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
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
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[DELOITTE & TOUCHE LLP LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
The Benefits Committee
Quanex Corporation
Houston, Texas
Re: Nichols Homeshield 401(k) Savings Plan
We have audited the accompanying statements of net assets available for benefits
of the Nichols Homeshield 401(k) Savings Plan (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
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QUANEX CORPORATION
NICHOLS-HOMESHIELD 401(k) SAVINGS PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
December 31,
--------------------------
1997 1996
----------- -----------
Assets:
Investments, at fair value:
Mutual fund assets:
Fidelity Puritan Fund $ 397,572 $ 368,260
Fidelity Magellan Fund 6,336,645 4,613,459
Fidelity Contrafund 4,445,215 3,436,148
Fidelity Growth and Income Fund 8,237,910 5,722,217
Fidelity Overseas Fund 935,104 339,269
Fidelity Balanced Fund 1,951,329 1,441,746
Fidelity Government Money Market Fund 6,234,283 6,587,993
Templeton Foreign Fund 237,963 58,309
Quanex Corporation Common Stock 708,813 518,125
Fidelity Common/Commingled Trust 682,073 764,169
----------- -----------
30,166,907 23,849,695
Participant loans 1,311,591 1,067,089
----------- -----------
Total 31,478,498 24,916,784
----------- -----------
Employee contributions receivable 170,839 126,604
Employer contributions receivable 107,102 96,848
----------- -----------
Total 277,941 223,452
----------- -----------
Net assets available for benefits $31,756,439 $25,140,236
=========== ===========
See notes to financial statements.
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QUANEX CORPORATION
NICHOLS-HOMESHIELD 401(k) SAVINGS PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE
FOR BENEFITS
Year Ended December 31,
--------------------------
1997 1996
----------- -----------
Investment income:
Interest and dividends $ 1,924,289 $ 1,760,124
Net appreciation in fair value of investments 3,025,902 1,044,037
----------- -----------
Total income 4,950,191 2,804,161
----------- -----------
Contributions:
Employer 1,375,887 1,302,003
Less forfeitures 36,396 34,342
----------- -----------
1,339,491 1,267,661
Employee 1,766,898 1,464,390
----------- -----------
Total contributions 3,106,389 2,732,051
----------- -----------
Interest on participant loans 90,456 69,555
----------- -----------
Total additions 8,147,036 5,605,767
----------- -----------
Benefit payments 1,524,355 2,154,169
Administrative fees 6,478 6,125
----------- -----------
Total deductions 1,530,833 2,160,294
----------- -----------
Increase in net assets available
for benefits 6,616,203 3,445,473
Net assets available for benefits:
Beginning of year 25,140,236 21,694,763
----------- -----------
End of year $31,756,439 $25,140,236
=========== ===========
See notes to financial statements.
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QUANEX CORPORATION
NICHOLS-HOMESHIELD 401(k) SAVINGS PLAN
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
(the "Plan") is provided for general informational purposes only.
Participants should refer to the Plan document for more complete
information.
(1) General. The Plan was established on October 1, 1987, and was
amended and restated effective January 1, 1989, as a defined
contribution plan under Section 401(k) of the Internal Revenue
Code ("Code") which covers substantially all salaried and
non-union hourly employees at the Nichols-Homeshield division
of Quanex Corporation (the "Company") and bargaining unit
employees at the Lincolnshire, Illinois plant. 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. Employees are eligible to make salary deferral
contributions to the Plan on the entry date next following the
date that the employee completes one month of service.
Participants may elect salary deferrals between 1% and 15% of
compensation as defined by the Plan agreement. The Company
makes contributions on behalf of employees who have at least
one year of service. The Company contribution is based on
Company profits and is calculated based on a percentage of the
employee's compensation.
(3) Participant Accounts. Each participant's account is credited
with the participant's contribution, the employer's
contribution, and an allocation of investment income.
Investment income 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 allocation of
their contributions to the following funds:
Government Money Market Fund - invested and reinvested in
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.
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(5) Vesting. Participants are immediately vested in their
voluntary 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 cash lump-sum
distribution equal to the amount of vested benefits in his or
her account. As of December 31, 1997 and 1996, net assets
available for benefits included benefits of $3,479 and
$22,530, 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
by 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.
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 ("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 December 22, 1994 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:
1997 1996
---- ----
Shares Cost Sales Price Shares Cost Sales Price
--------- ---------- ----------- --------- ---------- -----------
Purchases 11,896 $334,213 6,087 $145,904
Sales 5,620 138,365 $175,262 18,735 370,590 $435,319
During the years ended December 31, 1997 and 1996, the Plan purchased
and sold shares of Fidelity mutual funds, as shown below:
1997 1996
---- ----
Shares Cost Sales Price Shares Cost Sales Price
--------- ---------- ----------- --------- ---------- -----------
Purchases 2,068,366 $27,387,956 2,158,747 $12,577,957
Sales 2,308,384 23,537,694 $24,173,502 1,918,003 10,179,781 $10,508,116
During the years ended December 31, 1997 and 1996, the Plan purchased
and sold shares of Fidelity Common/Commingled Trust, as shown below:
1997 1996
---- ----
Shares Cost Sales Price Shares Cost Sales Price
--------- ---------- ----------- --------- ---------- -----------
Purchases 17,350,916 $17,350,916 5,950,598 $5,950,598
Sales 17,433,012 17,433,012 17,433,012 5,625,983 5,625,983 $5,625,983
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F. SUPPLEMENTAL FUND INFORMATION
Contributions, benefit payments and investment income by fund were
as follows for the years ended December 31:
1997 1996
---------- ----------
Employee Contributions:
Fidelity Puritan Fund $ 48,109 $ 24,360
Fidelity Magellan Fund 366,386 339,683
Fidelity Contrafund 293,331 220,724
Fidelity Growth and Income Fund 404,124 333,733
Fidelity Overseas Fund 50,026 41,056
Fidelity Balanced Fund 161,137 129,715
Fidelity Government Money Market Fund 301,382 303,711
Templeton Fund 30,357 4,847
Quanex Corporation Common Stock 37,702 28,928
Fidelity Common/Commingled Trust 74,344 37,633
---------- ----------
$1,766,898 $1,464,390
========== ==========
1997 1996
---------- ----------
Employer Contributions:
Fidelity Puritan Fund $ 24,300 $ 20,637
Fidelity Magellan Fund 287,744 268,954
Fidelity Contrafund 205,277 182,916
Fidelity Growth and Income Fund 274,829 247,719
Fidelity Overseas Fund 26,937 24,525
Fidelity Balanced Fund 126,436 121,618
Fidelity Government Money Market Fund 322,674 345,797
Templeton Foreign Fund 11,331 2,311
Quanex Corporation Common Stock 28,513 25,760
Fidelity Common/Commingled Trust 31,450 27,424
---------- ----------
$1,339,491 $1,267,661
========== ==========
1997 1996
---------- ----------
Benefit payments:
Fidelity Puritan Fund $ 27,309 $ 42,523
Fidelity Magellan Fund 265,735 393,328
Fidelity Contrafund 173,081 73,823
Fidelity Growth and Income Fund 362,756 455,730
Fidelity Overseas Fund 21,351 121,544
Fidelity Balanced Fund 75,691 197,261
Fidelity Government Money Market Fund 547,972 842,522
Templeton Foreign Fund 842 --
Quanex Corporation Common Stock 2,853 11,667
Fidelity Common/Commingled Trust 46,765 15,771
---------- ----------
$1,524,355 $2,154,169
========== ==========
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1997 1996
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Investment income:
Fidelity Puritan Fund $ 69,603 $ 39,483
Fidelity Magellan Fund 1,263,804 483,131
Fidelity Contrafund 784,366 573,106
Fidelity Growth and Income Fund 1,835,146 937,521
Fidelity Overseas Fund 207,707 74,008
Fidelity Balanced Fund 358,885 118,163
Fidelity Government Money Market Fund 336,082 331,052
Templeton Foreign Fund 3,587 5,015
Quanex Corporation Common Stock 44,145 210,499
Fidelity Common/Commingled Trust 46,866 32,183
---------- ----------
$4,950,191 $2,804,161
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ITEM 27-A SCHEDULE OF ASSETS HELD FOR INVESTMENTS PURPOSES
EIN: 38-1872178; PN 017
QUANEX CORPORATION
NICHOLS-HOMESHIELD 401(k) SAVINGS PLAN
SUPPLEMENTAL SCHEDULE OF INVESTMENTS
AS OF DECEMBER 31, 1997
Shares/ Current
Par Value Cost Value
---------- ----------- ----------
Mutual Fund Assets - Fidelity Investments:
Puritan Fund* 20,515 $ 365,283 $ 397,572
Magellan Fund* 66,512 5,145,551 6,336,645
Contrafund* 95,330 3,608,428 4,445,215
Growth and Income Fund* 216,218 5,648,968 8,237,910
Overseas Fund* 28,737 901,385 935,104
Balanced Fund* 127,788 1,766,041 1,951,329
Government Money Market Fund* 6,234,283 6,234,283 6,234,283
Templeton Foreign Fund* 23,916 257,691 237,963
-------------------------
Total Mutual Fund Assets 23,927,630 28,776,021
Quanex Corporation Common Stock* 25,202 618,447 708,813
Fidelity Common/Commingled Trust* 682,073 682,073 682,073
Participant loans (bearing interest rates
from 7.85% to 11%) 1,311,591 1,311,591
-------------------------
Total Investments $26,539,741 $31,478,498
=========================
* Party-in-Interest
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ITEM 27-D - SCHEDULE OF REPORTABLE (5%) TRANSACTIONS EIN 38-1872178; PN 017
QUANEX CORPORATION
NICHOLS-HOMESHIELD 401(k)SAVINGS PLAN
SUPPLEMENTAL SCHEDULE OF 5% REPORTABLE TRANSACTIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
Current
Series of Transactions
----------------------
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)
----------- ---------------- -------- ---------------- ----------- ----------- ----------- -----------
Fidelity Investments:
Magellan* 133 $1,631,892 81 $ 772,845 $ 674,389 $ 772,845 $ 98,456
Contrafund* 111 1,865,383 67 1,215,906 1,099,347 1,215,906 116,559
Growth & Income* 140 3,665,022 90 2,618,499 2,393,374 2,618,499 225,125
Overseas* 135 17,597,648 69 17,164,239 17,015,413 17,164,239 148,826
Balanced* 85 899,035 55 510,783 476,053 510,783 34,730
Common/Commingled
Trust* 148 17,350,916 79 17,433,012 17,433,012 17,433,012 0
Gov't Money Market* 106 1,288,607 98 1,642,318 1,642,318 1,642,318 0
* 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-Homeshield 401 (k) Savings Plan
Date: June 29, 1998 /s/ Wayne M. Rose
---------------------------------
Wayne M. Rose, Benefits Committee
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INDEX TO EXHIBITS
23.1 Independents Auditor's Consent