What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-03-04 compared with 2021-09-03 · 148 added, 234 removed, 514 unchanged (43% of the section changed)

49 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended Nine Months Ended

July 31, July 31,

2021 2020 2021 2020

Three Months Ended

(In thousands, except per share amounts)

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three Months Ended Nine Months Ended

July 31, July 31,

2021 2020 2021 2020

Three Months Ended

(In thousands)

Net income $ 11,239 $ 7,852

Other comprehensive income:

Foreign currency translation gain 424 7,344 10,056 3,088

Change in pension from net unamortized gain adjustment (pretax) — — — 2,519

Change in pension from net unamortized gain adjustment tax expense — — — ( 609 )

Other comprehensive income 424 7,344 10,056 4,998

Other comprehensive (loss)income:

Foreign currency translation (loss) gain ( 3,159 ) 8,600

Other comprehensive (loss) income ( 3,159 ) 8,600

Comprehensive income $ 8,080 $ 16,452

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended

Three Months Ended

(In thousands)

1 unchanged sentence

Net income $ 11,239 $ 7,852

Adjustments to reconcile net income to cash provided by operating activities:

Adjustments to reconcile net income to cash used for operating activities:

Depreciation and amortization 10,257 11,015

3 unchanged sentences

Changes in assets and liabilities:

Increase in accounts receivable ( 8,277 ) ( 1,852 )

(Increase) decrease in inventory ( 32,113 ) 3,553

(Increase) decrease in other current assets ( 2,768 ) 1,218

Increase (decrease) in accounts payable 1,600 ( 1,878 )

Increase (decrease) in accrued liabilities 12,521 ( 7,611 )

(Decrease) increase in income taxes payable ( 5,158 ) 107

(Decrease) increase in deferred pension and postretirement benefits ( 158 ) 573

Decrease in accounts receivable 8,340 7,103

Increase in inventory ( 25,318 ) ( 14,061 )

Increase in other current assets ( 3,534 ) ( 873 )

Decrease in accounts payable ( 8,391 ) ( 14,577 )

Decrease in accrued liabilities ( 18,248 ) ( 2,692 )

Increase (decrease) in income taxes payable 1,391 ( 2,790 )

Decrease in deferred pension and postretirement benefits ( 80 ) ( 52 )

Increase (decrease) in other long-term liabilities 404 ( 399 )

Other, net ( 335 ) 442

Cash provided by operating activities 47,435 47,561

Cash used for operating activities ( 21,651 ) ( 3,395 )

Investing activities:

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Purchase of treasury stock — ( 1,927 )

Cash used for financing activities ( 43,480 ) ( 17,394 )

Cash provided by (used for) financing activities 20,857 ( 567 )

Effect of exchange rate changes on cash and cash equivalents ( 188 ) 949

(Decrease) increase in cash and cash equivalents ( 7,958 ) 10,205

Decrease in cash and cash equivalents ( 8,342 ) ( 8,195 )

Cash and cash equivalents at beginning of period 40,061 51,621

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CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Nine Months Ended July 31, 2021 Common

Three Months Ended January 31, 2022 Common

Stock Additional

9 unchanged sentences

— — ( 2,587 ) — — ( 2,587 )

Purchase of treasury stock — — — — ( 1,927 ) ( 1,927 )

Stock-based compensation activity:

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Balance at January 31, 2022 $ 373 $ 250,204 $ 268,370 $ ( 24,929 ) $ ( 69,519 ) $ 424,499

Net income — — 14,551 — — 14,551

Foreign currency translation adjustment — — — 1,032 — 1,032

Common dividends ($ 0.08 per share)

— — ( 2,693 ) — — ( 2,693 )

Purchase of treasury stock — — — — ( 2,041 ) ( 2,041 )

Stock-based compensation activity:

Expense related to stock-based compensation — 447 — — — 447

Stock options exercised — 423 — — 5,670 6,093

Balance at April 30, 2021 $ 373 $ 253,147 $ 230,590 $ ( 23,392 ) $ ( 65,621 ) $ 395,097

Net income — — 13,679 — — 13,679

Foreign currency translation adjustment — — — 424 — 424

Common dividends ($ 0.08 per share)

— — ( 2,687 ) — — ( 2,687 )

Purchase of treasury stock — — — — ( 1,773 ) ( 1,773 )

Stock-based compensation activity:

Expense related to stock-based compensation — 500 — — — 500

Stock options exercised — 15 — — 134 149

Balance at July 31, 2021 $ 373 $ 253,662 $ 241,582 $ ( 22,968 ) $ ( 67,260 ) $ 405,389

Nine Months Ended July 31, 2020 Common

Three Months Ended January 31, 2021 Common

Stock Additional

9 unchanged sentences

— — ( 2,637 ) — — ( 2,637 )

Purchase of treasury stock — — — — ( 4,639 ) ( 4,639 )

Change in pension from net unamortized loss (net of tax expense of $ 609 )

— — — 1,910 — 1,910

Treasury shares purchased, at cost — — — — ( 1,927 ) ( 1,927 )

Stock-based compensation activity:

Stock-based compensation benefit — ( 239 ) — — — ( 239 )

Expense related to stock-based compensation — 523 — — — 523

Stock options exercised — 635 — — 9,395 10,030

Restricted stock awards granted — ( 1,282 ) — — 1,282 —

Performance share awards vested — ( 495 ) — — 495 —

Performance restricted stock units vested — ( 565 ) — — 565 —

Other — ( 492 ) — — — ( 492 )

Balance at January 31, 2021 $ 373 $ 252,277 $ 218,732 $ ( 24,424 ) $ ( 69,250 ) $ 377,708

Net income — — 5,501 — — 5,501

Foreign currency translation adjustment — — — ( 6,999 ) — ( 6,999 )

Common dividends ($ 0.08 per share)

— — ( 2,628 ) — — ( 2,628 )

Purchase of treasury stock — — — — ( 2,054 ) ( 2,054 )

Stock-based compensation activity:

Expense related to stock-based compensation — 325 — — — 325

Stock options exercised — ( 38 ) ( 83 ) — — ( 121 )

Restricted stock awards granted — ( 65 ) — — 65 —

Balance at April 30, 2020 $ 373 $ 252,717 $ 185,779 $ ( 36,163 ) $ ( 78,749 ) $ 323,957

Net income — — 10,833 — — 10,833

Foreign currency translation adjustment — — — 7,344 — 7,344

Common dividends ($ 0.08 per share)

— — ( 2,623 ) — — ( 2,623 )

Stock-based compensation activity:

Expense related to stock-based compensation — 427 — — — 427

Balance at July 31, 2020 $ 373 $ 253,144 $ 193,989 $ ( 28,819 ) $ ( 78,749 ) $ 339,938

The accompanying notes are an integral part of the financial statements.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The following table summarizes our product sales for the three and nine months ended July 31, 2021 and 2020 into groupings by segment which we believe depicts how the nature, amount, timing and uncertainty of our revenues and cash flows are affected by economic factors.

The following table summarizes our product sales for the three months ended January 31, 2022 and 2021 into groupings by segment which we believe depicts how the nature, amount, timing and uncertainty of our revenues and cash flows are affected by economic factors.

For further details regarding our results by segment, refer to Note 11, “Segment Information”.

Three Months Ended Nine Months Ended

July 31, July 31,

2021 2020 2021 2020

Three Months Ended

(In thousands)

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Actual write-offs are charged against the allowance when collection efforts have been unsuccessful.

Related Parties

N et sales for the three months ended January 31, 2022 included approximately $ 0.4 million of transactions with a customer which is a related party with one of our non-employee directors.

We performed a review of these transactions, of which no single transaction or series of related transactions exceeded $ 120,000 in amount, and determined that these transactions were enacted independently of each other in fair transactions.

We are not aware of any other related party transactions with any of our current non-employee directors or officers outside of their normal business functions or expected contractual duties.

COVID-19 Impact

On March 11, 2020, the World Health Organization (WHO) declared the outbreak of COVID-19 as a global pandemic and advised aggressive containment action.

The COVID-19 pandemic and its impacts are continuing to have an adverse effect on many sectors of the economy.

Measures providing for business shutdowns generally exclude certain essential services commonly including critical infrastructure such as construction and the businesses that support that critical infrastructure.

The COVID-19 pandemic and its impacts are continuing to have an adverse effect on many sectors of the economy, including negative impacts to the global supply chain and increased inflation.

Measures providing for business shutdowns generally exclude certain essential services commonly including critical infrastructure such as

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

construction and the businesses that support that critical infrastructure.

To date, we have not experienced significant challenges or expenses implementing crisis management plans intended for containment and prevention.

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We continue to assess and refine these measures on an ongoing basis as public health guidance and applicable laws and regulations continue to evolve.

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

As a result of the economic and business impact of COVID-19, we may be required to revise certain accounting estimates and judgments such as, but not limited to, those related to the valuation of goodwill, intangibles, right-of-use assets, long-lived assets, accounts receivable (including allowances for credit losses), and inventory, which could have a material adverse effect on our financial position and results of operations.

Inventories consisted of the following at July 31, 2021 and October 31, 2020 (in thousands):

Inventories consisted of the following at January 31, 2022 and October 31, 2021 (in thousands):

2022 October 31,

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Goodwill and Intangible Assets

The change in the carrying amount of goodwill for the nine months ended July 31, 2021 was as follows (in thousands):

Nine Months Ended

July 31, 2021

The change in the carrying amount of goodwill for the three months ended January 31, 2022 was as follows (in thousands):

Three Months Ended

January 31, 2022

Beginning balance as of November 1, 2021 $ 149,205

2 unchanged sentences

At our last annual test date, August 31, 2021, we evaluated the recoverability of goodwill at each of our five reporting units with goodwill balances and determined that our goodwill was no t impaired.

We evaluated for indicators of impairment during the three and nine months ended July 31, 2021 and determined that there were no triggering events.

We evaluated for indicators of impairment during the three months ended January 31, 2022 and determined that there were no triggering events.

For a summary of the change in the carrying amount of goodwill by segment, see Note 11, “Segment Information.”

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Identifiable Intangible Assets

Amortizable intangible assets consisted of the following as of July 31, 2021 and October 31, 2020 (in thousands):

July 31, 2021 October 31, 2020

Amortizable intangible assets consisted of the following as of January 31, 2022 and October 31, 2021 (in thousands):

January 31, 2022 October 31, 2021

Gross Carrying

6 unchanged sentences

Total $ 224,202 $ 145,452 $ 225,169 $ 142,759

We had aggregate amortization expense related to intangible assets for the three and nine months ended July 31, 2021 of $ 3.0 million and $ 9.7 million, respectively, and $ 3.4 million and $ 10.8 million, respectively, for the comparable prior year periods.

We retired fully amortized identifiable assets of $ 9.9 million related to customer relationships during the nine months ended July 31, 2021.

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

We had aggregate amortization expense related to intangible assets for the three months ended January 31, 2022 of $ 3.0 million and $ 3.4 million for the comparable prior year period.

Estimated remaining amortization expense, based on current intangible balances, for each of the fiscal years ending October 31, is as follows (in thousands):

Amortization Expense

2021 (remaining three months) $ 3,057

2022 (remaining nine months) $ 9,049

Thereafter 29,180

1 unchanged sentence

Debt and Finance Lease Obligations

Long-term debt consisted of the following at July 31, 2021 and October 31, 2020 (in thousands):

Long-term debt consisted of the following at January 31, 2022 and October 31, 2021 (in thousands):

2022 October 31,

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serving as Syndication Agent.

The 2018 Credit Facility has a five-year term, maturing on October 18, 2023, and requires interest payments calculated, at our election and depending upon our Consolidated Leverage Ratio, at either a Base Rate plus an applicable margin or the LIBOR Rate plus an applicable margin.

As of July 31, 2021, the applicable rate was LIBOR + 1.25%.

The Credit Facility has a five-year term, maturing on October 18, 2023.

On December 28, 2021, we entered into a second amendment (the “Amendment”) of the Credit Facility.

Pursuant to the Amendment, (a) the definition of “Capital Lease” was modified and clarified to provide an exclusion of certain agreed leases of the Company and its subsidiaries from the Credit Facility’s financial covenants and other provisions and (b) secured overnight financing rate, interest rate mechanics and interest rate reference benchmark replacement provisions were implemented to effectuate the transition from LIBOR as a reference interest rate.

We will, however, continue to use the One Month LIBOR Rate plus applicable margin for the Credit Facility until June of 2023 when One Month LIBOR will no longer be available.

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Following the Amendment, interest payments are calculated, at our election and depending upon the Consolidated Leverage Ratio, at a Base Rate plus an applicable margin or at the same rate as One Month LIBOR for domestic borrowings, Eurocurrency Rate Loan, Transitioned RFR Loan or RFR Loan plus an applicable margin.

In addition, we are subject to commitment fees for the unused portion of the Credit Facility.

The applicable margin and commitment fees are outlined in the following table:

Pricing Level Consolidated Leverage Ratio Commitment Fee LIBOR Rate Loans Base Rate Loans

Pricing Level Consolidated Leverage Ratio Commitment Fee LIBOR, Eurocurrency Rate Loans and Transitioned RFR Loans Initial RFR Loans Base Rate Loans

I Less than or equal to 1.50 to 1.00 0.200 % 1.25 % 1.2826 % 0.25 %

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We can also borrow up to the lesser of $ 15.0 million or the revolving credit commitment, as defined, under a Swingline feature of the Credit Facility.

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The Credit Facility contains a:

3 unchanged sentences

Substantially all of our domestic assets, with the exception of real property, are used as collateral for the Credit Agreement.

As of July 31, 2021, we ha d $ 58.0 million of borrowings outstanding under the 2018 Credit Facility (reduced by unamortized debt issuance costs of $0.7 million), $ 4.5 million of o utstanding letters of credit and $ 16.0 million outstanding primarily under finance leases and other debt.

We had $ 262.5 million availa ble for use under the 2018 Credit Facility at July 31, 2021.

Outstanding borrowings under the 2018 Credit Facility accrue interes t at 1.34 % per annum.

Our weighted average borrowing rate for borrowings outstanding during the nine months ended July 31, 2021 and 2020 was 1.43 % and 2.62 %, respectively.

We were in compliance with our debt covenants as of July 31, 2021.

As of January 31, 2022, we ha d $ 63.0 million of borrowings outstanding under the Credit Facility (reduced by unamortized debt issuance costs of $0.5 million), $ 4.5 million of outstanding letters of credit and $ 15.0 million outstanding primarily under finance leases and other debt.

We had $ 257.5 million available for use under the 2018 Credit Facility at January 31, 2022.

Outstanding borrowings under the 2018 Credit Facility accrue interest at 1.36 % per annum.

Our weighted average borrowing rate for borrowings outstanding during the three months ended January 31, 2022 and 2021 was 1.35 % and 1.56 %, respectively.

We were in compliance with our debt covenants as of January 31, 2022.

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Retirement Plans

Our non-contributory, single employer defined benefit pension plan covers certain of our employees in the U.S.

The net periodic pension cost for this plan for the three and nine months ended July 31, 2021 and 2020 was as follows (in thousands):

Three Months Ended Nine Months Ended

July 31, July 31,

2021 2020 2021 2020

The net periodic pension cost for this plan for the three months ended January 31, 2022 and 2021 was as follows (in thousands):

Three Months Ended

Service cost $ 216 $ 212

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Amortization of net loss 1 36

Net periodic pension (benefit) cost $ ( 53 ) $ 9 $ ( 158 ) $ 572

On January 1, 2020, we enacted changes to our pension plan whereby the benefits for all participants were frozen and thereafter those participants will receive increased benefits in the Company sponsored defined contribution plan in lieu of participation in a defined benefit plan.

As a result of this action, we remeasured the pension assets and obligations for the pension plan, which resulted in a decrease to our projected benefit obligation and a corresponding net actuarial gain that was recorded in accumulated other comprehensive income.

During September 2020, we contributed $ 3.7 million to fund our plan, and we expect to make a contribution to our plan in September 2021 of approximately $ 0.5 million.

Net periodic pension benefit $ ( 79 ) $ ( 53 )

During September 2021, we contributed $ 0.5 million to fund our plan.

During fiscal 2022 , we do not expect to need to make a contribution to the pension plan to maintain targeted funding levels and meet minimum contribution requirements.

We also have a supplemental benefit plan covering certain executive officers and key employees and a non-qualified deferred compensation plan covering members of the Board of Directors and certain key employees.

As of July 31, 2021 and October 31, 2020, our liability under the supplemental benefit plan was approximat ely $ 2.8 million and $ 2.6 million, respectively.

As of July 31, 2021 and October 31, 2020, the liability associated with the deferred compensation plan was approximately $ 3.6 million and $ 3.3 million, respectively.

As of January 31, 2022 and October 31, 2021, our liability under the supplemental benefit plan was approximat ely $ 2.9 million.

As of January 31, 2022 and October 31, 2021, the liability associated with the deferred compensation plan was approximately $ 3.4 million.

We record the current portion of liabilities as sociated with these plans under the caption “Accrued Liabilities,” and the long-term portion under the caption “Other Liabilities” in the accompanying condensed consolidated balance sheets.

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

To determine our income tax expense or benefit for interim periods, consistent with accounting standards, we apply the estimated annual effective income tax rate to year-to-date results, adjusted for any applicable discrete items.

Our estimated annual effective tax rates from continuing operations for the nine months ended July 31, 2021 and 2020 were 32.5 % and 29.7 % , respectively.

Our estimated annual effective tax rates from continuing operations for the three months ended January 31, 2022 and 2021 were 25.3 % and 26.0 % , respectively.

The difference between our effective income tax rate and the U.S.

federal statutory rate of 21 % principally result from discrete tax items, U.S.

federal statutory rate of 21 % principally results from discrete tax items, U.S.

state tax, non-U.S.

tax rate differential and other permanent differences.

The primary discrete items affecting the 2021 effective rate were the $ 3.1 million measurement of our deferred income tax assets and liabilities related to the increase in the corporate tax rate in the U.K.

from 19 % to 25 %, a charge of $ 0.6 million related to the vesting or exercise of equity-based compensation awards and a benefit of $ 0.6 million for the true-up of our accruals and related deferred taxes from prior year filings.

The 2020 effective tax rate was primarily impacted by a discrete charge of $ 0.5 million related to the vesting or exercise of equity-based compensation awards.

As of July 31, 2021, our liability for uncertain tax positions (UTP) of $ 0.5 million relates to certain U.S.

state tax items regarding the interpretation of tax laws and regulations, including $ 0.2 million of interest and penalties.

The primary discrete items affecting the 2022 effective rate were a charge of $ 0.5 million related to the vesting or exercise of equity-based compensation awards and a benefit of $ 0.3 million for the true-up of our acc ruals and related deferred taxes from prior year.

The 2021 effective tax rate was primarily impacted by a discrete benefit of $ 0.5 million related to the vesting or exercise of equity-based compensation awards and a charge of $ 0.8 million for the true-up of our deferred taxes from prior year filings.

As of January 31, 2022 , our liability for uncertain tax positions (UTP) of $ 1.4 million relates to certain U.S.

federal and state tax items regarding the interpretation of tax laws and regulations, including a minimal amount of interest and penalties.

We include all interest and penalties related to uncertain tax benefits within our income tax provision account.

To the extent interest and penalties are not assessed with respect to uncertain tax positions or the uncertainty of deductions in the future, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision.

Our total unrecognized tax benefits, if recognized, would not materially affect our effective tax rate.

We do not believe any of the UTP at July 31, 2021 will be recognized within the next twelve months.

We do not believe that the recorded amount of unrecognized tax benefits will decrease significantly within the next twelve months.

We evaluate the likelihood of realization of our deferred tax assets by considering both positive and negative evidence.

We maintain a valuation allowance for certain state net operating losses which totaled $ 1.5 million as of July 31, 2021 and October 31, 2020.

Final regulations were published by the Internal Revenue Service regarding Uniform Capitalization (UNICAP) that became effective during fiscal 2020.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law.

In addition, the Consolidated Appropriations Act, 2021 (CAA) was signed into law on December 27, 2020 and the American Rescue Plan Act of 2021 (American Rescue Plan) was signed into law on March 11, 2021.

We evaluated the UNICAP regulations and the CARES Act and determined that there were no material impacts on our condensed consolidated financial statements.

We are evaluating the CAA and the American Rescue Plan and do not believe there will be a material impact on our condensed consolidated financial statements.

We maintain a valuation allowance for certain state net operating losses which totaled $ 1.3 million as of January 31, 2022 and October 31, 2021.

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Contingencies

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However, there is no assurance that we will prevail in these matters or that our insurers will accept full coverage of these matters, and we could, in the future, incur judgments, enter into settlements of claims, or revise our expectations regarding the outcome or insurability of matters we face, which could materially impact our results of operations.

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

We have been and are currently party to multiple claims, some of which are in litigation, relating to alleged defects in a commercial sealant product that was manufactured and sold during the 2000’s.

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Carrying amounts reported on the balance sheet for cash, cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term maturity of these instruments.

Our outstanding debt is variable rate debt that re-prices frequently, thereby limiting our exposure to significant change in interest rate risk.

As a result, the fair value of our debt instrument approximates carrying value at July 31, 2021, and October 31, 2020 (Level 2 measurement).

Our outstanding debt is variable rate debt that re-

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

prices frequently, thereby limiting our exposure to significant change in interest rate risk.

As a result, the fair value of our debt instrument approximates carrying value at January 31, 2022, and October 31, 2021 (Level 2 measurement).

Our performance share awards are marked-to-market on a quarterly basis during a three-year vesting period based on market data (Level 2 measurement).

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Shares are generally issued from treasury stock at the time of grant.

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

A summary of non-vested restricted stock awards activity during the nine months ended July 31, 2021 is presented below:

A summary of non-vested restricted stock awards activity during the three months ended January 31, 2022 is presented below:

Restricted Stock Awards Weighted Average

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Vested ( 84,200 ) 13.63

Non-vested at July 31, 2021 216,400 $ 17.28

The total weighted average grant-date fair value of restricted stock awards that vested during each of the nine months ended July 31, 2021 and 2020 was $ 0.9 million and $ 1.1 million, respectively.

As of July 31, 2021, total unrecognized compensation cost related to unamortized restricted stock awards was $ 1.8 million.

Non-vested at January 31, 2022 216,600 $ 20.75

The total weighted average grant-date fair value of restricted stock awards that vested during each of the three months ended January 31, 2022 and 2021 was $ 1.1 million and $ 0.9 million, respectively.

As of January 31, 2022, total unrecognized compensation cost related to unamortized restricted stock awards was $ 3.0 million.

We expect to recognize this expense over the remaining weighted average vesting period of 2.4 years.

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Historically, stock options have been awarded to key employees, officers and non-employee directors.

In December 2017, the Compensation & Management Development Committee of the Board of Directors approved a change to the long-term incentive award program eliminating the grant of stock options and replacing this award with a grant of performance restricted stock units as further described below.

As a result, the final stock options were granted during the fiscal year ended October 31, 2017.

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For employees who were nearing retirement-eligibility, we recognized stock option expense ratably over the shorter of the vesting period or the period from the grant-date to the retirement-eligibility date.

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

We use a Black-Scholes pricing model to estimate the fair value of stock options.

A description of the methodology for the valuation assumptions was disclosed in our Annual Report on Form 10-K for the fiscal year ended October 31, 2021.

The following table summarizes our stock option activity for the nine months ended July 31, 2021:

The following table summarizes our stock option activity for the three months ended January 31, 2022:

Stock Options Weighted Average

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Forfeited/Expired ( 500 ) 18.22

Outstanding at July 31, 2021 227,436 $ 19.20 3.5 $ 1,283

Vested at July 31, 2021 227,436 $ 19.20 3.5 $ 1,283

Exercisable at July 31, 2021 227,436 $ 19.20 3.5 $ 1,283

Outstanding at January 31, 2022 215,054 $ 19.37 3.2 $ 520

Vested at January 31, 2022 215,054 $ 19.37 3.2 $ 520

Exercisable at January 31, 2022 215,054 $ 19.37 3.2 $ 520

Intrinsic value is the amount by which the market price of the common stock on the date of exercise exceeds the exercise price of the stock option.

The total intrinsic value of stock options exercised during the nine months ended July 31, 2021 and 2020 was $ 4.2 million and $ 0.5 million, respectively.

The weighted-average grant date fair value of stock options that vested during the nine months ended July 31, 2020 was $ 0.4 million.

The total intrinsic value of stock options exercised during the three months ended January 31, 2022 and 2021 was less than $ 0.1 million and $ 2.3 million, respectively.

Restricted Stock Units

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Restricted stock units awarded to employees and officers typically cliff vest after a three-year period with service and continued employment as the vesting conditions.

Restricted stock units are not considered outstanding shares and do not have voting rights, although the holder does receive a cash payment equivalent to the dividend paid, on a one-for-one basis, on our

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

outstanding common shares.

Once the criteria is met, each restricted stock unit is payable to the holder in cash based on the market value of one share of our common stock.

Accordingly, we record a liability for the restricted stock units on our balance sheet and recognize any changes in the market value during each reporting period as compensation expense.

During the nine months ended July 31, 2021 and 2020, non-employee directors received 28,826 and 25,326 restricted stock units, respectively, at a grant date fair value of $ 18.79 per share and $ 19.02 per share, respectively, which vested immediately.

As of July 31, 2021, there were 21,774 non-vested restricted stock units, which were awarded in January 2020 to key employees at a weighted average grant date fair value of $ 17.08 .

During the nine months ended July 31, 2021 we paid $ 0.8 million to settle vested restricted stock units.

There were no corresponding payments to settle vested restricted stock during the nine months ended July 31, 2020.

During the three months ended January 31, 2022 and 2021, non-employee directors received 33,579 and 28,826 restricted stock units, respectively, at a grant date fair value of $ 22.54 per share and $ 18.79 per share, respectively, which vested immediately.

As of January 31, 2022, there were 21,774 non-vested restricted stock units, which were awarded in January 2020 to key employees at a weighted average grant date fair value of $ 17.08 .

During the three months ended January 31, 2022 and January 31, 2021, we paid $ 0.1 million to settle vested restricted stock units.

Performance Share Awards

We have awarded annual grants of performance shares to key employees and officers.

Beginning with the fiscal year ended October 31, 2019, performance share awards vest with return on net assets (RONA) as the vesting condition and pay out 100 % in cash, and are accounted for as liability.

Performance share awards vest with return on net assets (RONA) as the vesting condition and pay out 100 % in cash, and are accounted for as liability.

The expected cash settlement of the performance share award is recorded as a liability and is being marked to market over the three-year term of the award and can fluctuate depending on the number of shares ultimately expected to vest.

5 unchanged sentences

December 9, 2021 80,900 $ 22.54 —

In December 2020, the December 2017 grant vested, however, no shares were awarded as performance criteria were not met.

We recorded compensation exp ense of $ 0.7 million and $ 4.0 million, respectively, for the three and nine months ended July 31, 2021 related to the expected payout of our performance share awards that w ere outstanding as of July 31, 2021.

We recorded compensation expense of $ 0.1 million for the three months ended July 31, 2020 and a decrease in compensation expense of $ 0.3 million for the nine months ended July 31, 2020 related to the expected payout of our performance share awards that were outstanding as of July 31, 2020.

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

In December 2021, 183,000 shares vested pursuant to the December 2018 grant, which were settled with a cash payment of $3.8 million.

Performance share awards are payable in cash based upon the number of performance shares ultimately earned, and are therefore not considered outstanding shares.

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The number of shares earned is variable depending on the metric achieved, and the settlement method is 100 % in our common stock, with accrued dividends paid in cash at the time of vesting, assuming the shares had been outstanding throughout the performance period.

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

To value the performance restricted stock units, we used a Monte Carlo simulation model to arrive at a grant-date fair value.

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December 9, 2021 50,900 $ 21.06 —

During the nine months ended July 31, 2021 , 32,322 performance restricted stock units vested.

We recorded compensation expense related to our performance restricted stock units of approximately $ 0.1 million and $ 0.5 million, respectively, for the three and nine months ending July 31, 2021 and $ 0.1 million and $ 0.4 million, respectively, for the comparable prior year periods.

During the three months ended January 31, 2022 , 87,919 performance restricted stock units vested.

The performance restricted stock units are not considered outstanding shares, do not have voting rights, and are exclud ed from diluted weighted-average shares used to calculate earnings per share until the performance criteria is probable to result in the issuance of contingent shares.

As of July 31, 2021, we have de emed 92,104 shares related to the December 2018 grant of performance restricted stock units as probable to vest.

As of January 31, 2022, we have de emed 33,093 shares related to the December 2019 grant of performance restricted stock units as probable to vest.

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The following table summarizes amounts expensed as selling, general and administrative expense related to restricted stock awards, stock options, restricted stock units, performance share awards and performance restricted stock units for the three months ended January 31, 2022 and 2021 (in thousands):

Three Months Ended

Restricted stock awards $ 348 $ 302

Stock options — —

Restricted stock units 994 1,284

Performance share awards 1,340 2,685

Performance restricted stock units 204 171

Total compensation expense $ 2,886 $ 4,442

Treasury Shares

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A deficiency of such proceeds relative to costs would be applied to reduce paid-in-capital associated with prior issuances to the extent available, with the remainder recorded as a charge to retained earnings.

There were no charges to retained earnings during the nine months ended July 31, 2021.

The following table summarizes the treasury stock activity during the nine months ended July 31, 2021:

Nine Months Ended

July 31, 2021

There were no charges to retained earnings during the three months ended January 31, 2022.

The following table summarizes the treasury stock activity during the three months ended January 31, 2022:

Three Months Ended

January 31, 2022

Beginning Balance as of November 1, 2021 3,998,725

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Stock options exercised ( 2,750 )

Treasury stock repurchases 231,308

Balance at July 31, 2021 3,751,722

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Other, net on the condensed consolidated statements of income consisted of the following for the three and nine months ended July 31, 2021 and 2020 (in thousands):

Three Months Ended Nine Months Ended

July 31, July 31,

2021 2020 2021 2020

Balance at January 31, 2022 3,823,656

Other, net on the condensed consolidated statements of income consisted of the following for the three months ended January 31, 2022 and 2021 (in thousands):

Three Months Ended

Foreign currency transaction losses $ ( 41 ) $ ( 78 )

Foreign currency derivative losses — — — ( 15 )

Pension service benefit 295 265

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Other, net $ 54 $ 192

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Segment Information

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The accounting polic ies of our operating segments are the same as those used to prepare the accompanying condensed consolidated financial statements.

Corporate general and administrative expense allocated during the three and nine month period ended July 31, 2021 was $ 4.9 million and $ 15.6 million, respectively, and $ 5.2 million and $ 15.4 million for the comparable prior year periods.

Corporate general and administrative expense allocated during the three month period ended January 31, 2022 was $ 5.8 million, and $ 5.2 million for the comparable prior year period.

ASC Topic 280-10-50, “Segment Reporting” (ASC 280) permits aggregation of operating segments based on factors including, but not limited to:

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and (6) converging long-term economic similarities.

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Segment information for the three and nine months ended July 31, 2021 and 2020, and total assets as of July 31, 2021 and October 31, 2020 are summarized in the following table (in thousands):

Segment information for the three months ended January 31, 2022 and 2021, and total assets as of January 31, 2022 and October 31, 2021 are summarized in the following table (in thousands):

NA Fenestration EU Fenestration NA Cabinet Comp.

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& Other Total

Three Months Ended July 31, 2021

Net sales $ 147,818 $ 71,114 $ 61,936 $ ( 991 ) $ 279,877

Depreciation and amortization 4,571 2,646 3,390 76 10,683

Operating income (loss) 13,302 11,464 ( 918 ) ( 2,286 ) 21,562

Capital expenditures 2,651 2,285 1,115 156 6,207

Three Months Ended July 31, 2020

Net sales $ 122,386 $ 38,265 $ 51,925 $ ( 480 ) $ 212,096

Depreciation and amortization 5,371 2,307 3,264 118 11,060

Operating income (loss) 12,383 5,365 ( 193 ) ( 992 ) 16,563

Capital expenditures 1,963 1,787 602 8 4,360

Nine Months Ended July 31, 2021

Three Months Ended January 31, 2022

Net sales $ 146,631 $ 58,914 $ 62,353 $ ( 858 ) $ 267,040

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Capital expenditures 5,305 954 1,073 38 7,370

Nine Months Ended July 31, 2020

Three Months Ended January 31, 2021

Net sales $ 128,116 $ 49,091 $ 53,994 $ ( 1,054 ) $ 230,147

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Capital expenditures 2,820 472 1,953 1 5,246

As of July 31, 2021

As of January 31, 2022

Total assets $ 282,033 $ 229,515 $ 179,410 $ 27,314 $ 718,272

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Total assets $ 268,773 $ 236,755 $ 178,671 $ 33,124 $ 717,323

The following table summarizes the change in the carrying amount of goodwill by reportable business segment for the nine months ended July 31, 2021 (in thousands):

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The following table summarizes the change in the carrying amount of goodwill by reportable business segment for the three months ended January 31, 2022 (in thousands):

NA Fenestration EU Fenestration NA Cabinet Comp.

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Foreign currency translation adjustment — ( 1,412 ) — — ( 1,412 )

Balance as of July 31, 2021 $ 38,712 $ 72,628 $ 39,147 $ — $ 150,487

Balance as of January 31, 2022 $ 38,712 $ 69,934 $ 39,147 $ — $ 147,793

For further details of Goodwill, see Note 3, “Goodwill & Intangible Assets”, located herewith.

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

We did not allocate non-operating loss or income tax benefit to the reportable segments.

The following table reconciles operating income as reported above to net income for the three and nine months ended July 31, 2021 and 2020 (in thousands):

Three Months Ended Nine Months Ended

July 31, July 31,

2021 2020 2021 2020

The following table reconciles operating income as reported above to net income for the three months ended January 31, 2022 and 2021 (in thousands):

Three Months Ended

Operating income $ 14,126 $ 11,835

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GAAP and contingent shares associated with performance share awards, if dilutive.

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Basic and diluted earnings per share for the three and nine months ended July 31, 2021 and 2020 were calculated as follows (in thousands, except per share data):

Basic and diluted earnings per share for the three months ended January 31, 2022 and 2021 were calculated as follows (in thousands, except per share data):

Net Income Weighted Average Shares Per Share

Three Months Ended July 31, 2021

Basic earnings per common share $ 13,679 33,359 $ 0.41

Effect of dilutive securities:

Stock options — 59 —

Restricted stock awards — 140 —

Performance restricted stock units — 92 —

Diluted earnings per common share $ 13,679 33,650 $ 0.41

Three Months Ended July 31, 2020

Basic earnings per common share $ 10,833 32,610 $ 0.33

Effect of dilutive securities:

Stock options — 1 —

Restricted stock awards — 86 —

Performance shares — 17 —

Performance restricted stock units — 25 —

Diluted earnings per common share $ 10,833 32,739 $ 0.33

Nine Months Ended July 31, 2021

Three Months Ended January 31, 2022

Basic earnings per common share $ 11,239 33,124 $ 0.34

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Diluted earnings per common share $ 11,239 33,298 $ 0.34

Nine Months Ended July 31, 2020

Three Months Ended January 31, 2021

Basic earnings per common share $ 7,852 32,872 $ 0.24

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Restricted stock awards — 105 —

Performance shares — 17 —

Performance restricted stock units — 71 —

Diluted earnings per common share $ 7,852 33,212 $ 0.24

We do not include equity instruments in our calculation of diluted earnings per share if those instruments would be anti-dilutive.

Such dilution is dependent on the excess of the market price of our stock over the exercise price and other components of the treasury stock method.

The following table shows anti-dilutive instruments for the three and nine months ended July 31, 2021 and 2020 (shares in thousands):

Three Months Ended Nine Months Ended

July 31, July 31,

2021 2020 2021 2020

Stock options — 1,139 — 1,107

Restricted stock awards — 51 — 51

Total — 1,190 — 1,158

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

We do not include equity instruments in our calculation of diluted earnings per share if those instruments would be anti-dilutive.

Such dilution is dependent on the excess of the market price of our stock over the exercise price and other components of the treasury stock method.

There were no anti-dilutive instruments for the three months ended January 31, 2022 and 2021.

New Accounting Guidance

Accounting Standards Recently Adopted

In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update No.

2016-13, Financial Instruments - Credit Losses (Topic 326) .

This ASU sets forth a “current expected credit loss” model, which requires the measurement of all expected credit losses for financial instruments or other assets (e.g., trade receivables), held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts.

We adopted this amendment on November 1, 2020, with no material impact on our condensed consolidated financial statements.

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) or other standards setting bodies that we adopt as of the specified effective date.

We did not adopt any new accounting pronouncements during the three months ended January 31, 2022.

As of January 31, 2022, we believe the impact of any recently issued standards that are not yet effective are either not applicable to us at this time or will not have a material impact on our condensed consolidated financial statements upon adoption.

Unless the context indicates otherwise, references to “Quanex”, the “Company”, “we”, “us” and “our” refer to the consolidated business operations of Quanex Building Products Corporation and its subsidiaries.

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Factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include, but are not limited to the following:

• impacts from public health issues (including pandemics, such as the current COVID-19 pandemic and quarantines) on the economy, demand for our products or our operations, including the responses of governmental authorities to contain such public health issues;

• changes in market conditions, particularly in the new home construction, and residential remodeling and replacement (R&R) activity markets in the United States, United Kingdom, Germany and elsewhere;

• impacts from public health issues (including pandemics, such as the recent COVID-19 pandemic and quarantines) on the economy, demand for our products or our operations, including the responses of governmental authorities to contain such public health issues;

• changes in market conditio ns, particularly in the new home construction, and residential remodeling and replacement (R&R) activity markets in the United States, United Kingdom, Germany and elsewhere;

• changes in non-pass-through raw material costs;

• changes in domestic and international economic conditions;

• changes in availability and prices of raw materials;

• changes in availability and prices of raw material including inflationary pressures and supply chain challenges, which could be exacerbated by political or global unrest such as the current situation in Ukraine;

• our ability to attract and retain skilled labor;

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• changes in the availability or applicability of our insurance coverage;

• our ability to maintain a good relationship with our suppliers, subcontractors, and key customers;

• our ability to maintain good relationships with our suppliers, subcontractors, and key customers;

• the resolution of litigation and other legal proceedings.

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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-Q

Item 1. Financial Statements