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:
Quanex Corporation Employee 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: Quanex Corporation Employee Savings Plan
We have audited the accompanying statements of net assets available for benefits
of the Quanex Corporation Employee 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 EMPLOYEE SAVINGS PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
December 31,
-------------------------------------
1997 1996
------------ ------------
Assets:
Investments, at fair value:
Mutual fund assets:
Fidelity Puritan Fund $ 8,682,374 $ 7,990,942
Fidelity Magellan Fund 10,370,199 9,025,079
Fidelity Contrafund 4,796,863 3,106,854
Fidelity Growth & Income Fund 6,782,645 4,187,289
Fidelity Overseas Fund 1,995,616 2,151,256
Fidelity Balanced Fund 527,322 272,553
Templeton Foreign Fund 488,227 476,234
Fidelity Government Money Market Fund 9,327,810 10,265,488
Quanex Corporation Common Stock 1,457,181 1,822,006
Fidelity Common/Commingled Trust 1,662,256 807,949
------------ ------------
Total 46,090,493 40,105,650
------------ ------------
Employee contributions receivable 405,287 446,619
Employer contributions receivable 113,412 142,213
------------ ------------
Total 518,699 588,832
------------ ------------
Net Assets Available for Benefits $ 46,609,192 $ 40,694,482
============ ============
See notes to financial statements.
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QUANEX CORPORATION EMPLOYEE SAVINGS PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
Year Ended December 31,
---------------------------
1997 1996
----------- -----------
Investment income:
Interest and dividends $ 3,039,538 $ 3,420,494
Net appreciation in fair value of investments 4,220,737 1,154,013
----------- -----------
Total income 7,260,275 4,574,507
----------- -----------
Contributions:
Employer 959,634 1,003,456
Less forfeitures 24,328 13,691
----------- -----------
935,306 989,765
Employee 3,623,254 3,671,185
----------- -----------
Total contributions 4,558,560 4,660,950
----------- -----------
Total additions 11,818,835 9,235,457
Benefit payments 5,904,125 2,261,229
----------- -----------
Increase in net assets available
for benefits 5,914,710 6,974,228
Net assets available for benefits:
Beginning of year 40,694,482 33,720,254
----------- -----------
End of year $46,609,192 $40,694,482
=========== ===========
See notes to financial statements.
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QUANEX CORPORATION
EMPLOYEE SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
A. THE PLAN
The following brief description of the Quanex Corporation Employee Savings
Plan (the "Plan") is provided for general informational purposes only.
Participants should refer to the Plan agreement for more complete
information.
(1) General. The Plan became effective April 1, 1986, as amended and
restated effective January 1, 1989, and is sponsored by Quanex
Corporation (the "Company"). The Plan is a defined contribution plan
that is subject to the Employee Retirement Income Security Act of 1974
("ERISA"). The Plan is a voluntary savings plan in which employees of
the Company and its subsidiaries, excluding the Nichols-Homeshield
division and Piper Impact subsidiary, and those Quanex employees who
are covered by a collective bargaining agreement, are eligible to
participate after completing three months of active service. 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 Board of Directors of the Company,
serves as the Plan administrator.
(2) Contributions. Participants may elect to contribute up to 15% of their
pre-tax annual compensation or up to 15% of their after-tax annual
compensation limited to 15% of considered compensation as defined by
the Plan agreement. The Company matches 50% of the employee's
contribution up to, but not in excess of, 2.5% of the employee's
annual compensation.
(3) Participants Account. Each participant's account is credited with the
participant's contribution, the Company's matching contribution, and
an allocation of investment income, which is based on the
participant's account balance as of the end of the period in which the
income is earned.
(4) Investment Options. The Plan offers the following investment funds,
all managed by the Trustee, as follows:
Government Money Market Fund - composed of short-term government
obligations.
Puritan Fund - invested and reinvested in common and preferred stocks
and bonds.
Magellan Fund - invested and reinvested in equity and debt securities
of foreign and domestic companies.
Growth and Income Fund - invested and reinvested in equity and debt
securities of foreign and domestic companies.
Overseas Fund - invested and reinvested in foreign securities.
Balanced Fund - invested and reinvested in common and preferred stocks
and bonds.
Contrafund - invested and reinvested in equities of foreign and
preferred stock.
Templeton Foreign Fund - invested and reinvested in foreign
securities.
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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 voluntary
contributions and the related earnings. Vesting in the employer's
matching contributions for employees is 0% for less than one year of
service graduating to 100% for five or more years. Upon death,
retirement or total and permanent disability, the participant or
beneficiary becomes immediately 100% vested in the employer's
contribution. In the event of termination, nonvested portions of
employer's contributions are immediately forfeited by participants and
utilized to reduce future employer matching contributions.
(6) Payment of Benefits. Upon termination of service, the participant may
elect to receive a lump-sum amount 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 $46,482 and
$30,852, respectively, due to participants who had withdrawn from
participation in the Plan. Effective April 18, 1997, Quanex sold its
LaSalle Steel Company ("LaSalle") subsidiary to Niagara Corporation.
LaSalle employees in the Plan had the option of leaving their benefits
in the Plan or receiving a lump-sum distribution, which could be
rolled over into an individual retirement account, or into a new
qualified retirement plan set up by LaSalle. As of December 31, 1997,
$2,020,517 had been withdrawn from the Plan by LaSalle employees.
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 standards.
(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 fair value of the common/commingled trust is at face value.
(3) 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.
(4) Administrative Expenses. The Company pays all administrative expenses.
(5) Payment of Benefits. Benefit payments are recorded when paid.
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C. PLAN TERMINATION
Although it has not expressed any intent to do so, the Company has the
right under the Plan to terminate the Plan, subject to the provisions of
ERISA. In the event of termination of the Plan, 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 ("Code") and, as a result, is exempt
from taxation under Section 501(a) of the Code. The Plan received a
favorable determination letter from the IRS dated October 3, 1996. 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 15,184 $440,782 18,195 $403,216
Sales 29,930 629,783 $870,900 30,076 618,301 $741,499
During the years ended December 31, 1997 and 1996, the Plan purchased and
sold shares of Fidelity mutual fund assets, as shown below:
1997 1996
---- ----
Shares Cost Sales Price Shares Cost Sales Price
------ ---- ----------- ------ ---- -----------
Purchases 7,010,550 $22,115,775 3,781,125 $15,764,549
Sales 7,886,016 19,551,882 $20,775,858 4,142,244 8,854,715 $9,179,359
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 2,269,094 $2,269,094 396,185 $396,185
Sales 1,414,786 1,414,786 $1,414,786 833,229 833,229 $833,229
F. SUBSEQUENT EVENT
On December 3, 1997, Michigan Seamless Tube Company, the Gulf States Tube
and the Tube Group Office divisions of Quanex Corporation (the "Tube
Group") were sold to Vision Metals, Inc. The Tube Group employees in the
Plan will have the option of leaving their benefits in the Plan or
receiving a lump-sum distribution, which could be rolled over into an
individual retirement account, or into a new qualified savings plan set up
by Vision Metals, Inc.
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G. SUPPLEMENTAL FUND INFORMATION
Contributions, benefit payments and investment income by fund are as
follows for the years ended December 31:
1997 1996
---------- ----------
Employee Contributions:
Fidelity Puritan Fund $ 597,524 $ 631,064
Fidelity Magellan Fund 716,695 909,697
Fidelity Contrafund 450,107 325,350
Fidelity Growth and Income Fund 538,186 381,285
Fidelity Overseas Fund 219,539 227,957
Fidelity Balanced Fund 67,979 40,829
Fidelity Government Money Market Fund 735,626 953,608
Templeton Foreign Fund 71,702 17,898
Quanex Corporation Common Stock 120,540 117,769
Fidelity Common/Commingled Trust 105,356 65,728
---------- ----------
$3,623,254 $3,671,185
========== ==========
1997 1996
---------- ----------
Employer Contributions:
Fidelity Puritan Fund $ 157,777 $ 172,119
Fidelity Magellan Fund 192,569 242,159
Fidelity Contrafund 112,759 83,610
Fidelity Growth and Income Fund 129,559 95,579
Fidelity Overseas Fund 58,043 60,383
Fidelity Balanced Fund 17,119 11,115
Fidelity Government Money Market Fund 191,436 268,082
Templeton Foreign Fund 16,435 4,332
Quanex Corporation Common Stock 35,832 37,089
Fidelity Common/Commingled Trust 23,777 15,297
---------- ----------
$ 935,306 $ 989,765
========== ==========
1997 1996
---------- ----------
Benefit payments:
Fidelity Puritan Fund $1,268,575 $ 331,862
Fidelity Magellan Fund 1,143,858 529,329
Fidelity Contrafund 193,382 29,696
Fidelity Growth and Income Fund 504,526 116,336
Fidelity Overseas Fund 226,282 57,153
Fidelity Balanced Fund 67,717 2,476
Fidelity Government Money Market Fund 2,232,996 859,097
Templeton Foreign Fund 39,954 292
Quanex Corporation Common Stock 149,028 92,241
Fidelity Common/Commingled Trust 77,807 242,747
---------- ----------
$5,904,125 $2,261,229
========== ==========
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1997 1996
---------- ----------
Investment income:
Fidelity Puritan Fund $1,719,159 $1,005,808
Fidelity Magellan Fund 2,213,591 977,164
Fidelity Contrafund 815,658 443,202
Fidelity Growth and Income Fund 1,450,917 591,891
Fidelity Overseas Fund 215,404 241,670
Fidelity Balanced Fund 113,599 22,680
Fidelity Government Money Market Fund 517,602 515,358
Templeton Foreign Fund 46,464 30,573
Quanex Corporation Common Stock 102,136 685,994
Fidelity Common/Commingled Trust 65,745 60,167
---------- ----------
$7,260,275 $4,574,507
========== ==========
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ITEM 27-A SCHEDULE OF ASSETS HELD FOR INVESTMENTS PURPOSES
EIN: 38-1872178; PN 012
QUANEX CORPORATION
EMPLOYEE SAVINGS PLAN
SUPPLEMENTAL SCHEDULE OF INVESTMENTS
AS OF DECEMBER 31, 1997
Shares/ Current
Par Value Cost Value
--------- ----------- -----------
Mutual Fund Assets - Fidelity Investments:
Puritan Fund* 448,007 $ 7,403,135 $ 8,682,374
Magellan Fund* 108,851 8,444,019 10,370,199
Contrafund* 102,871 4,284,525 4,796,863
Growth and Income Fund* 178,022 5,230,360 6,782,645
Overseas Fund* 61,328 1,791,184 1,995,616
Balanced Fund* 34,533 491,382 527,322
Templeton Foreign Fund* 49,068 513,213 488,227
Government Money Market Fund* 9,327,811 9,327,810 9,327,810
---------------------------
Total Mutual Fund Assets 37,485,628 42,971,056
Quanex Corporation Common Stock* 51,811 1,212,348 1,457,181
Fidelity Common/Commingled Trust* 1,662,256 1,662,256 1,662,256
---------------------------
Total Investments $40,360,232 $46,090,493
===========================
* Party-in-Interest
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ITEM 27D - SCHEDULE OF REPORTABLE (5%) TRANSACTIONS EIN 38-1872178; PN 012
QUANEX CORPORATION EMPLOYEE SAVINGS PLAN
SUPPLEMENTAL SCHEDULE OF 5% REPORTABLE TRANSACTIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
Series of Transactions
Current
Total Number of Total Number of Value on
Purchases During Purchase Sales During the Selling Cost of Transaction Net
Description the Plan Year Price Plan Year Price Asset Date Gain
----------- ---------------- -------- ---------------- ------- ------- ----------- ----
Fidelity Investments:
Puritan* 131 $2,341,611 88 $2,630,084 $2,342,812 $2,630,084 $ 287,272
Magellan* 168 3,780,714 112 3,972,236 3,599,399 3,972,236 372,837
Contrafund* 154 3,231,474 84 1,906,348 1,765,865 1,906,348 140,483
Growth & Income* 174 4,183,721 85 2,736,100 2,447,586 2,736,100 288,514
Gov't Money Market* 156 6,528,452 141 7,466,130 7,466,130 7,466,130 0
Common/ Commingled
Trust* 108 2,269,094 67 1,414,786 1,414,786 1,414,786 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.
Quanex Corporation Employee 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
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EXHIBIT 23.1
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-38702 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 Quanex Corporation Employee
Savings Plan for the year ended December 31, 1997.
/s/ DELOITTE & TOUCHE LLP
- --------------------------
DELOITTE & TOUCHE LLP
Houston, Texas
June 29, 1998
