<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, 1997
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
[DELOITTE & TOUCHE LLP LETTERHEAD]
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, 1997 and 1996 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,
1997 and 1996 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, 1997 and (2) 5% reportable transactions
for the year ended December 31, 1997 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 1997 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 22, 1998
<PAGE> 3
QUANEX CORPORATION
NICHOLS-HOMESHIELD 401(k) SAVINGS PLAN - DAVENPORT
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
<TABLE>
<CAPTION>
December 31,
-------------------------
1997 1996
----------- -----------
<S> <C> <C>
Assets:
Investments, at fair value:
Mutual fund assets:
Fidelity Puritan Fund $ 179,217 $ 110,980
Fidelity Magellan Fund 2,375,863 1,760,422
Fidelity Contrafund 1,600,841 1,246,208
Fidelity Growth and Income Fund 4,034,185 2,559,618
Fidelity Overseas Fund 162,891 137,732
Fidelity Balanced Fund 860,519 596,493
Fidelity Government Money Market Fund 2,952,770 2,734,735
Templeton Foreign Fund 41,351 6,157
Quanex Corporation Common Stock 75,423 133,135
Fidelity Common/Commingled Trust 170,695 54,097
----------- -----------
12,453,755 9,339,577
Participant loans 714,210 648,344
----------- -----------
Total 13,167,965 9,987,921
----------- -----------
Employee contributions receivable 55,672 58,327
Employer contributions receivable 73,098 64,956
----------- -----------
Total 128,770 123,283
----------- -----------
Net assets available for benefits $13,296,735 $10,111,204
=========== ===========
</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>
Year Ended December 31,
-------------------------
1997 1996
----------- -----------
<S> <C> <C>
Investment income:
Interest and dividends $ 761,522 $ 650,015
Net appreciation in fair value of investments 1,199,903 383,311
----------- -----------
Total income 1,961,425 1,033,326
----------- -----------
Contributions:
Employer 705,375 650,140
Less forfeitures 8,290 6,058
----------- -----------
697,085 644,082
Employee 731,024 656,881
----------- -----------
Total contributions 1,428,109 1,300,963
----------- -----------
Interest on participant loans 50,003 43,543
----------- -----------
Total additions 3,439,537 2,377,832
----------- -----------
Benefit payments 251,373 460,800
Administrative fees 2,633 2,909
----------- -----------
Total deductions 254,006 463,709
----------- -----------
Increase in net assets available
for benefits 3,185,531 1,914,123
Net assets available for benefits:
Beginning of year 10,111,204 8,197,081
----------- -----------
End of year $13,296,735 $10,111,204
=========== ===========
</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, 1997 AND 1996
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:
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.
<PAGE> 6
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.
(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, 1997 and 1996, net
assets available for benefits included benefits of $155,121
and $-0-, 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. Loan set up
fees and carrying fees are paid by the participant to
Fidelity.
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 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
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.
<PAGE> 7
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, 1997 and 1996, the Plan purchased
and sold shares of Quanex Corporation common stock, as shown below:
<TABLE>
<CAPTION>
1997 1996
---- ----
Shares Cost Sales Price Shares Cost Sales Price
------ ----------- ----------- ------ ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Purchases 2,101 $ 60,399 2,080 $ 47,343
Sales 4,284 96,290 $ 135,865 2,566 57,083 $ 68,951
</TABLE>
During the years ended December 31, 1997 and 1996, the Plan purchased
and sold shares of Fidelity mutual fund assets, as shown below:
<TABLE>
<CAPTION>
1997 1996
---- ----
Shares Cost Sales Price Shares Cost Sales Price
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Purchases 6,215,536 $16,876,202 2,530,179 $ 6,546,751
Sales 5,946,135 14,851,548 $15,003,060 2,579,692 5,143,714 $ 5,203,939
</TABLE>
During the years ended December 31, 1997 and 1996, the Plan purchased
and sold shares of Fidelity Common/Commingled Trust, as shown below:
<TABLE>
<CAPTION>
1997 1996
---- ----
Shares Cost Sales Price Shares Cost Sales Price
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Purchases 1,810,215 $1,810,215 41,203 $41,203
Sales 1,693,615 1,693,615 $1,693,615 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>
1997 1996
---------- ----------
<S> <C> <C>
Employee Contributions:
Fidelity Puritan Fund $ 18,633 $ 16,657
Fidelity Magellan Fund 143,283 118,572
Fidelity Contrafund 101,205 106,112
Fidelity Growth and Income Fund 190,051 145,427
Fidelity Overseas Fund 15,451 14,133
Fidelity Balanced Fund 54,252 55,282
Fidelity Government Money Market Fund 168,639 159,436
Templeton Foreign Fund 4,892 321
Quanex Corporation Common Stock 22,566 15,366
Fidelity Common/Commingled Trust 12,052 25,575
---------- ----------
$ 731,024 $ 656,881
========== ==========
</TABLE>
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Employer Contributions:
Fidelity Puritan Fund $ 15,179 $ 11,933
Fidelity Magellan Fund 114,616 101,857
Fidelity Contrafund 80,449 70,259
Fidelity Growth and Income Fund 180,793 157,327
Fidelity Overseas Fund 15,443 13,193
Fidelity Balanced Fund 52,073 54,252
Fidelity Government Money Market Fund 205,532 212,614
Templeton Foreign Fund 2,083 144
Quanex Corporation Common Stock 19,083 11,896
Fidelity Common/Commingled Trust 11,834 10,607
---------- ----------
$ 697,085 $ 644,082
========== ==========
</TABLE>
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Benefit payments:
Fidelity Puritan Fund $ 3,750 $ 130
Fidelity Magellan Fund 46,245 39,625
Fidelity Contrafund 4,335 3,339
Fidelity Growth and Income Fund 37,597 115,206
Fidelity Overseas Fund 616 150
Fidelity Balanced Fund 32,967 1,525
Fidelity Government Money Market Fund 120,192 297,894
Templeton Foreign Fund 0 0
Quanex Corporation Common Stock 5,448 2,931
Fidelity Common/Commingled Trust 223 0
---------- ----------
$ 251,373 $ 460,800
========== ==========
</TABLE>
<PAGE> 9
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Investment income:
Fidelity Puritan Fund $ 30,478 $ 11,416
Fidelity Magellan Fund 458,867 162,646
Fidelity Contrafund 290,428 193,172
Fidelity Growth and Income Fund 846,425 403,556
Fidelity Overseas Fund 12,335 12,496
Fidelity Balanced Fund 147,765 51,461
Fidelity Government Money Market Fund 149,401 141,568
Templeton Foreign Fund 33 280
Quanex Corporation Common Stock 20,355 54,625
Fidelity Common/Commingled Trust 5,338 2,106
---------- ----------
$1,961,425 $1,033,326
========== ==========
</TABLE>
<PAGE> 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
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
Shares/ Current
Par Value Cost Value
----------- ----------- -----------
<S> <C> <C> <C>
Mutual Fund Assets - Fidelity Investments:
Puritan Fund* 9,248 $ 162,091 $ 179,217
Magellan Fund* 24,938 1,950,232 2,375,863
Contrafund* 34,331 1,333,106 1,600,841
Growth and Income Fund* 105,884 2,861,887 4,034,185
Overseas Fund* 5,006 152,515 162,891
Balanced Fund* 56,354 782,384 860,519
Government Money Market Fund* 2,952,770 2,952,770 2,952,770
Templeton Foreign Fund* 4,156 45,920 41,351
-------------------------
Total Mutual Fund Assets 10,240,905 12,207,637
Quanex Corporation Common Stock* 2,682 70,209 75,423
Fidelity Common/Commingled Trust* 170,696 170,696 170,695
Participant loans (bearing interest rates
from 7.85% to 11%) 714,210 714,210
-------------------------
Total Investments $11,196,020 $13,167,965
=========================
</TABLE>
* Party-in-Interest
<PAGE> 11
ITEM 27-d - SCHEDULE OF REPORTABLE (5%) TRANSACTIONS EIN 38-1872178; PN 016
QUANEX CORPORATION
NICHOLS-HOMESHIELD 401(k)SAVINGS PLAN - DAVENPORT
SUPPLEMENTAL SCHEDULE OF 5% REPORTABLE TRANSACTIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
Series of Transactions
<TABLE>
<CAPTION>
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)
----------- ---------------- ---------- ---------------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Fidelity Investments:
Magellan* 117 $3,310,975 63 $3,003,401 $2,983,238 $ 3,003,401 $ 20,163
Contrafund* 82 2,165,668 41 1,948,333 1,884,708 1,948,333 63,625
Growth & Income* 111 2,775,714 50 1,976,951 1,917,732 1,976,951 59,219
Overseas* 57 1,547,796 26 1,526,159 1,526,856 1,526,159 (697)
Balanced* 57 991,248 33 773,492 766,520 773,492 6,972
Gov't Money Mkt* 109 5,938,396 96 5,720,361 5,720,361 5,720,361 0
Common/Commingled 59 1,810,215 24 1,693,615 1,693,615 1,693,615 0
Trust*
</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 29, 1998 /s/ Wayne M. Rose
------------------------------------------
Wayne M. Rose, Benefits Committee
<PAGE> 13
INDEX TO EXHIBITS
<TABLE>
<S> <C>
23.1 Independents Auditor's Consent
</TABLE>
<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 22, 1998
appearing in the Annual Report of Form 11-K of the Nichols-Homeshield 401 (k)
Savings Plan Davenport for the year ended December 31, 1997.
/s/ DELOITTE & TOUCHE LLP
- ----------------------------------
DELOITTE & TOUCHE LLP
Houston, Texas
June 29, 1998
