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
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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
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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.
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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.
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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.
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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 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.
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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
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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
=========== ===========
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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
=========== ===========
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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
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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
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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 Hourly Bargaining Unit Employees Savings Plan
Date: June 28, 1999 /s/ Viren M. Parikh
-------------------
Viren M. Parikh, Benefits Committee
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INDEX TO EXHIBITS
NUMBER DESCRIPTION
- ------ -----------
23.1 Independent Auditor's Consent