What changed in this filing

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Item 1. Business

2020-12-11 compared with 2019-12-12 · 49 added, 41 removed, 124 unchanged (42% of the section changed)

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Since the spin-off in 2008, we have evolved our business by making investments in organic growth initiatives and taking a disciplined approach to new business and strategic acquisition opportunities, while disposing of non-core businesses.

Notable developments and transactions which occurred since the spin-off include the following:

in March 2011, we acquired Edgetech, I.G.

and its German subsidiary, which provided us with three manufacturing facilities, one each in the United States (U.S.), U.K.

and Germany, that produce and market a full line of flexible insulating glass spacer systems for window and door customers in North America and abroad.

This acquisition complemented our then existing insulating glass products business in the U.S.;

in December 2012, we acquired substantially all of the assets of Alumco Inc.

and its subsidiaries (Alumco), an aluminum screen manufacturer, which allowed us to expand the scope of our fenestration business to include screens for vinyl window and door manufacturers and to expand our geographic reach throughout the U.S.;

in April 2014, we sold our interest in a limited liability company which held the net assets of our Nichols Aluminum business to a privately held company that provides aluminum rolled products and extrusions, aluminum recycling and specification aluminum alloy production;

in June 2015, we acquired the outstanding ownership shares of Flamstead Holdings Limited, an extruder of vinyl lineal products and manufacturer of other plastic products incorporated and registered in England and Wales.

Following a pre-sale reorganization and purchase, Flamstead Holdings Limited owned 100% of the ownership shares of the following subsidiaries:

HL Plastics Limited, Vintage Windows Limited, Wegoma Machinery Sales Limited (renamed in 2016 as Avantek Machinery Company), and Liniar Limited (collectively referred to as “HLP”), each registered in England and Wales.

This acquisition expanded our vinyl extrusion product offerings and grew our international presence in the global fenestration business;

in November 2015, we completed the merger of QWMS, Inc., a Delaware corporation which was a newly-formed and wholly-owned Quanex subsidiary, and WII Holding, Inc.

(WII), a Delaware corporation.

Upon satisfaction or waiver of conditions set forth in the merger agreement, QWMS, Inc.

merged with and into WII, and WII became our wholly-owned subsidiary, and, as a result, we acquired all the subsidiaries of WII (referred to collectively as Woodcraft).

Woodcraft is a manufacturer of cabinet doors and other components for OEMs in the kitchen and bathroom cabinet industry, operating various plants in the U.S.

in October 2016, we committed to a restructuring plan that included the closure of two vinyl extrusion plants in the U.S.

and our kitchen and bathroom cabinet door plant in Guadalajara, Mexico;

in September 2017, we closed a kitchen and bathroom cabinet door plant in Lansing, Kansas, and, in October 2017, sold a wood-flooring business in Shawano, Wisconsin.

As of October 31, 2020, we operated 31 manufacturing facilities located in 15 states in the U.S., two facilities in the U.K., and one in Germany.

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We believe the primary drivers of our operating results are residential remodeling and replacement activity and new home construction in the markets we serve.

Our business is largely North American based and dependent upon the spending and growth activity levels of our customers which include national and regional residential window, door and cabinet manufacturers.

Our international presence includes vinyl extruded lineals for house systems to smaller customers primarily in the U.K., as well as our insulating glass business in the U.K.

We use data related to housing starts and window shipments in the U.S., as published by or derived from third-party sources, to evaluate the fenestration market in these countries.

Our business is largely based in North America and dependent upon the spending and growth activity levels of our customers which include national and regional residential window, door and cabinet manufacturers.

Our international presence includes vinyl extruded lineals for large house systems to smaller individual customers.

We also have insulating glass businesses in the U.K.

We use data related to housing starts and window shipments in the U.S., as published by or derived from third-party sources, to evaluate the fenestration market.

We also use data related to cabinet demand in the U.S.

to evaluate the residential cabinet market.

The following table presents calendar-year annual housing starts information as of October 2019 the National Association of Home Builders (NAHB) (units in thousands):

Single-family Units

Multi-family Units

Manufactured Units

The following table presents calendar-year annual housing starts information as of November 2020 from the National Association of Home Builders (NAHB) (units in thousands):

Single-family Units Multi-family Units Manufactured Units

Period Units % Change Units % Change Units % Change Total Units

2016 785 10% 392 (1)% 81 14% 1,259

2017 851 8% 356 (9)% 93 15% 1,300

2018 872 2% 376 6% 96 3% 1,344

2019 893 2% 403 7% 95 (1)% 1,391

Annual Data - Forecast

Ducker Worldwide LLC, a consulting and research firm, indicated that window shipments in the residential remodeling and replacement (R&R) market are expected to decline slightly during the calendar year ended 2019, increase 2% during 2020 and increase 3% during 2021.

2020 947 6% 396 1% 94 (1)% 1,437

2021 971 3% 335 (15)% 114 21% 1,420

2022 993 2% 360 7% 120 5% 1,473

Ducker Worldwide LLC, a consulting and research firm, indicated in November 2020 that window shipments in the residential remodeling and replacement (R&R) market are expected to decrease slightly during the remaining calendar year 2020, increase 2% during 2021 and increase 3% during 2022.

Derived from reports published by Ducker, the overall decline in window shipments for the trailing twelve months ended September 30, 2020 was 0.3%.

During this period, R&R activity and new construction decreased 0.9% and 2.5%, respectively.

According to Catalina Research, a consulting and research firm, total U.S.

During this period, new construction activity increased 1.1% and R&R replacement decreased 1.4% respectively.

According to data from Catalina Research, a consulting and research firm, U.S.

residential cabinet demand is expected to increase through 2021.

Projections from Catalina Research as of September 2019 include growth rates for the stock, semi-custom (the cabinet market we primarily operate in) and custom cabinet markets, which are presented in the table below:

Projections from Catalina Research as of November 2020 include growth rates for the stock, semi-custom (the cabinet market we primarily operate in) and custom cabinet markets, which are presented in the table below:

Cabinet Market Annual Growth Rates

Period Stock Semi-Custom Custom Overall

2016 5.5% 1.0% 8.7% 4.6%

2017 8.5% 5.7% (0.9)% 6.6%

2018 7.9% (1.6)% 3.8% 4.9%

2019 3.1% (3.2)% 2.2% 1.5%

Annual Data - Forecast

2020 2.9% (5.5)% (2.5)% 0.3%

2021 8.8% 3.7% 2.6% 7.0%

We have noted the following trends which we believe affect our industry:

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and aluminum, wood and silicone products used by our other businesses;

higher energy efficiency standards in Europe should favorably impact sales of our insulating glass spacer products in the short- to mid-term.

• higher energy efficiency standards in Europe should favorably impact sales of our insulating glass spacer products in

the short- to mid-term.

Our vision is to be the preferred supplier to our customers in each market we serve.

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and (4) focusing on employee safety;

offer logistic solutions that provide our customers with just-in-time service which can reduce their processing costs;

• offer logistics solutions that provide our customers with just-in-time service which can reduce their processing costs;

• pursue targeted business acquisitions that allow us to expand our existing footprint, enhance our existing product offerings, acquire complementary technology, enhance our leadership position within the markets we serve, and expand into adjacent markets or service lines;

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Competitors in the vinyl extrusion business in the U.K.

include Epwin, Veka, Synseal, Eurocell and others.

include Epwin, Veka, Profine UK Extrustions Ltd., Eurocell and others.

Primary competitors in the cabinet door business in the U.S.

include Conestoga, Decore-ative Specialties, Northern Contours and others.

include Conestoga, Appalachian Wood, Olon, Northern Contours and others.

Sales, Marketing, and Distribution

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Service Marks, Trademarks, Trade Names, and Patents

Our federally registered trademarks or service marks include QUANEX, QUANEX and design, "Q" design, TRUSEAL TECHNOLOGIES, DURASEAL, DURALITE, SOLARGAIN EDGE TAPE, ENVIROSEALED WINDOWS, EDGETHERM, EDGETECH, ECOBLEND, SUPER SPACER, TSS, TRUE WARM, E & Design, QUIET EDGE, HEALTH SMART WINDOWS, ENERGY WISE WINDOWS, DESI-ROPE, 360 and design, INTELLICLIP, SUSTAINAVIEW, MIKRON, MIKRONWOOD, MIKRONBLEND, MIKRON BLEND and design, ENERGYCORE, FUSION INSULATED SYSTEM, AIRCELL, SUPERCOAT, SUPERCAP, STYLELOCK, STYLELOCK and design, K2 MIKRON and design, HOMESHIELD, HOMESHIELD and design, STORM SEAL, and TENON.

Our federally registered trademarks or service marks include QUANEX, QUANEX and design, "Q" design, TRUSEAL TECHNOLOGIES, DURASEAL, DURALITE, SOLARGAIN, ENVIROSEALED WINDOWS, EDGETHERM, EDGETECH, ECOBLEND, SUPER SPACER, TSS, TRUE WARM, E & Design, QUIET EDGE, HEALTH SMART WINDOWS, ENERGY WISE WINDOWS, DESI-ROPE, 360 and design, INTELLICLIP, SUSTAINAVIEW, MIKRON, MIKRONWOOD, MIKRONBLEND, MIKRON BLEND and design, ENERGYCORE, FUSION INSULATED SYSTEM, AIRCELL, SUPERCOAT, SUPERCAP, STYLELOCK, STYLELOCK and design, MIKRON and design, HOMESHIELD, HOMESHIELD and design, STORM SEAL, and TENON.

We consider the following marks, design marks and associated trade names to be valuable in the conduct of our business:

HOMESHIELD, TRUSEAL TECHNOLOGIES, EDGETECH, MIKRON, WOODCRAFT and QUANEX.

Through HLP, we hold a number of registered designs, patents and trademarks registered in the U.K., which include:

MODLOK, LINIAR, SUPERCUT, and various other trademarks and patents which are pending approval.

Through Liniar, we hold a number of registered designs, patents and trademarks registered in the U.K., which include:

MODLOK, LINIAR, SUPER CUT, ENERGY PLUS & Device, FLAMSTEAD HOLDINGS & Device, HL PLASTICS & Device, VINTAGE WINDOWS & Device, RESURGENCE, FUSE, ELEVATE, SWITCHBOARD and various other trademarks and patents which are pending approval.

Generally, our business does not depend on patent protection, but patents obtained with regard to our vinyl extrusion products and processes, fabricated metal components and IG spacer products business remain a valuable competitive advantage over other building products manufacturers.

We obtain patent protection for various dies and other tooling created in connection with the production of customer-specific vinyl profile designs and vinyl extrusions.

We obtain patent protection for various dyes and other tooling created in connection with the production of customer-specific vinyl profile designs and vinyl extrusions.

Our fabricated metal components business obtains patent protection for its thresholds.

Our window sealant business unit relies on patents to protect the design of several of its window spacer products.

Although we hold numerous patents, the proprietary process technology that has been developed is also considered a source of competitive advantage.

Although we hold

numerous patents, the proprietary process technology that has been developed is also considered a source of competitive advantage.

Environmental and Employee Safety Matters

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Based upon our experience to date, we do not believe that our compliance with environmental requirements will have a material adverse effect on our operations, financial condition or cash flows.

Human Capital

We track human capital metrics that we consider to be key to our business, including employee headcount, temporary workers, health and safety, and turnover.

As of October 31, 2020, we had 3,767 employees.

Of these employees, 2,980 were domiciled in the U.S., 694 in the U.K., and 93 in Germany.

Generally, the total number of employees of Quanex and its subsidiaries does not significantly fluctuate throughout the year.

Currently, none of our employees are subject to collective bargaining agreements.

Employee turnover rates are monitored monthly at the division and plant levels.

Both voluntary and involuntary terminations, including retirements, are used to calculate the turnover rate.

Our human capital objectives include attracting, developing, motivating, rewarding, and retaining our existing and new employees.

We offer our employees online training courses and on-the-job training on job duties, safety requirements, and leadership skills.

The health and safety of our employees is our high priority and in particular, in response to the COVID-19 pandemic.

We have taken additional measures to limit possible infections at the workplace.

See Part 2 Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Notable Items - COVID-19 Impacts," elsewhere in this Annual Report on Form 10-K for related disclosure.

For Investors

We periodically file or furnish documents to the Securities and Exchange Commission (SEC), including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other reports as required.

These reports are also available free of charge from the Investor Relations Section of our website at http://www.quanex.com , as soon as reasonably practicable after we file such material or furnish it to the SEC.

These reports are also available free of charge from the Investor Relations Section of our website at http://www.quanex.com, as soon

as reasonably practicable after we file such material or furnish it to the SEC.

As permitted by the SEC rules, we post relevant information on our website.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business