.25% to 9.50%, maturing within two to five years

 

 

 

447,827

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Investments

 

 

 

 

 

$

7,105,986

 

 


* Party-in-Interest

(1) Cost information has been omitted because all investments are participant directed.

 

5



 

QUANEX CORPORATION

PIPER IMPACT 401(k) PLAN

 

NOTES TO FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2002 AND 2001

 

 

A.                                   DESCRIPTION OF THE PLAN

 

The following description of the Piper Impact 401(k) Plan (the “Plan”) provides only general information.  Participants should refer to the Plan document for a more complete description of the Plan’s provisions.

 

(1)                                  General.  The Plan is a defined contribution plan which covers substantially all full-time employees of Piper Impact, a division of Quanex Corporation (the “Company”).  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 Quanex Corporation’s Board of Directors, serves as the Plan administrator.

 

(2)                                  Contributions.  Beginning January 1, 2002, participants may contribute to the Plan by electing salary deferrals up to 50% of compensation (20% before January 1, 2002) as defined by the Plan document. The Company contributes 25% of the first 6% of base compensation that a participant contributes to the Plan.  Contributions are subject to certain limitations.  Up until September 30, 2002, the Company made a contribution on behalf of employees with at least three months of service, based on company profits and calculated based on a percentage of the employee’s compensation.

 

(3)                                  Participant Accounts.  Each participant’s account is credited with the participant’s contribution and allocations of the Company’s contribution and Plan earnings, and charged with an allocation of administrative expenses.  Allocations are based on participant earnings or account balances, as defined.  The benefit to which a participant is entitled is the benefit that can be provided from the participant’s vested account.

 

(4)                                  Vesting.  Participants are immediately vested in their contributions and earnings thereon.  Vesting in the Company’s matching and discretionary contribution portion of their accounts plus actual earnings thereon is based on years of continuous service.  A participant is 20% vested for each year of credited service beginning with his or her second year and is 100% vested after six years of credited service.  Forfeited balances of terminated participants’ non-vested accounts are used to reduce current or future Company contributions. Amounts forfeited and utilized to reduce employer contributions during 2002 and 2001 were $64,648 and $38,858, respectively. At December 31, 2002 and 2001, $2,731 and $3,257, respectively, of nonvested forfeited accounts were available 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.  In accordance with the Code, upon termination of service, a participant may elect to receive a lump-sum distribution equal to the total amount of vested benefits in his or her account.  Terminated participants with an account balance 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.  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. Participant loans are stated at cost, which approximates fair value.  The sale or purchase of securities is recorded on the trade date.  Interest income is recorded as earned on the accrual basis.  Dividends are recorded on the ex-dividend date.  The net depreciation in fair value of investments consists of the net change in both the unrealized appreciation (depreciation) in fair value of investments and the net realized gains (losses) upon the sale of investments.  The net change in unrealized appreciation (depreciation) and realized gains (losses) upon sale are determined using the fair values as of the beginning of the year or the purchase price if acquired since that date.

 

(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)                                  Risk and Uncertainties.  The Plan, through its investment options, holds various investments including foreign and domestic corporate debt and equity securities as well as obligations of the United States government. Investment securities, in general, are exposed to various risks, such as interest rate, credit and overall market volatility risk.  Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the financial statements.

 

(5)                                  Administrative Expense.  The Company pays all administrative expenses, except for loan set up and carrying fees and redemption fees imposed on certain Fidelity funds.

 

(6)                                  Payments of Benefits.   Benefit payments are recorded when paid.

 

C.                                     INVESTMENTS

 

The following are investments that represent 5 percent or more of the Plan’s net assets.

 

 

 

December 31, 2002

 

December 31, 2001

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Fidelity Puritan Fund

 

42,075

 

$

664,364

 

38,450

 

$

679,418

 

Fidelity Contrafund

 

25,869

 

998,547

 

23,642

 

1,011,186

 

Fidelity Independence Fund

 

35,393

 

462,584

 

30,800

 

485,713

 

Fidelity Blue Chip Fund

 

60,381

 

1,928,576

 

56,411

 

2,422,274

 

Fidelity Government Money Market Fund

 

867,189

 

867,189

 

798,918

 

798,918

 

Fidelity Common/Commingled Trust

 

725,747

 

725,747

 

549,357

 

549,357

 

 

During the years ended December 31, 2002 and 2001, the Plan’s investments (including gains and losses on investments bought and sold, as well as held during the year) appreciated / (depreciated) in value as follows:

 

 

 

2002

 

2001

 

Mutual funds

 

$

(1,070,222

)

$

(894,858

)

Quanex unitized common stock

 

48,071

 

93,939

 

 

 

$

(1,022,151

)

$

(800,919

)

 

7



 

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 $6,115 and $6,008 for the years ended December 31, 2002 and 2001, 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, 2002 and 2001, the value of Quanex Corporation unitized common stock held by the Plan was $335,697 and $342,520, respectively.

 

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 Plan has received a favorable letter of tax determination dated August 19, 2002.  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.

 

8



 

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.

 

 

 

 

Piper Impact 401 (k) Plan

 

 

 

 

 

 

Date:  June 30, 2003

 

/s/

Ricardo Arredondo

 

 

 

Ricardo Arredondo, Benefits Committee

 

9



 

INDEX TO EXHIBITS

 

23.1

 

Independents Auditor’s Consent

99.1

 

Certification by chief financial officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

99.2

 

Certification by chief executive officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

10


EXHIBIT 23.1

 

INDEPENDENT AUDITOR’S CONSENT

 

We consent to the incorporation by reference in Registration Statement No. 333-22977 of Quanex Corporation on Form S-8 of our report dated June 25, 2003, appearing in this Annual Report on Form 11-K of the Piper Impact 401 (k) Plan for the year ended December 31, 2002.

 

 

/s/

 DELOITTE & TOUCHE LLP

 

DELOITTE & TOUCHE LLP

 

Houston, Texas

June 25, 2003

 


EXHIBIT 99.1

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

NOT FILED PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934

 

In connection with the Annual Report of the Piper Impact 401(k) Plan (the “Plan”) on Form 11-K for the year ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Terry M. Murphy, Chief Financial Officer of Quanex Corporation, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

1.                                       The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.                                       The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Plan.

 

 

/s/

Terry M. Murphy

 

Terry M. Murphy

Chief Financial Officer

June 30, 2003

 


EXHIBIT 99.2

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

NOT FILED PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934

 

In connection with the Annual Report of the Piper Impact 401(k) Plan (the “Plan”) on Form 11-K for the year ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Raymond A. Jean, Chief Executive Officer of Quanex Corporation, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

3.                                       The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

4.                                       The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Plan.

 

 

/s/

Raymond A. Jean

 

Raymond A. Jean

Chief Executive Officer

June 30, 2003