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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
Annual Report Pursuant to Section 15(d) of the
Securities Exchange Act of 1934
(X) Annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934
For the fiscal year ended December 31, 1999
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 401(k) Savings Plan for Hourly
Employees.
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
(713) 961-4600
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INDEPENDENT AUDITORS' REPORT
The Benefits Committee
Quanex Corporation
Houston, Texas
Re: Nichols 401(k) Savings Plan for Hourly Employees
We have audited the accompanying statements of net assets available for benefits
of the Nichols 401(k) Savings Plan for Hourly Employees ("the Plan") as of
December 31, 1999 and 1998, 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,
1999 and 1998, 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, 1999 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
June 2, 2000
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QUANEX CORPORATION
NICHOLS 401(k) SAVINGS PLAN FOR HOURLY EMPLOYEES
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Assets:
Investments at fair value (See Note C) $20,822,972 $16,185,589
Participant loans 777,265 713,260
Employee contributions receivable 90,954 84,292
Employer contributions receivable 79,614 81,314
----------- -----------
170,568 165,606
----------- -----------
Net assets available for benefits $21,770,805 $17,064,455
=========== ===========
</TABLE>
See notes to financial statements
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QUANEX CORPORATION
NICHOLS 401(k) SAVINGS PLAN FOR HOURLY EMPLOYEES
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE
FOR BENEFITS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Investment income:
Interest and dividends $ 1,594,367 $ 920,405
Net appreciation in fair value
of investments (see Note C) 1,614,744 1,981,110
----------- -----------
Total 3,209,111 2,901,515
----------- -----------
Contributions:
Employer net of forfeitures 789,795 737,916
Employee 1,006,744 806,532
----------- -----------
Total 1,796,539 1,544,448
----------- -----------
Interest on participant loans 61,177 54,515
Transfer of assets and participants' loans from the
Decatur Aluminum Corp. Hourly Employees 401(k) Plan 291,816 --
----------- -----------
Total additions 5,358,643 4,500,478
----------- -----------
Benefit payments 649,264 729,922
Administrative fees (see Note D) 3,029 2,836
----------- -----------
Total deductions 652,293 732,758
----------- -----------
Increase in net assets available
for benefits 4,706,350 3,767,720
Net assets available for benefits:
Beginning of year 17,064,455 13,296,735
----------- -----------
End of year $21,770,805 $17,064,455
=========== ===========
</TABLE>
See notes to financial statements
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QUANEX CORPORATION
NICHOLS 401(k) SAVINGS PLAN FOR HOURLY EMPLOYEES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
A. DESCRIPTION OF THE PLAN
The following description of the Nichols 401(k) Savings Plan for Hourly
Employees (the "Plan") provides only general information. Participants
should refer to the Plan document for more complete information.
(1) General. The Plan, sponsored by Quanex Corporation (the "Company") and
Nichols Aluminum - Alabama, Inc., was established on October 1, 1987
and was amended and restated in its entirety in June 1999. The Plan is
a defined contribution plan, which covers substantially all union
hourly employees of the Davenport, Iowa and Decatur, Alabama
facilities. The Plan is subject to the provisions of the Employee
Retirement Income Security Act of 1974 ("ERISA"). Fidelity Management
Trust Company ("Fidelity" or the "Trustee") holds the assets of the
Plan in trust. The Benefits Committee (the "Committee"), appointed by
the Company's Board of Directors, serves as the Plan administrator.
Effective January 1, 1999 the name of the Plan was changed to the
Nichols 401(k) Savings Plan for Hourly Employees. Effective July 1,
1999 the Decatur Aluminum Corp. Hourly Employees' 401(k) Retirement
Plan was merged into the Plan.
(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 one
year of 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) 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.
(5) 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. Terminated participants with account
balances of less than $5,000 will automatically receive a lump sum
distribution.
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(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.
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 recorded value of the common/commingled trust is at face
value, which is fair value.
(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) Administrative Expenses. The Company pays administrative expenses of
the Plan, except loan set up and carrying fees and redemption fees
imposed on certain Fidelity funds.
(5) Payment of Benefits. Benefit payments are recorded when paid.
C. INVESTMENTS
The following presents investments that represent 5 percent or more of the
Plan's net assets.
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
----------- ------------
<S> <C> <C>
Fidelity Magellan Fund $4,016,271 $3,430,108
Fidelity Contrafund 2,292,618 2,047,947
Fidelity Growth and Income Fund 4,724,223 5,154,650
Fidelity Balanced Fund 1,083,848 973,619
Fidelity Government Money Market Fund 3,893,899 2,800,706
Quanex Corporation unitized common stock 1,525,235 244,895
Common / Commingled Trust 1,594,176 479,821
</TABLE>
During the years ended December 31, 1999 and 1998, the Plan's investments
(including gains and losses on investments bought and sold, as well as held
during the year) appreciated in value by $1,614,744 and $1,981,110,
respectively, as follows:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Fidelity mutual funds $1,049,447 $1,972,578
Quanex unitized common stock 565,297 8,532
Common / Commingled trust -- --
---------- ----------
$1,614,744 $1,981,110
========== ==========
</TABLE>
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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 $3,029 and $2,836
for the years ended December 31, 1999 and 1998, 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, 1999 and 1998, the value of Quanex
Corporation common stock held by the Plan was $1,525,235 and $244,895,
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 "IRS"). The Plan has received a favorable letter of tax
determination dated June 18, 1993. 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.
G. TRANSFER OF ASSETS
The assets and participant loans of the Decatur Aluminum Corp. Hourly
Employees 401(k) Retirement Plan were transferred to the Plan on July 1,
1999.
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SCHEDULE OF ASSETS HELD FOR INVESTMENTS PURPOSES
EIN: 38-1872178; PN 016
QUANEX CORPORATION
NICHOLS 401(k) SAVINGS PLAN FOR HOURLY EMPLOYEES
SUPPLEMENTAL SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
Shares/ Current
Par Value Cost Value
--------- ----------- -----------
<S> <C> <C> <C>
Fidelity Mutual Fund Assets:
Puritan Fund* 10,368 194,998 197,304
Magellan Fund* 29,395 2,758,253 4,016,271
Contrafund* 38,197 1,754,023 2,292,618
Growth and Income Fund* 100,174 3,210,606 4,724,223
Retirement Growth Fund* 15,044 352,748 388,898
Overseas Fund* 7,244 258,941 347,774
Balanced Fund* 70,563 1,042,158 1,083,848
Blue Chip Fund* 6,907 359,804 415,282
Asset Manager Fund* 132 2,382 2,425
Low-Priced Stock Fund* 2,614 64,715 59,170
Government Money Market Fund* 3,893,899 3,893,899 3,893,899
Neuberger & Berman Partners Trust Fund 295 5,598 5,298
Templeton Foreign Fund 24,648 265,179 276,551
----------- -----------
Total Mutual Fund Assets 14,163,304 17,703,561
Quanex Corporation unitized common stock* 123,802 1,326,739 1,525,235
Common/Commingled Trust* 1,594,176 1,594,176 1,594,176
Participant loans (bearing interest rates
from 7.85% to 11%) 777,265 777,265
----------- -----------
Total Investments $17,861,484 $21,600,237
=========== ===========
</TABLE>
* 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.
Nichols 401(k) Savings Plan for Hourly Employees
Date: June 19, 2000 /s/ Viren M. Parikh
-----------------------------------------
Viren M. Parikh, Benefits Committee
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INDEX TO EXHIBITS
23.1 Independents Auditor's Consent
