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 - Davenport We have audited the accompanying statements of net assets available for benefits of the Nichols Homeshield 401(k) Savings Plan - Davenport (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
3 QUANEX CORPORATION NICHOLS-HOMESHIELD 401(k) SAVINGS PLAN - DAVENPORT STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS December 31, --------------------------- 1998 1997 ------------ ------------ Assets: Investments at fair value - Mutual fund assets: Fidelity Puritan Fund $ 195,835 $ 179,217 Fidelity Magellan Fund 3,430,108 2,375,863 Fidelity Contrafund 2,047,947 1,600,841 Fidelity Growth and Income Fund 5,154,650 4,034,185 Fidelity Retirement Growth Fund 390,842 -- Fidelity Overseas Fund 174,354 162,891 Fidelity Balanced Fund 973,619 860,519 Fidelity Blue Chip Fund 137,975 -- Fidelity Asset Manager Fund 158 -- Fidelity Low-Priced Stock Fund 75,896 -- Fidelity Government Money Market Fund 2,800,706 2,952,770 Templeton Foreign Fund 78,783 41,351 Neuberger & Berman Partners Trust Fund -- -- Quanex Corporation common stock 244,895 75,423 Common/commingled trust 479,821 170,695 ------------ ------------ 16,185,589 12,453,755 Participant loans 713,260 714,210 ------------ ------------ Total 16,898,849 13,167,965 ------------ ------------ Employee contributions receivable 84,292 55,672 Employer contributions receivable 81,314 73,098 ------------ ------------ Total 165,606 128,770 ------------ ------------ Net assets available for benefits $ 17,064,455 $ 13,296,735 ============ ============ See notes to financial statements
4 QUANEX CORPORATION NICHOLS-HOMESHIELD 401(k) SAVINGS PLAN - DAVENPORT STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS December 31, --------------------------- 1998 1997 ------------ ------------ Investment income: Interest and dividends $ 920,405 $ 761,522 Net appreciation in fair value of investments 1,981,110 1,199,903 ------------ ------------ Total 2,901,515 1,961,425 ------------ ------------ Contributions: Employer 744,683 705,375 Less forfeitures 6,767 8,290 ------------ ------------ 737,916 697,085 Employee 806,532 731,024 ------------ ------------ Total 1,544,448 1,428,109 ------------ ------------ Interest on participant loans 54,515 50,003 ------------ ------------ Total additions 4,500,478 3,439,537 ------------ ------------ Benefit payments 729,922 251,373 Loan processing fees 2,836 2,633 ------------ ------------ Total deductions 732,758 254,006 ------------ ------------ Increase in net assets available for benefits 3,767,720 3,185,531 Net assets available for benefits: Beginning of year 13,296,735 10,111,204 ------------ ------------ End of year $ 17,064,455 $ 13,296,735 ============ ============ See notes to financial statements
5 QUANEX CORPORATION NICHOLS-HOMESHIELD 401(k) SAVINGS PLAN - DAVENPORT 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 - Davenport (the "Plan") is provided for general informational purposes only. Participants should refer to the Plan document for more complete information. (1) General. The Plan, sponsored by Quanex Corporation (the "Company"), was established on October 1, 1987 and was amended and restated in its entirety in January 1993. The Plan is a defined contribution plan, which covers substantially all union hourly employees of the Davenport, Iowa facilities. The Plan permits eligible employees to elect a deferral of compensation under Section 401(k) of the Internal Revenue Code ("Code"). 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. Participants may elect to reduce the current level of his/her compensation from 1% to 15% by contributing on a pre-tax basis as defined by the Plan agreement. Participants may also contribute in half percentages. Company contributions are made based on a percentage of the employee's compensation for each individual with at least 1,000 hours of employment service. (3) Participant Accounts. Each participant's account is credited with the participant's contribution, the employer's contribution, and the participant's pro rata share of investment earnings. Investment earnings 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 allocations 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.
6 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 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 lump-sum distribution equal to the total amount of vested benefits in his or her account. As of December 31, 1998 and 1997, net assets available for benefits included benefits of $150,546 and $155,121, 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. 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 administrative expenses of the Plan. The participant pays loan set up and carrying fees to Fidelity. (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 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
7 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. 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 June 18, 1993 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 8,471 $ 169,423 2,101 $ 60,399 Sales 299 8,252 $ 8,483 4,284 96,290 $ 135,865 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 6,369,513 $ 19,687,013 6,215,536 $16,876,202 Sales 6,481,196 18,111,552 $18,452,425 5,946,135 14,851,548 $15,003,060 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 4,359,235 $4,359,235 1,810,215 $1,810,215 Sales 4,050,111 4,050,111 $ 4,050,111 1,693,615 1,693,615 $ 1,693,615
8 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 $ 15,173 $ 15,179 Fidelity Magellan Fund 131,043 114,616 Fidelity Contrafund 82,027 80,449 Fidelity Growth and Income Fund 200,061 180,793 Fidelity Retirement Growth Fund 6,059 -- Fidelity Overseas Fund 16,739 15,443 Fidelity Balanced Fund 54,790 52,073 Fidelity Blue Chip Fund 1,553 -- Fidelity Asset Manager Fund -- -- Fidelity Low-Priced Stock Fund 478 -- Fidelity Government Money Market Fund 186,631 205,532 Templeton Foreign Fund 2,931 2,083 N & B Partners Trust Fund 520 -- Quanex Corporation common stock 21,699 19,083 Common/commingled trust 18,212 11,834 ------------ ------------ $ 737,916 $ 697,085 ============ ============ 1998 1997 ------------ ------------ Employee Contributions: Fidelity Puritan Fund $ 19,468 $ 18,633 Fidelity Magellan Fund 160,241 143,283 Fidelity Contrafund 107,134 101,205 Fidelity Growth and Income Fund 223,484 190,051 Fidelity Retirement Growth Fund 4,324 -- Fidelity Overseas Fund 19,281 15,451 Fidelity Balanced Fund 57,980 54,252 Fidelity Blue Chip Fund 1,929 -- Fidelity Asset Manager Fund 257 -- Fidelity Low-Priced Stock Fund 1,093 -- Fidelity Government Money Market Fund 152,625 168,639 Templeton Foreign Fund 8,104 4,892 N & B Partners Trust Fund 1,201 -- Quanex Corporation common stock 26,791 22,566 Common/commingled trust 22,620 12,052 ------------ ------------ $ 806,532 $ 731,024 ============ ============
9 1998 1997 ------------ ------------ Benefit payments: Fidelity Puritan Fund $ -- $ 3,750 Fidelity Magellan Fund 80,320 46,245 Fidelity Contrafund 58,611 4,335 Fidelity Growth and Income Fund 209,527 37,597 Fidelity Retirement Growth Fund -- -- Fidelity Overseas Fund 5,455 616 Fidelity Balanced Fund 170,642 32,967 Fidelity Blue Chip Fund -- -- Fidelity Asset Manager Fund -- -- Fidelity Low-Priced Stock Fund -- -- Fidelity Government Money Market Fund 197,611 120,192 Templeton Foreign Fund -- -- N & B Partners Trust Fund -- -- Quanex Corporation common stock 7,756 5,448 Common/commingled trust -- 223 ------------ ------------ $ 729,922 $ 251,373 ============ ============ 1998 1997 ------------ ------------ Investment income: Fidelity Puritan Fund $ 28,041 $ 30,478 Fidelity Magellan Fund 843,718 458,867 Fidelity Contrafund 483,912 290,428 Fidelity Growth and Income Fund 1,106,932 846,425 Fidelity Retirement Growth Fund 27,283 -- Fidelity Overseas Fund 51,513 12,335 Fidelity Balanced Fund 171,167 147,765 Fidelity Blue Chip Fund 17,962 -- Fidelity Asset Manager Fund 2,505 -- Fidelity Low-Priced Stock Fund (1,368) -- Fidelity Government Money Market Fund 144,978 149,401 Templeton Foreign Fund (135) 33 N & B Partners Trust Fund 108 -- Quanex Corporation common stock 11,849 20,355 Common/commingled trust 13,050 5,338 ------------ ------------ $ 2,901,515 $ 1,961,425 ============ ============
10 ITEM 27-a SCHEDULE OF ASSETS HELD FOR INVESTMENTS PURPOSES EIN: 38-1872178; PN 016 QUANEX CORPORATION NICHOLS-HOMESHIELD 401(k) SAVINGS PLAN - DAVENPORT SUPPLEMENTAL SCHEDULE OF INVESTMENTS DECEMBER 31, 1998 Shares/ Current Par Value Cost Value --------- ----------- ----------- Fidelity Mutual Fund Assets: Puritan Fund* 9,758 180,825 195,835 Magellan* 28,390 2,402,496 3,430,108 Contrafund* 36,062 1,497,601 2,047,947 Growth and Income Fund* 112,449 3,299,829 5,154,650 Retirement Growth Fund* 19,056 382,189 390,842 Overseas Fund* 4,846 154,360 174,354 Balanced Fund* 59,512 847,180 973,619 Blue Chip Fund* 2,738 124,550 137,975 Asset Manager Fund* 9 175 158 Low-Priced Stock Fund* 3,321 80,538 75,896 Government Money Market Fund* 2,800,706 2,800,706 2,800,706 Neuberger & Berman Partners Trust Fund -- -- -- Templeton Foreign Fund 9,390 97,677 78,783 ----------- ----------- Total Mutual Fund Assets $11,868,126 $15,460,873 Quanex Corporation Common Stock* 10,854 231,381 244,895 Common/Commingled Trust* 479,821 479,821 479,821 Participant loans (bearing interest rates from 7.85% to 11%) 713,260 713,260 ----------- ----------- Total Investments $13,292,588 $16,898,849 =========== =========== * Party-in-Interest
11 ITEM 27-d - SCHEDULE OF REPORTABLE (5%) TRANSACTIONS EIN 38-1872178; PN 016 NICHOLS-HOMESHIELD 401(k)SAVINGS PLAN - DAVENPORT 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* 78 $1,603,288 42 $ 1,234,404 $ 1,151,024 $ 1,234,404 $ 83,380 Contrafund* 92 2,452,717 51 2,338,304 2,288,222 2,338,304 50,082 Growth & Income* 122 3,399,273 75 3,104,112 2,961,332 3,104,112 142,780 Retirement Growth* 46 1,906,490 17 1,514,687 1,524,301 1,514,687 (9,614) Overseas* 66 3,439,078 30 3,475,808 3,437,233 3,475,808 38,575 Templeton Fund 39 1,092,322 15 1,046,143 1,040,566 1,046,143 5,577 Gov't Money Mkt* 130 5,980,522 99 6,132,586 6,132,586 6,132,586 -- Common/Commingled 77 4,359,235 41 4,050,111 4,050,111 4,050,111 -- Trust* * Party-in-Interest
12 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 - Davenport Date: June 28, 1999 /s/ Viren M. Parikh ----------------------------------- Viren M. Parikh, Benefits Committee
13 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. 33-54085 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 - Davenport for the year ended December 31, 1998. /s/ DELOITTE & TOUCHE LLP - ------------------------- DELOITTE & TOUCHE LLP Houston, Texas June 28, 1999