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 Hourly Bargaining Unit Employees 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 Hourly Bargaining Unit Employees Savings Plan We have audited the accompanying statements of net assets available for benefits of the Quanex Corporation Hourly Bargaining Unit Employees 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
3 QUANEX CORPORATION HOURLY BARGAINING UNIT EMPLOYEE SAVINGS STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS DECEMBER 31, --------------------------------- 1998 1997 ----------- ----------- Assets: Investment at fair value: Mutual fund assets: Fidelity Puritan Fund $ 792,365 $ 1,430,212 Fidelity Magellan Fund 2,468,899 2,681,622 Fidelity Contrafund 249,669 446,311 Fidelity Growth & Income Fund 641,546 792,874 Fidelity Retirement Growth Fund 16,641 -- Fidelity Overseas Fund 213,439 450,127 Fidelity Balanced Fund 59,400 76,979 Fidelity Blue Chip Fund 138,913 -- Fidelity Low-priced Stock Fund 1,698 -- Fidelity Government Money Market Fund 814,615 2,295,174 Templeton Foreign Fund 23,426 72,104 Neuberger & Berman Partners Fund 9,051 -- Quanex Corporation Common Stock 199,494 247,035 Common/commingled trust 36,162 57,239 ----------- ----------- 5,665,318 8,549,677 ----------- ----------- Employee contributions receivable 42,911 49,534 ----------- ----------- Net Assets Available for Benefits $ 5,708,229 $ 8,599,211 =========== =========== See notes to financial statements.
4 QUANEX CORPORATION HOURLY BARGAINING UNIT EMPLOYEE SAVINGS PLAN STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS DECEMBER 31, --------------------------------- 1998 1997 ----------- ----------- Investment income: Interest and dividends $ 405,017 $ 593,142 Net appreciation in fair value of investments 1,031,419 920,890 ----------- ----------- 1,436,436 1,514,032 ----------- ----------- Contributions: Employer -- 33,347 Less forfeitures -- 115 ----------- ----------- -- 33,232 Employee 740,387 1,392,270 ----------- ----------- 740,387 1,425,502 ----------- ----------- Total additions 2,176,823 2,939,534 ----------- ----------- Benefit payments 367,682 635,122 Tube Group and LaSalle asset transfer 4,700,123 2,135,383 ----------- ----------- Total deductions 5,067,805 2,770,505 ----------- ----------- Increase/(decrease) in net assets available for benefits (2,890,982) 169,029 Net assets available for benefits: Beginning of year 8,599,211 8,430,182 ----------- ----------- End of year $ 5,708,229 $ 8,599,211 =========== =========== See notes to financial statements.
5 QUANEX CORPORATION HOURLY BARGAINING UNIT EMPLOYEES SAVINGS PLAN NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1998 AND 1997 A. DESCRIPTION OF THE PLAN The following description of the Quanex Corporation Hourly Bargaining Unit Employees 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, originally named the Quanex Corporation Hourly Employees Savings Plan, became effective January 1, 1989 and is sponsored by Quanex Corporation (the "Company"). The Plan began receiving contributions in April 1989. The Plan is a defined contribution plan which is subject to the Employee Retirement Income Security Act of 1974 ("ERISA"). The Plan is a voluntary savings plan in which hourly employees of certain divisions of the Company 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 Company's Board of Directors, serves as the Plan administrator. (2) Contributions. Participants may elect to contribute up to 15% of their before-tax or after-tax compensation as defined by the Plan agreement. The Plan was amended effective July 1, 1994 to include LaSalle Steel Company hourly employees (Note E). All plan provisions applied to the LaSalle Steel Company hourly employees with the addition of an employer matching contribution that did not exceed 5% of the member's considered compensation. (3) Participant Accounts. Each participant's account is credited with the participant's contribution and an allocation of investment income, which is 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. Fidelity Low-Priced Stock Fund - invests in domestic and foreign stocks.
6 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 the related earnings. Vesting in the employer's matching contributions for Lasalle Steel Company 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 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 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 $34,543 and $7,794, respectively, due to participants who had withdrawn from participation in the Plan. 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 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. (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 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.
7 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 (the "IRS"). The Plan has received a favorable letter of tax determination dated April 25, 1997. 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. E. TRANSFER OF ASSETS Effective April 18, 1997, Quanex Corporation sold its LaSalle Steel Company subsidiary ("LaSalle") to Niagara Corporation. On December 1, 1997, assets of the Plan in the amount of $2,135,383 were transferred to the trustee of the LaSalle Steel Company Hourly Bargaining Unit Employees Savings Plan. On 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. In plan year 1998, assets of the Plan attributable to the Tube Group employees in the amount of $4,700,123 were transferred to the new qualified savings plan established by Vision Metals, Inc. F. 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 3,391 $ 71,680 4,038 $ 109,945 Sales 3,332 78,783 $ 97,892 5,906 141,059 $ 167,646 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 369,760 $ 1,533,109 786,686 $ 2,734,223 Sales 1,913,651 4,618,411 $ 5,507,616 947,926 2,821,811 $ 3,212,731 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 25,101 $ 25,101 68,202 $ 68,202 Sales 46,177 46,177 $ 46,177 158,488 158,488 $ 158,488
8 G. SUPPLEMENTAL FUND INFORMATION Contributions, benefit payments and investment income by fund were as follows for the years ended December 31: 1998 1997 ----------- ----------- Employee contributions: Fidelity Puritan Fund $ 96,471 $ 214,527 Fidelity Magellan Fund 258,250 342,660 Fidelity Contrafund 44,563 92,752 Fidelity Growth and Income Fund 110,453 139,049 Fidelity Retirement Growth Fund -- -- Fidelity Overseas Fund 33,812 94,260 Fidelity Balanced Fund 13,437 33,599 Fidelity Blue Chip Fund 17,864 -- Fidelity Low Priced Stock Fund 1,829 -- Fidelity Government Money Market Fund 109,862 377,817 Templeton Foreign Fund 10,689 22,511 Neuberger & Berman Partners Trust Fund 2,272 -- Quanex Corporation common stock 28,625 34,129 Common/commingled trust 12,261 40,966 ----------- ----------- $ 740,387 $ 1,392,270 =========== =========== 1998 1997 ----------- ----------- Employer contributions: Fidelity Puritan Fund $ -- $ 4,883 Fidelity Magellan Fund -- 6,982 Fidelity Contrafund -- 2,104 Fidelity Growth and Income Fund -- 3,727 Fidelity Retirement Growth Fund -- -- Fidelity Overseas Fund -- 3,169 Fidelity Balanced Fund -- 2,170 Fidelity Blue Chip Fund -- -- Fidelity Low Priced Stock Fund -- -- Fidelity Government Money Market Fund -- 5,660 Templeton Foreign Fund -- 142 Neuberger & Berman Partners Trust Fund -- -- Quanex Corporation common stock -- 1,750 Common/commingled trust -- 2,645 ----------- ----------- $ -- $ 33,232 =========== ===========
9 1998 1997 ----------- ----------- Benefit payments: Fidelity Puritan Fund $ 97,001 $ 76,324 Fidelity Magellan Fund 96,793 146,690 Fidelity Contrafund 8,446 20,279 Fidelity Growth and Income Fund 12,077 36,649 Fidelity Retirement Growth Fund -- -- Fidelity Overseas Fund 6,098 37,990 Fidelity Balanced Fund 809 11,892 Fidelity Blue Chip Fund -- -- Fidelity Low Priced Stock Fund -- -- Fidelity Government Money Market Fund 136,444 268,779 Templeton Foreign Fund 333 -- Neuberger & Berman Partners Trust Fund -- -- Quanex Corporation common stock 9,486 23,893 Common/commingled trust 195 12,626 ----------- ----------- $ 367,682 $ 635,122 =========== =========== 1998 1997 ----------- ----------- Tube Group and LaSalle asset transfer: Fidelity Puritan Fund $ 746,820 $ 301,454 Fidelity Magellan Fund 1,113,930 476,186 Fidelity Contrafund 322,297 141,253 Fidelity Growth and Income Fund 514,812 261,027 Fidelity Retirement Growth Fund -- -- Fidelity Overseas Fund 335,482 225,822 Fidelity Balanced Fund 19,444 127,345 Fidelity Blue Chip Fund -- -- Fidelity Low Priced Stock Fund -- -- Fidelity Government Money Market Fund 1,569,817 336,915 Templeton Foreign Fund 16,338 1,703 Neuberger & Berman Partners Trust Fund -- -- Quanex Corporation common stock 19,620 130,402 Common/commingled trust 41,563 133,276 ----------- ----------- $ 4,700,123 $ 2,135,383 =========== =========== 1998 1997 ----------- ----------- Investment income: Fidelity Puritan Fund $ 194,325 $ 294,604 Fidelity Magellan Fund 766,747 637,945 Fidelity Contrafund 105,188 98,587 Fidelity Growth and Income Fund 193,265 225,857 Fidelity Retirement Growth Fund (18) -- Fidelity Overseas Fund 70,030 56,810 Fidelity Balanced Fund 11,770 34,599 Fidelity Blue Chip Fund 21,107 -- Fidelity Low Priced Stock Fund 30 -- Fidelity Government Money Market Fund 87,475 132,873 Templeton Foreign Fund (958) 2,690 Neuberger & Berman Partners Trust Fund 153 -- Quanex Corporation common stock (15,689) 20,390 Common/commingled trust 3,011 9,677 ----------- ----------- $ 1,436,436 $ 1,514,032 =========== ===========
10 ITEM 27-a SCHEDULE OF ASSETS HELD FOR INVESTMENTS PURPOSES EIN: 38-1872178; PN 015 QUANEX CORPORATION HOURLY BARGAINING UNIT EMPLOYEES SAVINGS PLAN SUPPLEMENTAL SCHEDULE OF INVESTMENTS DECEMBER 31, 1998 Shares/ Current Par Value Cost Value --------- ----------- ----------- Mutual Fund Assets: Fidelity Investments: Puritan Fund* 39,480 $ 691,139 $ 792,365 Magellan* 20,435 1,688,056 2,468,899 Contrafund* 4,396 207,178 249,669 Growth and Income Fund* 13,995 469,867 641,546 Retirement Growth Fund* 811 16,650 16,641 Overseas Fund* 5,932 184,590 213,439 Balanced Fund* 3,631 53,854 59,400 Blue-Chip Fund* 2,757 121,622 138,913 Low-Priced Stock Fund* 74 1,749 1,698 Government Money Market Fund* 814,615 814,615 814,615 Templeton Foreign Fund 2,792 28,276 23,426 Neuberger & Berman Partners Trust Fund 501 8,952 9,051 ----------- ----------- Total Mutual Fund Assets $ 4,286,548 $ 5,429,662 Quanex Corporation Common Stock* 8,842 195,685 199,494 Common/Commingled Trust* 36,162 36,162 36,162 ----------- ----------- Total Investments $ 4,518,395 $ 5,665,318 =========== =========== * Party-in-Interest
11 ITEM 27-d - SCHEDULE OF REPORTABLE (5%) TRANSACTIONS EIN 38-1872178; PN 015 QUANEX CORPORATION HOURLY BARGAINING UNIT 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 ----------- ---------------- --------- ---------------- ---------- ----------- ----------- --------- Fidelity Mutual Funds: Puritan* 45 $ 294,759 23 $ 1,031,319 $ 850,117 $ 1,031,319 $ 181,202 Magellan* 44 476,505 20 1,315,889 $ 963,715 1,315,889 352,174 Contrafund* 32 99,058 11 382,053 $ 297,644 382,053 84,409 Growth & Income* 39 264,529 11 573,639 $ 386,473 573,639 187,166 Gov't Money Market* 41 339,296 20 1,819,856 $ 1,819,856 1,819,856 -- * 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. Quanex Corporation Hourly Bargaining Unit Employees Savings Plan Date: June 28, 1999 /s/ Viren M. Parikh ------------------- Viren M. Parikh, Benefits Committee
13 INDEX TO EXHIBITS NUMBER 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. 33-46824 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 Hourly Bargaining Unit Employees Savings Plan for the year ended December 31, 1998. /s/ DELOITTE & TOUCHE LLP - ------------------------- DELOITTE & TOUCHE LLP Houston, Texas June 28, 1999