<PAGE> 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:
Nichols-Homeshield 401(k) Savings Plan - Davenport
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
<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, 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
<PAGE> 3
QUANEX CORPORATION
NICHOLS-HOMESHIELD 401(k) SAVINGS PLAN - DAVENPORT
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
<TABLE>
<CAPTION>
December 31,
---------------------------
1998 1997
------------ ------------
<S> <C> <C>
Assets:
Investments at fair value -
Mutual fund assets:
Fidelity Puritan Fund $ 195,835 $ 179,217
Fidelity Magellan Fund 3,430,108 2,375,863
Fidelity Contrafund 2,047,947 1,600,841
Fidelity Growth and Income Fund 5,154,650 4,034,185
Fidelity Retirement Growth Fund 390,842 --
Fidelity Overseas Fund 174,354 162,891
Fidelity Balanced Fund 973,619 860,519
Fidelity Blue Chip Fund 137,975 --
Fidelity Asset Manager Fund 158 --
Fidelity Low-Priced Stock Fund 75,896 --
Fidelity Government Money Market Fund 2,800,706 2,952,770
Templeton Foreign Fund 78,783 41,351
Neuberger & Berman Partners Trust Fund -- --
Quanex Corporation common stock 244,895 75,423
Common/commingled trust 479,821 170,695
------------ ------------
16,185,589 12,453,755
Participant loans 713,260 714,210
------------ ------------
Total 16,898,849 13,167,965
------------ ------------
Employee contributions receivable 84,292 55,672
Employer contributions receivable 81,314 73,098
------------ ------------
Total 165,606 128,770
------------ ------------
Net assets available for benefits $ 17,064,455 $ 13,296,735
============ ============
</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,
---------------------------
1998 1997
------------ ------------
<S> <C> <C>
Investment income:
Interest and dividends $ 920,405 $ 761,522
Net appreciation in fair value of investments 1,981,110 1,199,903
------------ ------------
Total 2,901,515 1,961,425
------------ ------------
Contributions:
Employer 744,683 705,375
Less forfeitures 6,767 8,290
------------ ------------
737,916 697,085
Employee 806,532 731,024
------------ ------------
Total 1,544,448 1,428,109
------------ ------------
Interest on participant loans 54,515 50,003
------------ ------------
Total additions 4,500,478 3,439,537
------------ ------------
Benefit payments 729,922 251,373
Loan processing fees 2,836 2,633
------------ ------------
Total deductions 732,758 254,006
------------ ------------
Increase in net assets available
for benefits 3,767,720 3,185,531
Net assets available for benefits:
Beginning of year 13,296,735 10,111,204
------------ ------------
End of year $ 17,064,455 $ 13,296,735
============ ============
</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, 1998 AND 1997
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:
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.
<PAGE> 6
Fidelity Asset Manager Fund - invests in domestic and foreign stocks,
bonds and short-term obligations.
Fidelity Low-Priced Stock Fund - invests in domestic and foreign
stocks.
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 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, 1998 and 1997, net
assets available for benefits included benefits of $150,546 and
$155,121, 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.
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. The Company pays administrative expenses of
the Plan. The participant pays loan set up and carrying fees 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
<PAGE> 7
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.
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, 1998 and 1997, the Plan purchased and
sold shares of Quanex Corporation common stock, as shown below:
<TABLE>
<CAPTION>
1998 1997
---- ----
Shares Cost Sales Price Shares Cost Sales Price
------ ---- ----------- ------ ---- -----------
<S> <C> <C> <C> <C> <C> <C>
Purchases 8,471 $ 169,423 2,101 $ 60,399
Sales 299 8,252 $ 8,483 4,284 96,290 $ 135,865
</TABLE>
During the years ended December 31, 1998 and 1997, the Plan purchased and
sold shares of Fidelity mutual fund assets, as shown below:
<TABLE>
<CAPTION>
1998 1997
---- ----
Shares Cost Sales Price Shares Cost Sales Price
------ ---- ----------- ------ ---- -----------
<S> <C> <C> <C> <C> <C> <C>
Purchases 6,369,513 $ 19,687,013 6,215,536 $16,876,202
Sales 6,481,196 18,111,552 $18,452,425 5,946,135 14,851,548 $15,003,060
</TABLE>
During the years ended December 31, 1998 and 1997, the Plan purchased and
sold shares of Fidelity Common/Commingled Trust, as shown below:
<TABLE>
<CAPTION>
1998 1997
---- ----
Shares Cost Sales Price Shares Cost Sales Price
------ ---- ----------- ------ ---- -----------
<S> <C> <C> <C> <C> <C> <C>
Purchases 4,359,235 $4,359,235 1,810,215 $1,810,215
Sales 4,050,111 4,050,111 $ 4,050,111 1,693,615 1,693,615 $ 1,693,615
</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>
1998 1997
------------ ------------
<S> <C> <C>
Employer Contributions:
Fidelity Puritan Fund $ 15,173 $ 15,179
Fidelity Magellan Fund 131,043 114,616
Fidelity Contrafund 82,027 80,449
Fidelity Growth and Income Fund 200,061 180,793
Fidelity Retirement Growth Fund 6,059 --
Fidelity Overseas Fund 16,739 15,443
Fidelity Balanced Fund 54,790 52,073
Fidelity Blue Chip Fund 1,553 --
Fidelity Asset Manager Fund -- --
Fidelity Low-Priced Stock Fund 478 --
Fidelity Government Money Market Fund 186,631 205,532
Templeton Foreign Fund 2,931 2,083
N & B Partners Trust Fund 520 --
Quanex Corporation common stock 21,699 19,083
Common/commingled trust 18,212 11,834
------------ ------------
$ 737,916 $ 697,085
============ ============
</TABLE>
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Employee Contributions:
Fidelity Puritan Fund $ 19,468 $ 18,633
Fidelity Magellan Fund 160,241 143,283
Fidelity Contrafund 107,134 101,205
Fidelity Growth and Income Fund 223,484 190,051
Fidelity Retirement Growth Fund 4,324 --
Fidelity Overseas Fund 19,281 15,451
Fidelity Balanced Fund 57,980 54,252
Fidelity Blue Chip Fund 1,929 --
Fidelity Asset Manager Fund 257 --
Fidelity Low-Priced Stock Fund 1,093 --
Fidelity Government Money Market Fund 152,625 168,639
Templeton Foreign Fund 8,104 4,892
N & B Partners Trust Fund 1,201 --
Quanex Corporation common stock 26,791 22,566
Common/commingled trust 22,620 12,052
------------ ------------
$ 806,532 $ 731,024
============ ============
</TABLE>
<PAGE> 9
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Benefit payments:
Fidelity Puritan Fund $ -- $ 3,750
Fidelity Magellan Fund 80,320 46,245
Fidelity Contrafund 58,611 4,335
Fidelity Growth and Income Fund 209,527 37,597
Fidelity Retirement Growth Fund -- --
Fidelity Overseas Fund 5,455 616
Fidelity Balanced Fund 170,642 32,967
Fidelity Blue Chip Fund -- --
Fidelity Asset Manager Fund -- --
Fidelity Low-Priced Stock Fund -- --
Fidelity Government Money Market Fund 197,611 120,192
Templeton Foreign Fund -- --
N & B Partners Trust Fund -- --
Quanex Corporation common stock 7,756 5,448
Common/commingled trust -- 223
------------ ------------
$ 729,922 $ 251,373
============ ============
</TABLE>
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Investment income:
Fidelity Puritan Fund $ 28,041 $ 30,478
Fidelity Magellan Fund 843,718 458,867
Fidelity Contrafund 483,912 290,428
Fidelity Growth and Income Fund 1,106,932 846,425
Fidelity Retirement Growth Fund 27,283 --
Fidelity Overseas Fund 51,513 12,335
Fidelity Balanced Fund 171,167 147,765
Fidelity Blue Chip Fund 17,962 --
Fidelity Asset Manager Fund 2,505 --
Fidelity Low-Priced Stock Fund (1,368) --
Fidelity Government Money Market Fund 144,978 149,401
Templeton Foreign Fund (135) 33
N & B Partners Trust Fund 108 --
Quanex Corporation common stock 11,849 20,355
Common/commingled trust 13,050 5,338
------------ ------------
$ 2,901,515 $ 1,961,425
============ ============
</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
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Shares/ Current
Par Value Cost Value
--------- ----------- -----------
<S> <C> <C> <C>
Fidelity Mutual Fund Assets:
Puritan Fund* 9,758 180,825 195,835
Magellan* 28,390 2,402,496 3,430,108
Contrafund* 36,062 1,497,601 2,047,947
Growth and Income Fund* 112,449 3,299,829 5,154,650
Retirement Growth Fund* 19,056 382,189 390,842
Overseas Fund* 4,846 154,360 174,354
Balanced Fund* 59,512 847,180 973,619
Blue Chip Fund* 2,738 124,550 137,975
Asset Manager Fund* 9 175 158
Low-Priced Stock Fund* 3,321 80,538 75,896
Government Money Market Fund* 2,800,706 2,800,706 2,800,706
Neuberger & Berman Partners Trust Fund -- -- --
Templeton Foreign Fund 9,390 97,677 78,783
----------- -----------
Total Mutual Fund Assets $11,868,126 $15,460,873
Quanex Corporation Common Stock* 10,854 231,381 244,895
Common/Commingled Trust* 479,821 479,821 479,821
Participant loans (bearing interest rates
from 7.85% to 11%) 713,260 713,260
----------- -----------
Total Investments $13,292,588 $16,898,849
=========== ===========
</TABLE>
* Party-in-Interest
<PAGE> 11
ITEM 27-d - SCHEDULE OF REPORTABLE (5%) TRANSACTIONS EIN 38-1872178; PN 016
NICHOLS-HOMESHIELD 401(k)SAVINGS PLAN - DAVENPORT
SUPPLEMENTAL SCHEDULE OF 5% REPORTABLE TRANSACTIONS
DECEMBER 31, 1998
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>
Magellan* 78 $1,603,288 42 $ 1,234,404 $ 1,151,024 $ 1,234,404 $ 83,380
Contrafund* 92 2,452,717 51 2,338,304 2,288,222 2,338,304 50,082
Growth & Income* 122 3,399,273 75 3,104,112 2,961,332 3,104,112 142,780
Retirement Growth* 46 1,906,490 17 1,514,687 1,524,301 1,514,687 (9,614)
Overseas* 66 3,439,078 30 3,475,808 3,437,233 3,475,808 38,575
Templeton Fund 39 1,092,322 15 1,046,143 1,040,566 1,046,143 5,577
Gov't Money Mkt* 130 5,980,522 99 6,132,586 6,132,586 6,132,586 --
Common/Commingled 77 4,359,235 41 4,050,111 4,050,111 4,050,111 --
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 28, 1999 /s/ Viren M. Parikh
-----------------------------------
Viren M. Parikh, Benefits Committee
<PAGE> 13
INDEX TO EXHIBITS
23.1 Independents 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 June 1, 1999,
appearing in the Annual Report of Form 11-K of the Nichols-Homeshield 401(k)
Savings Plan - Davenport for the year ended December 31, 1998.
/s/ DELOITTE & TOUCHE LLP
- -------------------------
DELOITTE & TOUCHE LLP
Houston, Texas
June 28, 1999
