<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from __________to ___________.
Commission File Number 1-5725
A. Full title of the plan and the address of the plan, if different from
that of the issuer name below:
Nichols-Homeshield 401(k) Savings Plan - Davenport
B. Name of 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, Texas 77027
(713) 961-4600
<PAGE> 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, 1996 and 1995, 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,
1996 and 1995, 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, 1996 and (2) 5% reportable transactions
for the year ended December 31, 1996 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. These schedules are the responsibility
of the Plan's management. Such schedules have been subjected to the auditing
procedures applied in our audit of the basic 1996 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
May 9, 1997
<PAGE> 3
QUANEX CORPORATION
NICHOLS-HOMESHIELD 401(K) SAVINGS PLAN - DAVENPORT
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
<TABLE>
<CAPTION>
December 31,
-------------------------
1996 1995
----------- -----------
<S> <C> <C>
Assets:
Investments at fair value -
Mutual fund assets:
Fidelity Puritan Fund $ 110,980 $ 51,298
Fidelity Magellan Fund 1,760,422 1,434,825
Fidelity Contrafund 1,246,208 711,513
Fidelity Growth and Income Fund 2,559,618 1,755,359
Fidelity Overseas Fund 137,732 88,561
Fidelity Balanced Fund 596,493 614,803
Fidelity Government Money Market Fund 2,734,735 2,820,968
Templeton Foreign Fund 6,157 --
Quanex Corporation common stock 133,135 103,640
Common/commingled trust 54,097 20,374
----------- -----------
9,339,577 7,601,341
Participant loans 648,344 490,166
----------- -----------
Total 9,987,921 8,091,507
----------- -----------
Employee contributions receivable 58,327 60,444
Employer contributions receivable 64,956 45,130
----------- -----------
Total 123,283 105,574
----------- -----------
Net assets available for benefits $10,111,204 $ 8,197,081
=========== ===========
</TABLE>
See notes to financial statements
<PAGE> 4
QUANEX CORPORATION
NICHOLS-HOMESHIELD 401(k)SAVINGS PLAN - DAVENPORT
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE
FOR BENEFITS
<TABLE>
<CAPTION>
December 31,
-------------------------
1996 1995
----------- -----------
<S> <C> <C>
Investment income:
Interest and dividends $ 650,015 $ 397,598
Net appreciation in fair value of investments 383,311 763,389
----------- -----------
Total 1,033,326 1,160,987
----------- -----------
Contributions:
Employer 650,140 519,252
Less forfeitures 6,058 10,999
----------- -----------
644,082 508,253
Employee 656,881 554,454
----------- -----------
Total 1,300,963 1,062,707
----------- -----------
Interest on participant loans 43,543 33,277
----------- -----------
Total additions 2,377,832 2,256,971
----------- -----------
Benefit payments 460,800 194,297
Administrative fees 2,909 1,884
----------- -----------
Total deductions 463,709 196,181
----------- -----------
Increase in net assets available
for benefits 1,914,123 2,060,790
Net assets available for benefits:
Beginning of year 8,197,081 6,136,291
----------- -----------
End of year $10,111,204 $ 8,197,081
=========== ===========
</TABLE>
See notes to financial statements
<PAGE> 5
QUANEX CORPORATION
NICHOLS-HOMESHIELD 401(K) SAVINGS PLAN - DAVENPORT
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
A. DESCRIPTION OF THE PLAN
The following description of the Nichols-Homeshield 401(k) Savings Plan -
Davenport (the "Plan") is provided for general information 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 ("IRC"). 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 contribute to the Plan by electing
salary deferrals between 1% and 15% of compensation 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 upon individual participant account
balances as of the end of the period in which the income was earned.
(4) Investment Options. Participants may direct allocations of their
contributions to the following funds:
Government Money Market Fund - composed of short-term government
obligations.
Balanced Fund - invested and reinvested in common and preferred
stocks and bonds.
Growth and Income Fund - invested and reinvested in equity and debt
securities of foreign and domestic companies.
Magellan Fund - invested and reinvested in equity and debt
securities of foreign and domestic companies.
Contrafund - invested and reinvested in equities of foreign and
domestic companies.
Overseas Fund - invested and reinvested in foreign securities.
Puritan Fund - invested and reinvested in common and preferred
stocks and bonds.
Templeton Foreign Fund - invested and reinvested in foreign
securities.
Quanex Corporation Common Stock - invested and reinvested
exclusively in the common stock of Quanex Corporation.
Common/Commingled Trust - invested and reinvested in investment
contracts issued by insurance companies, banks and other financial
institutions.
<PAGE> 6
(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. In accordance with the IRC, 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, 1996 and 1995, net assets available for benefits
included benefits of $0 and $5,270, respectively, due to
participants who have withdrawn from participation in the Plan.
(7) Loans. Loans may be granted to a participant of the Plan at the
Committee's discretion. Any loan authorized by the Committee shall
be subject to a term not to exceed five years. The Committee may
agree to a longer term (up to seven years) only if the proceeds of
the loan are to be used for the purchase of a dwelling. 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. Administrative expenses of the Plan are
paid by the Company. Loan set up fees and carrying fees are paid by
the participant.
(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 period. The Plan's
financial statements include amounts that are based on management's
best estimates and judgments. Actual results could differ from those
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 Internal Revenue Code (the "Code") and, as a result, is
exempt from taxation under Sections 501(a) of the Code. The Plan received
a favorable determination letter from the IRS dated June 18, 1993. 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.
<PAGE> 7
E. RELATED PARTY TRANSACTIONS
During the years ended December 31, 1996 and 1995, the Plan purchased and
sold shares of Quanex Corporation common stock, as shown below:
<TABLE>
<CAPTION>
1996 1995
---- ----
Shares Cost Sales Price Shares Cost Sales Price
------ ---- ----------- ------ ---- -----------
<S> <C> <C> <C> <C> <C>
Purchases 2,080 $47,343 6,171 $130,522
Sales 2,566 57,083 $68,951 3,416 73,665 $75,227
</TABLE>
During the years ended December 31, 1996 and 1995, the Plan purchased and
sold shares of Fidelity mutual fund assets, as shown below:
<TABLE>
<CAPTION>
1996 1995
---- ----
Shares Cost Sales Price Shares Cost Sales Price
------ ---- ----------- ------ ---- -----------
<S> <C> <C> <C> <C> <C>
Purchases 2,530,179 $6,546,751 1,229,689 $2,945,250
Sales 2,579,692 5,143,714 $5,203,939 828,604 1,761,256 $1,825,834
</TABLE>
During the years ended December 31, 1996 and 1995, the Plan purchased and
sold shares of Fidelity Common/Commingled Trust, as shown below:
<TABLE>
<CAPTION>
1996 1995
---- ----
Shares Cost Sales Price Shares Cost Sales Price
------ ---- ----------- ------ ---- -----------
<S> <C> <C> <C> <C> <C>
Purchases 41,203 $41,203 9,350 $9,350
Sales 7,481 7,481 $7,481 - - -
</TABLE>
<PAGE> 8
F. Supplemental Fund Information
Contributions, benefit payments and investment income by fund were as
follows for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Employee Contributions:
Fidelity Puritan Fund $ 16,657 $ 8,238
Fidelity Magellan Fund 118,572 88,077
Fidelity Contrafund 106,112 44,752
Fidelity Growth and Income Fund 145,427 127,054
Fidelity Overseas Fund 14,133 20,838
Fidelity Balanced Fund 55,282 61,072
Fidelity Government Money Market Fund 159,436 182,325
Templeton Foreign Fund 321 --
Quanex Corporation common stock 15,366 14,350
Common/commingled trust 25,575 7,748
-------- --------
$656,881 $554,454
======== ========
</TABLE>
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Employer Contributions:
Fidelity Puritan Fund $ 11,933 $ 3,814
Fidelity Magellan Fund 101,857 85,071
Fidelity Contrafund 70,259 52,740
Fidelity Growth and Income Fund 157,327 111,238
Fidelity Overseas Fund 13,193 11,723
Fidelity Balanced Fund 54,252 57,963
Fidelity Government Money Market Fund 212,614 179,518
Templeton Foreign Fund 144 --
Quanex Corporation common stock 11,896 5,457
Common/commingled trust 10,607 729
-------- --------
$644,082 $508,253
======== ========
</TABLE>
<PAGE> 9
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Benefit payments:
Fidelity Puritan Fund $ 130 $ --
Fidelity Magellan Fund 39,625 28,971
Fidelity Contrafund 3,339 16,482
Fidelity Growth and Income Fund 115,206 9,760
Fidelity Overseas Fund 150 13,092
Fidelity Balanced Fund 1,525 7,498
Fidelity Government Money Market Fund 297,894 118,494
Templeton Foreign Fund -- --
Quanex Corporation common stock 2,931 --
Common/commingled trust -- --
----------- -----------
$ 460,800 $ 194,297
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Investment income:
Fidelity Puritan Fund $ 11,416 $ 6,041
Fidelity Magellan Fund 162,646 321,280
Fidelity Contrafund 193,172 161,934
Fidelity Growth and Income Fund 403,556 441,618
Fidelity Overseas Fund 12,496 12,960
Fidelity Balanced Fund 51,461 72,510
Fidelity Government Money Market Fund 141,568 152,296
Templeton Foreign Fund 280 --
Quanex Corporation common stock 54,625 (8,540)
Common/commingled trust 2,106 888
----------- -----------
$ 1,033,326 $ 1,160,987
=========== ===========
</TABLE>
<PAGE> 10
ITEM 27A - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
EIN: 38-1872178; PN 016
QUANEX CORPORATION
NICHOLS-HOMESHIELD 401(K) SAVINGS PLAN - DAVENPORT
SUPPLEMENTAL SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Shares/ Current
Mutual Fund Assets - Fidelity Investments: Par Value Cost Value
- ------------------------------------------ ----------- ---------- ----------
<S> <C> <C> <C>
Contrafund* 29,566 $1,052,147 $1,246,208
Government Money Market Fund* 2,734,735 2,734,735 2,734,735
Puritan Fund* 6,437 107,699 110,980
Growth and Income Fund* 83,294 2,003,906 2,559,618
Magellan* 21,828 1,622,495 1,760,422
Overseas Fund* 4,466 131,576 137,732
Balanced Fund* 42,365 557,656 596,493
Templeton Fund* 594 6,040 6,157
---------- ----------
Total mutual fund assets 8,216,254 9,152,345
Quanex Corporation Common Stock* 4,863 106,100 133,135
Common Commingled Trust* 54,097 54,097 54,097
Participant Loans
(bearing interest rates from 7.85% to 11%) 648,344 648,344
========== ==========
Total investments $9,024,795 $9,987,921
========== ==========
</TABLE>
* Party-in-interest
<PAGE> 11
ITEM 27d - SCHEDULE OF REPORTABLE (5%) TRANSACTIONS EIN 38-1872178; PN 016
NICHOLS-HOMESHIELD 401(k) SAVINGS PLAN - DAVENPORT
SUPPLEMENTAL SCHEDULE OF 5% REPORTABLE TRANSACTIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Series of Transactions
Current
Total Number of Total Number Value on Net
Purchases During Purchase of Sales During Selling Cost of Transaction Gain
Description Plan Year Price Plan Year Price Asset Date (Loss)
- ----------- ----------- ------- ----------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
None
</TABLE>
<TABLE>
<CAPTION>
Series of Transactions
Current
Total Number of Total Number Value on Net
Purchases During Purchase of Sales During Selling Cost of Transaction Gain
Description Plan Year Price Plan Year Price Asset Date (Loss)
- ----------- ----------- ------- ----------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
*Magellan Fund 97 $2,399,699 63 $1,993,180 $1,998,379 $1,993,180 $ (5,199)
*Contrafund 53 524,361 25 91,320 83,227 91,320 8,093
*Growth & Income 83 828,680 44 303,724 259,051 303,724 44,673
*Balanced Fund 51 187,239 30 231,049 222,172 231,049 8,877
*Government Money Market Fund 82 2,435,802 77 2,522,035 2,522,035 2,522,035 0
</TABLE>
- -------------------------
*Party-in-interest
<PAGE> 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 24, 1997 /s/ Joseph K. Peery
-------------------------- -------------------------------------------
Joseph K. Peery, Benefits Committee
<PAGE> 13
INDEX TO EXHIBITS
23.1 Independent Auditor's Consent
<PAGE> 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 May 9, 1997
appearing in the Annual Report on Form 11-K of the Nichols-Homeshield, Inc.
401(k) Savings Plan - Davenport for the year ended December 31, 1996.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Houston, Texas
June 24, 1997
