What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2022-12-16 compared with 2021-12-17 · 179 added, 201 removed, 1191 unchanged (24% of the section changed)

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Quanex Building Products Corporation

Reports of Independent Registered Public Accounting Firm 34

Reports of Independent Registered Public Accounting Firm (PCAOB ID 248 )

Management's Annual Report on Internal Control over Financial Reporting 34

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Consolidated Balance Sheets 35

Consolidated Statements of Income (Loss) 39

Consolidated Statements of Comprehensive Income (Loss) 40

Consolidated Statements of Income 36

Consolidated Statements of Comprehensive Income 37

Consolidated Statement of Stockholders’ Equity 38

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Opinion on the financial statements

We have audited the accompanying consolidated balance sheets of Quanex Building Products Corporation (a Delaware corporation) and subsidiaries (the “Company”) as of October 31, 2021 and 2020, the related consolidated statements of income (loss), comprehensive income (loss), changes in stockholders’ equity, and cash flows for each of the three years in the period ended October 31, 2021, and the related notes (collectively referred to as the “financial statements”).

We have audited the accompanying consolidated balance sheets of Quanex Building Products Corporation (a Delaware corporation) and subsidiaries (the “Company”) as of October 31, 2022 and 2021, the related consolidated statements of income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended October 31, 2022, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of October 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended October 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

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Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical audit matters

Critical audit matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Quantitative goodwill impairment assessment of the reporting unit included in the North American Cabinet Components operating segment

As described in Note 1 to the financial statements, the Company performs its annual goodwill impairment test as of August 31.

The Company performed a quantitative assessment of the reporting unit included in the North American Cabinet Components operating segment primarily due to the recent impairment of goodwill during the second and fourth quarters of 2019 and the history of a narrow margin of fair value over carrying value in the quantitative assessments performed in prior years.

The Company performed a quantitative assessment of the reporting unit included in the North American Cabinet Components operating segment primarily due to the history of a narrow margin of fair value over carrying value in the quantitative assessments performed in prior years.

We identified the estimation of the fair value of this reporting unit as a critical audit matter.

The principal considerations for our determination that the estimation of the fair value of this reporting unit is a critical audit matter relates to the income approach which is one method management uses to estimate the fair value of the reporting unit.

Auditing the fair value of the reporting unit involved a high degree of auditor judgment, subjectivity and audit effort in evaluating management’s significant assumptions, including future cash flows related to the reporting unit and the weighted average cost of capital (WACC).

The principal considerations for our determination that the estimation of the fair value of this reporting unit is a critical audit matter relates to the use of the income approach which is one method management uses to estimate the fair value of the reporting unit.

Auditing the fair value of the reporting unit involved a high degree of auditor judgment, subjectivity and audit effort in evaluating management’s significant assumptions used in the income approach, including future cash flows related to the reporting unit and the weighted average cost of capital (WACC).

In addition, the audit effort involved the use of valuation specialists to assist in performing these procedures and evaluating the audit evidence obtained.

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Basis for opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Controls over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

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QUANEX BUILDING PRODUCTS CORPORATION

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

CONSOLIDATED STATEMENTS OF INCOME

For the Years Ended October 31, 2022, 2021 and 2020

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Depreciation and amortization 40,109 42,732 47,229

Asset impairment charges — — 74,600

Operating income (loss) 81,870 55,265 ( 26,427 )

Non-operating income (expense):

Operating income 111,281 81,870 55,265

Non-operating (expense) income:

Interest expense ( 2,559 ) ( 2,530 ) ( 5,245 )

Other, net 1,041 754 280

Income (loss) before income taxes 80,094 50,300 ( 35,954 )

Income before income taxes 109,763 80,094 50,300

Income tax expense ( 21,427 ) ( 23,114 ) ( 11,804 )

Net income (loss) $ 56,980 $ 38,496 $ ( 46,730 )

Basic earnings (loss) per common share $ 1.72 $ 1.18 $ ( 1.42 )

Diluted earnings (loss) per common share $ 1.70 $ 1.17 $ ( 1.42 )

Net income $ 88,336 $ 56,980 $ 38,496

Basic earnings per common share $ 2.67 $ 1.72 $ 1.18

Diluted earnings per common share $ 2.66 $ 1.70 $ 1.17

Weighted-average common shares outstanding:

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QUANEX BUILDING PRODUCTS CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the Years Ended October 31, 2022, 2021 and 2020

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(In thousands)

Net income (loss) $ 56,980 $ 38,496 $ ( 46,730 )

Other comprehensive income (loss):

Foreign currency translation adjustments gain 7,152 1,078 1,864

Net income $ 88,336 $ 56,980 $ 38,496

Other comprehensive income:

Foreign currency translation adjustments (loss) gain ( 28,334 ) 7,152 1,078

Change in pension from net unamortized gain (loss) (pretax) 897 5,477 ( 376 )

Change in pension from net unamortized gain (loss) tax (expense) benefit ( 215 ) ( 1,375 ) 91

Total other comprehensive income (loss), net of tax 11,254 793 ( 3,112 )

Comprehensive income (loss) $ 68,234 $ 39,289 $ ( 49,842 )

Total other comprehensive (loss) income, net of tax ( 27,652 ) 11,254 793

Comprehensive income $ 60,684 $ 68,234 $ 39,289

See notes to consolidated financial statements.

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Balance at October 31, 2019 37,370,402 $ 374 $ 254,673 $ 185,703 $ ( 33,817 ) ( 4,348,613 ) $ ( 76,746 ) $ 330,187

Net loss — — — ( 46,730 ) — — — ( 46,730 )

Net income — — — 38,496 — — — 38,496

Foreign currency translation adjustments — — — — 1,078 — — 1,078

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Restricted stock awards granted — — ( 1,212 ) 94 — 63,400 1,118 —

Performance share awards vested — — ( 495 ) — — 28,051 495 —

Other ( 74,236 ) ( 1 ) ( 453 ) — — — — ( 454 )

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Foreign currency translation adjustments — — — — 7,152 — — 7,152

Change in pension from net unamortized loss (net of tax of benefit of $ 91 )

Change in pension from net unamortized gain (net of tax of expense of $ 1,375 )

— — — — 4,102 — — 4,102

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Foreign currency translation adjustments — — — — ( 28,334 ) — — ( 28,334 )

Change in pension from net unamortized loss (net of tax expense of $ 1,375 )

Change in pension from net unamortized gain (net of tax expense of $ 215 )

— — — — 682 — — 682

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Operating activities:

Net income (loss) $ 56,980 $ 38,496 $ ( 46,730 )

Adjustments to reconcile net income (loss) to cash provided by operating activities:

Net income $ 88,336 $ 56,980 $ 38,496

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

Depreciation and amortization 40,109 42,732 47,229

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Deferred income tax 2,097 1,785 ( 189 )

Asset impairment charges — — 74,600

Other, net 1,905 2,126 1,689

Changes in assets and liabilities:

(Increase) decrease in accounts receivable ( 19,017 ) ( 5,766 ) 574

Decrease (increase) in accounts receivable 6,945 ( 19,017 ) ( 5,766 )

(Increase) decrease in inventory ( 32,035 ) ( 31,382 ) 6,119

(Increase) decrease in other current assets ( 970 ) ( 1,817 ) 2,896

Increase in accounts payable 7,097 15,922 8,124

Increase (decrease) in accrued liabilities 16,212 ( 3,156 ) ( 6,760 )

(Decrease) increase in accounts payable ( 3,047 ) 7,097 15,922

(Decrease) increase in accrued liabilities ( 3,159 ) 16,212 ( 3,156 )

(Decrease) increase in income taxes payable ( 5,192 ) ( 378 ) 237

(Decrease) increase in deferred pension and postretirement benefits ( 708 ) ( 2,775 ) 2,531

Increase (decrease) in deferred pension and postretirement benefits 77 ( 708 ) ( 2,775 )

Increase (decrease) in other long-term liabilities 305 477 ( 236 )

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Repayments of credit facility borrowings ( 95,500 ) ( 65,000 ) ( 154,000 )

Debt issuance costs ( 1,210 ) — —

Repayments of other long-term debt ( 1,747 ) ( 680 ) ( 1,027 )

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Effect of exchange rate changes on cash and cash equivalents ( 4,092 ) 421 303

(Decrease) increase in cash and cash equivalents ( 11,560 ) 20,753 1,865

Increase (decrease) in cash and cash equivalents 15,032 ( 11,560 ) 20,753

Cash and cash equivalents at beginning of period 40,061 51,621 30,868

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Certain of our businesses or product lines are largely dependent on a relatively few large customers.

Although we believe we have an extensive customer base, the loss of one of these large customers or if such customers were to incur a prolonged period of decline in business, our financial condition and results of operations could be adversely affected.

For the year ended October 31, 2021, no customers provided more than 10 % of our consolidated net sales.

For the year ended October 31, 2020, one customer p rovided more than 10% of our consolidated net sales.

We have established an allowance for credit losses to estimate the risk of loss associated with our accounts receivable balances.

Although we believe we have an exte nsive customer base, the loss of one of these large customers or if such customers were to incur a prolonged period of decline in business, our financial condition and results of operations could be adversely affected.

For the years ended October 31, 2022 and 2020, one customer provided more than 10 % of our consolidated net sales.

For the year ended October 31, 2021, no customer provided more than 10% of our consolidated net sales.

We have establishe d an allowance for credit losses to estimate the risk of loss associated with our accounts receivable balances.

Our policy for determining the allowance is based on factors that affect collectability, including:

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Business Combinations

We apply the acquisition method of accounting for business combinations in accordance with U.S.

GAAP, which requires us to make use of estimates and judgments to allocate the purchase price paid for acquisitions to the fair value of the assets and liabilities acquired.

We apply the acquisition method of accounting for business combinations, which requires us to make use of estimates and judgments to allocate the purchase price paid for acquisitions to the fair value of the assets and liabilities acquired.

We account for contingent assets and liabilities at fair value on the acquisition date, and record changes to fair value associated with these asse ts and liabilities as a period cost as incurred.

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Inventories are valued using the first-in first-out (FIFO) method.

Fixed costs related to excess manufacturing capacity are evaluated and expensed in the period, to insure that inventory is properly capitalized.

Fixed costs related to excess manufacturing capacity are evaluated and expensed in the period, to ensure that inventory is properly capitalized.

Inventory quantities are regularly reviewed and provisions for excess or obsolete inventory are recorded primarily based on our forecast of future demand and our estimates regarding current and future market conditions.

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When we originally value our intangible assets, we use a variety of techniques to establish the carrying value of the assets, including the relief from royalty method, excess current year earnings method and income method.

Changes in market conditions throughout 2019 impacted our long-term forecasts of future operating results with regard to the reduction of significant sales volume to a large customer of our United States (U.S.) vinyl operations, and lower-than-expected operating performance of our NA Cabinet Components business.

The World Health Organization's (WHO), declaration of COVID-19 as a global pandemic also created significant changes in market conditions throughout 2020 that have continued into 2021.

We determined that these conditions were indicators of a triggering event in 2019 and 2020 which necessitated an evaluation of certain long-term assets used in these businesses for potential impairment.

We compared the projected undiscounted cash flows we expected to realize associated with these assets over the remaining useful lives of the

We determined that these conditions were indicators of a triggering event in 2020 which necessitated an evaluation of certain long-term assets used in these businesses for potential impairment.

We compared the projected undiscounted cash flows we expected to realize associated with these assets over the remaining useful lives of the primary operating assets to the net book value of the long-term assets, including goodwill, and determined that these assets were not impaired.

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

primary operating assets to the net book value of the long-term assets, including goodwill, and determined that these assets were not impaired.

There were no corresponding indicators of a triggering event in 2021.

During the year ended October 31, 2022, our North American vinyl extrusion operations in our NA Fenestration segment experienced lower-than-expected operating results due to the continued impact of inflation and historical customer contracts which prevent us from passing on the full impact of higher costs to our customers.

We determined that this condition was an indicator of a triggering event which necessitated an evaluation of certain long-term assets used in this business for potential impairment.

We compared the projected undiscounted cash flows we expected to realize associated with these assets over the remaining useful lives of the primary operating assets to the net book value of the long-term assets and determined that these assets were not impaired.

Should we be unable to successfully increase prices to offset inflation, it is possible that we could incur an impairment in the future.

There were no indicators of triggering events noted for any period in the year ended October 31, 2021.

Therefore, we did not record an impairment charge related to property, plant and equipment or intangible assets with defined lives during the years ended October 31, 2022, 2021 and 2020.

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Leasehold improvements are depreciated over the shorter of their estimated useful lives or the term of the lease.

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

We use the acquisition method to account for business combinations and, to the extent that the purchase price exceeds the fair value of the net assets acquired, we record goodwill.

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We believe the estimates and assumptions used in our impairment assessment are reasonable based on available market information, but variations in any of the assumptions could result in materially different calculations of fair value and determinations of whether or not an impairment is indicated during current or future periods.

As a result of quantitative assessments performed during the year ended October 31, 2019, we recorded impairment charges totaling $ 74.6 million during the year ended October 31, 2019, reducing the goodwill balance applicable to the reporting unit included in our NA Cabinet Components operating segment from $ 113.7 million to $ 39.1 million.

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

At our annual testing date, August 31, 2022, we had five reporting units with goodwill balances:

two reporting units included in our NA Fenestration operating segment, two reporting units included in our EU Fenestration operating segment, and one reporting unit included in our NA Cabinet Components operating segment.

We performed a qualitative assessment of the two reporting units in the NA Fenestration segment and one of the reporting units in the EU Fenestration segment.

We performed a qualitative assessment of one of the reporting units in the NA Fenestration segment and two of the reporting units in the EU Fenestration segment.

This review included an analysis of historical goodwill test results, operating results relative to forecast, projected results over the next five years, and other measures and concluded that there were no indicators of potential impairment associated with these reporting units.

Therefore, no additional testing was deemed necessary for these three reporting units.

Also, at our annual testing date, we performed a quantitative assessment of the reporting unit in our NA Cabinet Components segment primarily due to the recent impairment of goodwill during the second and fourth quarters of 2019 and the history of a narrow margin of fair value above carrying value in quantitative assessments performed in prior years.

We also elected to update the quantitative assessment of the other reportable unit in the EU Fenestration operating segment.

We determined that the fair value of these reporting units exceeded their carrying values by approximate ly 17.6 % and 113.6 %, respectively.

Also, at our annual testing date, we performed a quantitative assessment of the reporting unit in our NA Cabinet Components segment primarily due to the impairment of goodwill during the second and fourth quarters of 2019 and the history of a narrow margin of fair value above carrying value in quantitative assessments performed in prior years.

We determined that the fair value of this reporting unit exceeded their carrying values by approximat ely 12.0 %.

We also elected to update the quantitative assessment of the other reportable unit in the NA Fenestration operating segment.

We determined that the fair value of this reporting unit exceeded their carrying values by approximat ely 384.9 %.

We concluded that no impairment was necessary.

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For other costs directly related to the restructuring effort, such as equipment moving costs, we expense in the period incurred.

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.

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

The health and safety of our employees are high priority.

In response to the COVID-19 pandemic, we have taken additional measures to limit possible infections at the workplace by implementing social distancing, sanitizing the workspace, and requiring employees to report any COVID-19 symptoms to ensure safety as infection surges dictate.

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

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.

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

We manage our exposure to losses for workers’ compensation, group medical, property, casualty and other insurance claims through a combination of self-insurance retentions and insurance coverage with third-party carriers.

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We do not record insurance recoveries until any contingencies relating to the claim have been resolved.

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Retirement Plans

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The discount rate reflects the rate at which benefits could be effectively settled on the measurement date.

We determine our discount rate using a RATE:

Link Model whereby target yields are developed from bonds across a range of maturity points, and a curve is fitted to those targets.

We determine our discount rate using a FTSE Above Median pension discount curve whereby target yields are developed from bonds across a range of maturity points, and a curve is fitted to those targets.

Spot rates (zero coupon bond yields) are developed from the curve and used to discount benefit payments associated with each future year.

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We continue to evaluate our positions regarding various state tax interpretations at each reporting date, until the applicable statute of limitations lapse.

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, the CARES Act, the CAA and the American Rescue Plan and determined that there were no material impacts on our condensed consolidated financial statements.

On August 16, 2022, the Inflation Reduction Act of 2022 was enacted into U.S.

We are continuing to evaluate the regulation but do not anticipate a material impact to our consolidated financial statements.

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Derivative Instruments

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As such, these instruments are considered economic hedges, and are reflected in the operating activities section of the consolidated statements of cash flow.

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Foreign Currency Translation

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When these assets or liabilities settle, we record realized transaction gains or losses.

These realized and unrealized gains or losses are included in the accompanying consolidated statements of income (loss) under the caption, “Other, net.”

These realized and unrealized gains or losses are included in the accompanying consolidated statements of income under the caption, “Other, net.”

Stock–Based Compensation

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We use a Monte Carlo simulation model to value the market condition and our stock price on the date of grant to value the internal performance condition and recognize expense ratably over the vesting period of three years .

We esti mate that the performance measures will be met and shares will vest at target until the year of settlement (third year of cliff vesting).

We esti mate that the performance measures will be met and shares will vest at target until the year of settlement (third year of cliff

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

As of October 31, 2022 , we have deemed 101,200 performance share awards related to the December 2019 grants as probable to vest.

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The number of performance restricted stock units 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.

To value the performance restricted stock units, we use a Monte Carlo simulation model to

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

arrive at a grant-date fair value.

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

This amount will be adjusted for forfeitures and expensed over the three-year term of the award with a credit to additional paid-in-capital.

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Noncash investing and financing activities:

Increase in capitalized expenditures in accounts payable and accrued liabilities $ 1,124 $ 2,370 $ 2,897

(Decrease) increase in capitalized expenditures in accounts payable $ ( 1,692 ) $ 1,124 $ 2,370

Related Party Transactions

We did no t participate in any related party transactions during the years ended October 31, 3021, 2020 and 2019.

N et sales for the year ended October 31, 2022 included approxim ately $ 1.9 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.

Subsequent Events

We have evaluated events occurring after the balance sheet date for possible disclosure as a subsequent event through the date the financial statements were issued.

We have evaluated events occurring after the balance sheet date for possible disclosure as a subsequent event through the

date the financial statements were issued.

For additional discussion of our subsequent events, see Note 20, “Subsequent Events.”

QUANEX BUILDING PRODUCTS CORPORATION

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Recoveries 10 — —

Foreign currency translation adjustments (76) — —

Balance as of October 31, 2022, 2021 and 2020 $ 289 $ 340 $ 161

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Two of these units were included in our NA Fenestration segment and had goodwill balances of $ 35.9 million and $ 2.8 million, two units were included in our EU Fenestration segment with goodwill balances of $ 45.1 million and $ 14.9 million, and our NA Cabinet Components segment had one unit with a goodwill balance of $ 39.2 million.

During the year ended October 31, 2019, we recorded impairment charges of $ 74.6 million associated with our NA Cabinet Co mponents segment.

The details of the impairment charges, as well as the results of our goodwill assessments during the year ended October 31, 2021 are more fully described at Note 1, “Nature of Operations, Basis of Presentation and Significant Accounting Policies - Long-Lived Assets - Goodwill.” For a summary of the change in the carrying amount of goodwill by segment, see Note 16, “Segment Information.”

The details of the results of our goodwill assessments during the year ended October 31, 2022 are more fully described at Note 1, “Nature of Operations, Basis of Presentation and Significant Accounting Policies - Long-Lived Assets - Goodwill.” For a summary of the change in the carrying amount of goodwill by segment, see Note 16, “Segment Information.”

QUANEX BUILDING PRODUCTS CORPORATION

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See additional disclosure at Note 1, "Nature of Operations, Basis of Presentation and Significant Accounting Policies - Restructuring."

During the years ended October 31, 2021 and 2020, we retired fully amortized identifiable intangible assets of $ 9.9 million and $ 0.3 million, respectively, related to customer relationships.

During the year ended October 31, 2019, we retired fully amortized identifiable intangible assets of $ 0.3 million related to customer relationships and patents and other technology.

During the years ended October 31, 2022 and 2021, we retired fully amortized identifiable intangible assets of zero and $ 9.9 million, respectively, related to customer relationships.

The aggregate amortization expense associated with identifiable intangible assets for the years ended October 31, 2022, 2021, and 2020 was $ 11.9 million , $ 12.8 million and $ 14.3 million, respectively.

Estimated remaining amortization expense, assuming current intangible balances and no new acquisitions, for future fiscal years ending October 31, 2021 is as follows (in thousands):

Estimated remaining amortization expense, assuming current intangible balances and no new acquisitions, for future fiscal years as of October 31, 2022 (in thousands):

Amortization Expense

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We did no t incur impairment losses related to our identifiable intangible assets during the years ended October 31, 2022, 2021, and 2020.

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Accrued Liabilities

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Accrued liabilities $ 52,114 $ 56,156

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

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Revolving Credit Facility

On October 18, 2018, we entered into a $ 325.0 million revolving credit facility (the “Credit Facility”), with Wells Fargo Bank, National Association, as Agent, Swingline Lender and Issuing Lender, and Bank of America, N.A.

On July 6, 2022, we entered into our Second Amended and Restated Credit Agreement (the “Credit Facility”) with Wells Fargo Securities, LLC, as Agent, Swingline Lender and Issuing Lender, and BofA Securities, Inc.

serving as Syndication Agent.

The 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 October 31, 2021, the applicable rate was LIBOR + 1.25 %.

We capitalized $ 1.2 million of deferred financing fees related to the Credit Facility during the year ended October 31, 2022 .

This $ 325.0 million revolving credit facility has a five -year term, maturing on July 6, 2027, and replaced our previous credit facility we entered into on October 18, 2018.

Our previous credit facility is more fully described in our Annual Report on Form 10-K for the fiscal year ended October 31, 2021.

Interest payments for the Credit Facility are calculated, at our election and depending upon the Consolidated Net Leverage Ratio, at a Base Rate plus an applicable margin or at the same rate as Risk-Free Rate (“RFR”) Loans for domestic borrowings or Eurocurrency Rate Loans plus an applicable margin.

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

As of October 31, 2022, the applicable rate was RFR + 1.25 %.

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 Eurocurrency Rate Loans and RFR Loans Base Rate Loans

I Less than or equal to 1.50 to 1.00 0.150 % 1.25 % 0.25 %

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In the event of default, outstanding borrowings accrue interest at the Default Rate, as defined, whereby the obligations will bear interest at a per annum rate equal to 2 % above the total per annum rate otherwise applicable.

The Credit Facility provides for incremental revolving credit commitments for a minimum principal amount of $ 10.0 million, up to an aggregate amount of $ 150.0 million, subject to the lender's discretion to elect or decline the incremental

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The Credit Facility provides for incremental revolving credit commitments for a minimum principal amount of $ 10.0 million, up to an aggregate amount of $ 150.0 million or 100% of Consolidated EBITDA, subject to the lender's discretion to elect or decline the incremental increase.

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 Agreement.

The Credit Facility contains a:

(1) Consolidated Interest Coverage Ratio requirement whereby we must not permit the Consolidated Interest Coverage Ratio, as defined, to be less than 2.25 to 1.00, and (2) Consolidated Leverage Ratio requirement whereby the Consolidated Leverage Ratio, as defined, must be greater than 3.25 to 1.00.

(1) Consolidated Interest Coverage Ratio requirement whereby we must not permit the Consolidated Interest Coverage Ratio, as defined, to be less than 3.00 to 1.00, and (2) Consolidated Net Leverage Ratio requirement whereby the Consolidated Net Leverage Ratio, as defined, must be greater than 3.25 to 1.00.

In addition to maintaining these financial covenants, the Credit Facility also limits our ability to enter into certain business transactions, such as to incur indebtedness or liens, to acquire businesses or dispose of material assets, make restricted payments, pay dividends (limited to $ 25.0 million per year) and other transactions as further defined in the Credit Facility.

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

Our initial borrowings from the Credit Facility were $ 205.0 million and along with additional funding of $ 10.0 million of cash on hand, was used to repay outstanding borrowings under a previous credit agreement of $ 213.5 million, to settle outstanding interest accrued and loan fees under our prior credit facility, and to pay loan fees associated with the 2018 Credit Agreement which totaled $ 1.0 million.

We expensed $ 1.1 million of unamortized deferred financing fees associated with the previous credit agreement, while deferring the remaining $ 0.5 million of unamortized deferred financing fees attributable to the remaining lenders from the previous facility over the life of the Credit Facility.

As of October 31, 2021, we had $ 38.0 million of borrowings outstanding under the Credit Facility (reduced by unamortized debt issuance costs o f $ 0.6 million), $ 4.5 million of outstanding letters of credit and $ 15.5 million outstanding under finance leases.

We had $ 282.5 million avail able for use under the Credit Facility at October 31, 2021.

The borrowings outstanding as of October 31, 2021 under the Credit Facility accrue interes t at 1.34 % per annum, and our weighted average borrowing rate for borrowings outstanding during the years ended October 31, 2021 and 2020 was 1.42 % and 2.45 %, respectively.

As of October 31, 2022, we had $ 13.0 million of borrowings outstanding under the Credit Facility (reduced by unamortized debt issuance costs of $ 1.5 million), $ 5.0 million of outstanding letters of credit and $ 19.2 million outstanding

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

under finance leases.

We had $ 307.0 million available for use under the Credit Facility at October 31, 2022.

The borrowings outstanding as of October 31, 2022 under the Credit Facility accrue inter est at 5.08 % per annum, and our weighted average borrowing rate for borrowings outstanding during the years ended October 31, 2022 and 2021 was 2.16 % and 1.42 %, respectively.

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

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In general, an employee’s coverage for retirement benefits depends on the location of employment.

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Defined Benefit Plan

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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.

Every year, the participants will receive an interest related credit on their respective balance equivalent to the prevailing 30-year Treasury rate.

The majority our pension plan participants have their benefit determined pursuant to the cash balance formula.

As a result of freezing the plan on January 1, 2020, 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 the three months ended October 31, 2022, we notified participants that our pension plan will be terminated effective November 1, 2022, with final settlement expected to occur in fiscal 2024.

Until such time that the termination is complete, the participants will receive an interest related credit on their respective balance equivalent to the prevailing 30-year Treasury rate.

The majority of our pension plan participants have their benefit determined pursuant to the cash balance formula.

For the remaining participants, the benefit formula is a traditional formula for retirement benefits, whereby the plan pays benefits to employees upon retirement, using a formula which considers years of service and pensionable compensation prior to retirement.

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 (loss).

This remeasurement is included in the tables below, which reflect the full impact of pension plan results and accounting measurements for the year ended October 31, 2020.

The Medicare Prescription Drug, Improvement and Modernization Act of 2003 was signed into law on December 8, 2003.

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The impact to net periodic benefit cost and to benefits paid did not have a material impact on the consolidated financial statements.

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Funded Status and Net periodic Benefit Cost

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Administrative expenses ( 604 ) ( 732 )

Curtailments — ( 1,141 )

Settlements ( 3,619 ) ( 2,112 )

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There were no net prior service costs or transition obligations for the years ended October 31, 2022 and 2021.

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

As of October 31, 2022 and 2021, the accumulated benefit obligation was $ 32.5 million and $ 42.4 million, respectively.

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Net periodic benefit cost $ 77 $ 11 $ 1,019

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The changes in plan assets and projected benefit obligations which were recognized in our other comprehensive loss for the years ended October 31, 2022, 2021 and 2020 were as follows (in thousands):

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The rate reflects the amount at which benefits could be effectively settled on the measurement date.

We used a RATE:

Link Model whereby target yields are developed from bonds across a range of maturity points, and a curve is fitted to those targets.

We used the FTSE Above Median Model whereby target yields are developed from bonds across a range of maturity points, and a curve is fitted to those targets.

Spot rates (zero coupon bond yields) are developed from the curve and used to discount benefit payments associated with each future year.

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Our investment objective for defined benefit plan assets is to meet the plans’ benefit obligations, while minimizing the potential for future required plan contributions.

The investment strategies focus on asset class diversification, liquidity to meet benefit payments and an appropriate balance of long-term investment return and risk.

Target ranges for asset allocations are determined by matching the actuarial projections of the plans’ future liabilities and benefit payments with expected long-term rates of return on the assets, taking into account investment return volatility and correlations across asset classes.

Plan assets are diversified across several investment managers and are generally invested in liquid funds that are selected to track broad market equity and bond indices.

Investment risk is carefully controlled with plan assets rebalanced to target allocations on a periodic basis and monitoring of performance of investment managers relative to the investment guidelines established with each investment manager.

As steps were initiated to implement the termination of the defined benefit plan, the investments were transitioned to more liquid assets in order to reflect the upcoming settlement charges which will be incurred upon finalization of the termination plan.

Expected Benefit Payments and Funding

Our pension funding policy is to make the minimum annual contributions required pursuant to the plan.

For the fiscal years ended October 31, 2021, 2020 and 2019, we made total pension contributio ns of $ 0.5 million , $ 3.7 million and $ 0.7 million, respectively.

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.

This expected contribution level will be dependent on many variables, including the market value of the assets compared to the obligation, as well as other market or regulatory conditions.

In addition, we consider the cash requirements of our business investment opportunities.

For the fiscal years ended October 31, 2022, 2021 and 2020, we made total pension contributio ns of zero , $ 0.5 million and $ 3.7 million, respectively.

During fiscal year 2024, we expect to make a contribution which will fully fund the remaining liability and complete the pension plan termination process.

This expected contribution will be dependent on many variables, including the market value of the assets compared to the obligation, as well as other market or regulatory conditions.

Accordingly, actual funding amounts and the timing of such funding may differ from current estimates.

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2023 $ 22,880

2028 - 2032 3,415

Total $ 29,248

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

Our liability under the supplemental benefit plan was approximately $ 2.9 million and $ 2.6 million as of October 31, 2021 and 2020, and our liability under the deferred compensation plan was approximately $ 3.4 million and $ 3.3 million, respectively.

Our liability under the supplemental benefit plan was approximately $ 1.9 million and $ 2.9 million as of October 31, 2022 and 2021, and our liability under the deferred compensation plan was approximately $ 3.3 million a nd $ 3.4 million, respectively.

As of October 31, 2022 and 2021, the current portion of these liabilities was recorded under the caption “Accrued Liabilities,” and the long-term portion was included under the caption “Other Liabilities” in the accompanying balance sheets.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For financial reporting purposes, income (loss) before income taxes for the years ended October 31, 2021, 2020 and 2019 includes the following components (in thousands):

For financial reporting purposes, income before income taxes for the years ended October 31, 2022, 2021 and 2020 includes the following components (in thousands):

Year Ended October 31,

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Foreign 44,913 43,215 24,071

Total income (loss) before income taxes $ 80,094 $ 50,300 $ ( 35,954 )

Total income before income taxes $ 109,763 $ 80,094 $ 50,300

The following table reconciles our effective income tax rate to the federal statutory rate for the years ended October 31, 2022, 2021 and 2020:

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income tax credits ( 3.2 ) % ( 4.2 ) % ( 2.3 ) %

Foreign tax positions under the Act (GILTI and FDII) 4.2 % 2.5 % 3.3 %

Impact of deemed repatriation — % — % ( 1.1 ) %

Asset impairment charges — % — % ( 50.7 ) %

tax on non-United States earnings 3.2 % 4.2 % 2.5 %

Non-cash compensation ( 1.7 ) % 1.9 % ( 0.3 ) %

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Effective tax rate 19.5 % 28.9 % 23.5 %

On December 22, 2017, the Tax Cuts and Jobs Act was signed into law.

This Act reduced our federal income tax statutory rate from 35.0% to 21.0% for the fiscal years ending October 31, 2021, 2020 and 2019.

This Act also imposed additional tax law changes that became effective during fiscal 2019, which include new requirements for a global intangible low-taxed income provision (GILTI) and a deduction for foreign-derived intangible income (FDII).

We elected to account for the tax on GILTI as a period cost therefore we have not recorded deferred taxes related to GILTI on our foreign subsidiaries.

The October 31, 2021 effective tax rate is higher than the U.S.

federal statutory rate of 21% primarily due to state income taxes, GILTI, and non-United States income tax, partially offset by U.S.

foreign tax credits.

The October 31, 2020 effective tax rate was impacted by the true-up of our accruals and related deferred taxes from prior year filings and settled tax audits as well as $ 0.6 million related to the vesting or exercise of equity-based compensation awards.

The October 31, 2019 effective rate was primarily impacted by a net charge of $ 1.2 million related to GILTI and FDII, as well as discrete charge of $ 0.4 million for the adjustment of the one-time mandatory transition tax on deemed repatriation of previously tax-deferred and unremitted foreign earnings and $ 0.6 million related to the vesting or exercise of equity-based compensation awards.

Additionally, during the year ended October 31, 2019, we recorded a $ 74.6 million asset impairment charge, which was primarily non-deductible, in the NA Cabinet Components segment, as further explained in Note 6, “Goodwill and Intangible Assets.”

Given the significance of the Tax Cuts and Jobs Act, the SEC staff issued Staff Accounting Bulletin No.

118 (SAB 118), which allows registrants to record provisional amounts during a one year “measurement period.” As of October 31, 2019, we have completed the accounting for the tax effects of the Act.

In light of the Tax Cuts and Jobs Act, we repatriated $ 28.4 million and $ 31.9 million of foreign earnings from our international operations during the years ended October 31, 2021 and 2020, respectively.

This was repatriation of excess cash that was a portion of the one-time mandatory transition tax discussed above.

We will continue to evaluate our foreign cash position and may repatriate additional foreign earnings in the future.

Our earnings from our foreign subsidiaries are not subject to significant withholding taxes upon remittances to the U.S..

As a result, we do not anticipate any significant future tax impacts from any potential repatriation of previously unremitted foreign earnings.

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The amount of undistributed foreign earnings from international operations as of the years ended October 31, 2022 and 2021, respectively, was $ 19.8 million and $ 15.1 million.

Significant components of our net deferred tax liabilities and assets were as follows (in thousands):

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Loss and tax credit carry forwards 1,589 1,857

Other 107 103

Total gross deferred tax assets 13,900 13,808

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The majority of these losses begin to expire in 2033.

We evaluate tax benefits of operating losses and tax credit carry forwards on an ongoing basis, including a review of historical and projected future operating results, the eligible carry forward period and other circumstances.

We have recorded a valuation allowance for certain state net operating losses as of October 31, 2021 and 2020, totaling $ 1.3 million and $ 1.5 million, respectively ($ 1.0 million and $ 1.2 million, respectively, net of federal taxes).

During the year ended October 31, 2021, we recorded a net $0.2 million decrease in our state valuation allowances.

We evaluate tax benefits of operating losses and tax credit carry forwards on an ongoing basis, including a review of

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

historical and projected future operating results, the eligible carry forward period and other circumstances.

We have recorded a valuation allowance for certain state net operating losses as of October 31, 2022 and 2021, totaling $ 0.5 million and $ 1.2 million, respectively.

During the year ended October 31, 2022, we recorded a net $0.7 million decrease in our state va luation allowances.

The valuation allowances can be affected in future periods by changes to tax laws, changes to statutory tax rates, and changes in estimates of future taxable income.

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We consider future reversals of existing taxable temporary differences, future taxable income exclusive of reversing temporary differences, and taxable income in prior carryback year(s) if carryback is permitted under applicable law.

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The following table shows the change in the unrecognized income tax benefit associated with uncertain tax positions for the years ended October 31, 2022, 2021 and 2020 (in thousands):

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Balance at October 31, 2019

Additions for tax positions related to the current year —

Additions for tax positions related to the prior year 15

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Balance at October 31, 2020

Additions for tax positions related to the current year —

Additions for tax positions related to the prior year 953

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Balance at October 31, 2021

Additions for tax positions related to the current year —

Additions for tax positions related to the prior year 953

Reassessment of position ( 27 )

Balance at October 31, 2022

As of October 31, 2021, our unrecognized tax benefit (UTB) relates to certain federal and state tax items regarding the interpretation of tax laws and regulations.

At October 31, 2021, $ 1.4 million is recorded as a liability for uncertain tax positions.

The addition related to the current year ended October 31, 2021 is associated with stock-based compensation tax deductions claimed on a prior U.S.

federal income tax return.

We have accrued an immaterial amount for the payment of interest, net of tax benefits, and penalties as of October 31, 2021, 2020 and 2019, respectively.

As of October 31, 2022, our liability for unrecognized tax benefits of $ 1.4 million related 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.

We, along with our subsidiaries, file income tax returns in the U.S.

We, along with our su bsidiaries, file income tax returns in the U.S.

and various state jurisdictions as well as in the U.K., Germany and Canada.

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We generally remain subject to examination of our various state and foreign income tax returns for a period of four to five years from the date the return was filed.

The state impact of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the state of the federal change.

The state impact of any federal changes remains subject to examination by various stat es for a period of up to one year after formal notification to the state of the federal change.

Judgment is required in assessing the future tax consequences of events that have been recognized in our financial statements or tax returns.

The final outcome of the future tax consequences of legal proceedings, if any, as well as the outcome of competent authority proceedings, changes in regulatory tax laws, or interpretation of those tax laws could impact our financial statements.

The final outcome of the future tax consequences of legal proceedings, if any, changes in regulatory tax laws or interpretation of those tax laws could impact our financial statements.

We are subject to the effect of these matters occurring in various jurisdictions.

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

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

The recorded amount of unrecognized tax benefits may decrease by approximately $1.0 million with in the next twelve months as a result of the upcoming closing of a statute of limitations.

Commitments and Contingencies

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We paid $ 11.0 million and $ 9.9 million pursuant to these arrangements for the years ended October 31, 2022 and 2021, respectively.

These obligations total $ 23.4 million and $ 22.4 million at October 31, 2021 and 2020, respectively, and extend through fi scal 2022.

Fu ture amounts paid pursuant to these arrangements will depend, to some extent, on our usage.

These obligations total $ 7.6 million and $ 23.4 million at October 31, 2022 and 2021, respectively, and extend through fiscal 2023.

Future amounts paid pursuant to th ese arrangements will depend, to some extent, on our usage.

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Asset Retirement Obligation

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We have estimated our future cash flows associated with this asset retirement obligation and recorded an asset and corresponding liability.

We are depreciating the asset and accreting the liability over a seven year term, to culminate in an asset retirement obligation of $ 2.3 million as of February 2025.

We are depreciating the asset and accreting the liabilit y over a seven-year term, to culminate in an asset retirement obligation of $ 2.3 million as of February 2025, which is located in Other Liabilities on the Consolidated Balance Sheets.

Remediation and Environmental Compliance Costs

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Nevertheless, after taking into account all currently available information, including our defenses, the advice of our counsel, and the extent and currently-expected availability of our existing insurance coverage, we believe that the eventual outcome of these commercial sealant claims will not have a material adverse effect on our overall financial condition, results of operations or cash flows, and we have not recorded any accrual with regard to these claims.

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Fair Value Measurements of Assets and Liabilities

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quoted prices for identical or similar assets or liabilities in markets that are not active;

inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates) and inputs that are derived principally from or corroborated by observable market data b y correlation or other means.

inputs other than quoted prices that are observable for the

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

asset or liability (e.g., interest rates) and inputs that are derived principally from or corroborated by observable market data b y correlation or other means.

• Level 3 - Inputs that are both significant to the fair value measurement and unobservable.

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The total weighted average grant-date fair value of restricted stock awards that vested during the years ended October 31, 2022, 2021 and 2020 wa s $ 1.2 million, $ 0.9 million and $ 1.1 million, respectively.

As of October 31, 2021, total unrecognized compensation cost related to unamortize d restricted stock awards totaled $ 1.5 million.

As of October 31, 2022, total unrecognized compensation cost related to unamortized restricted stock awards totaled $ 1.9 million.

We expect to recognize this expense over the remaining weighted average period of 1.8 years.

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For the years ended October 31, 2022, 2021 and 2020, the total intrinsic value of our stock options that were exercised to taled $ 0.2 million, $ 4.2 million and $ 0.5 million, respectively.

The total fair value of stock options vested during the years ended October 31, 2021, 2020 and 2019, was zero , $ 0.6 million and $ 1.1 million, respectively.

The total fair value of stock options vested during the years ended October 31, 2022, 2021 and 2020, was zero , zero and $ 0.6 million, respectively.

Restricted Stock Units

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During the years ended October 31, 2022, 2021 and 2020, 36,669 , 28,826 and 25,621 restricted stock units, respectively, were granted with corresponding weighted average grant date fair value of $ 22.52 , $ 18.79 , and $ 18.18 , respectively.

As of October 31, 2021 there were 21,774 unvested restricted stock units from the fiscal 2020 grant.

As of October 31, 2022 there were 21,774 unvested restricted stock units from the fiscal 2020 grant with corresponding weighted average grant date fair value of $ 17.08 .

During the years ended October 31, 2022, 2021 and 2020, we paid $ 1.0 million, $ 0.8 million and $ 0.2 million to settle restricted stock units.

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Performance Share Award s

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Depending on the achievement of the performance conditions, 0 % to 200 % of the awarded performance shares may ultimately vest.

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The following table summarizes our performance share grants and the grant date fair value for the RONA performance metric:

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December 9, 2021 80,900 $ 22.54 —

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

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

On November 30, 2019, a total of 56,103 shares vested pursuant to the November 2016 grant, which were settled with 28,051 shares of common stock and a cash payment of $ 0.6 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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December 9, 2021 50,900 $ 21.06 —

The performance restricted stock units are not considered outstanding shares, do not have voting rights, and are excluded 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.

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO 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 years ended October 31, 2022, 2021 and 2020 (in thousands):

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Stockholders' Equity

As of October 31, 2021, our authorized capital stock consists of 125,000,000 shares of common stock, at par value of $ 0.01 per share, and 1,000,000 shares of preferred stock, with no par value.

As of October 31, 2022, our authorized capital stock consists of 125,000,000 shares of common stock, at par value of $ 0.01 per s hare, and 1,000,000 shares of preferred stock, with no par value.

As of October 31, 2022 and 2021, we had 37,211,056 and 37,273,510 shares of common stock issued, respectively, and 33,129,250 and 33,274,785 shares of common stock outstanding, respectively.

There were no shares of preferred stock issued or outstanding at October 31, 2021 and 2020.

T here were no shares of preferred stock issued or outstanding at October 31, 2022 and 2021.

Stock Repurchase Program and Treasury Stock

On August 30, 2018, our Board of Directors approved a stock repurchase program that authorized the repurchase of up to $ 60.0 million worth of shares of our common stock.

Repurchases under the new program will be made in open market transactions or privately negotiated transactions, subject to market conditions, applicable legal requirements and other relevant factors.

As of October 31, 2021, this share repurchase authorization was exhausted and the program was complete.

During December 2021, our Board of Directors approved a new stock repurchase program that authorized the repurchase of up to $ 75.0 million worth of shares of our common stock.

Repurchases under the program are made in open market transactions or privately negotiated transactions, subject to market conditions, applicable legal requirements and other relevant factors.

The program does not have an expiration date or a limit on the number of shares that may be purchased.

During the years ended October 31, 2021 and 2020, we pu rchased 478,311 shares and 450,000 shares, respectively, at a cost of $ 11.2 million and $ 7.2 million respectively, under this program.

During the years ended October 31, 2022 and 2021, we p urchased 291,000 shares and 478,311 shares, respectively, at a cost of $ 6.6 million and $ 11.2 million respectively, under these programs.

We record treasury stock purchases under the cost method whereby the entire cost of the acquired stock is recorded as treasury stock.

2 unchanged sentences

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.

We recorded a charge to retained ear nings of zero , $ 0.1 million and $ 0.3 million, in the years ended October 31, 2021, 2020, and 2018, respectively.

We recorded a charge to retained earnings of zero , zero and $ 0.1 million, in the years ended October 31, 2022, 2021, and 2020, respectively.

For a summary of treasury stock activity for the years ended October 31, 2022, 2021 and 2020, refer to the Consolidated Statement of Stockholders' Equity located elsewhere herein.

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2022 2021 2020

Foreign currency transaction losses $ ( 98 ) $ ( 42 ) $ ( 187 )

Foreign currency exchange derivative losses — ( 15 ) ( 197 )

Foreign currency transaction gains (losses) $ 386 $ ( 98 ) $ ( 42 )

Foreign currency exchange derivative gains (losses) 19 — ( 15 )

Pension service benefit 783 839 243

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

The following table reconciles operating income (loss) as reported above to net income (loss) for the years ended October 31, 2021, 2020 and 2019 (in thousands):

The following table reconciles operating income as reported above to net income for the years ended October 31, 2022, 2021 and 2020 (in thousands):

Year Ended October 31,

2022 2021 2020

Operating income (loss) $ 81,870 $ 55,265 $ ( 26,427 )

Operating income $ 111,281 $ 81,870 $ 55,265

Interest expense ( 2,559 ) ( 2,530 ) ( 5,245 )

1 unchanged sentence

Income tax expense ( 21,427 ) ( 23,114 ) ( 11,804 )

Net income (loss) $ 56,980 $ 38,496 $ ( 46,730 )

Net income $ 88,336 $ 56,980 $ 38,496

QUANEX BUILDING PRODUCTS CORPORATION

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Earnings Per Share

We compute basic earnings (loss) per share by dividing net income (loss) by the weighted average number of common shares outstanding during the period.

Diluted earnings per common and potential common shares include the weighted average of additional shares associated with the incremental effect of dilutive employee stock options, non-vested restricted stock as determined using the treasury stock method prescribed by U.S.

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

We compute basic earnings per share by dividing net income by the weighted average number of common shares outstanding during the period.

The computation of basic and diluted earnings per share for the years ended October 31, 2022, 2021 and 2020 follows (in thousands, except per share data):

Year Ended October 31, 2021 Net Income (Loss) Weighted Average Shares Per Share

Year Ended October 31, 2022 Net Income Weighted Average Shares Per Share

Basic earnings per common share $ 88,336 33,048 $ 2.67

8 unchanged sentences

Stock options 82

Restricted stock 90

Restricted stock awards 132

Performance restricted stock units 88

1 unchanged sentence

Year Ended October 31, 2020

Basic and diluted loss per share $ ( 46,730 ) 32,960 $ ( 1.42 )

Basic earnings per common share $ 38,496 32,689 $ 1.18

Effect of dilutive securities:

Stock options 10

Restricted stock awards 90

Performance restricted stock units 32

Diluted earnings per common share $ 38,496 32,821 $ 1.17

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

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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 as pre-existing processes for estimating credit losses for trade receivables aligned with the expected credit loss model.

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 twelve months ended October 31, 2022.

As of October 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.

Subsequent Events

On November 1, 2022, we entered into an Asset Purchase Agreement (the “Purchase Agreement”) with LMI Custom Mixing, LLC (“LMI”) and the equity owners of LMI, Lauren International, Ltd.

and Meteor-US-Beteiligungs GMBH.

Under the Purchase Agreement, we acquired substantially all of the operating assets comprising LMI’s polymer mixing and rubber compound production business (collectively, the “Purchased Assets”) and also agreed to assume certain liabilities relating to the Purchased Assets (collectively, the “Acquisition”).

As consideration for the Purchased Assets, we agreed to pay LMI $ 92 million in cash, with $ 7.1 million of this amount funded into escrow substantially as security for the seller parties’ indemnification obligations.

To fund the amounts paid in connection with the Acquisition, we used a combination of cash on hand and funds borrowed under our Credit Facility.

Subsequent to the acquisition, we had approximately $ 215 million available for use under the Credit Facility.

In connection with the Acquisition, we amended our existing lease with Lauren Real Estate Holding LLC for the purpose of adding an additional lease renewal option and increasing rental space by approximately 60,000 square feet of rental space which was added to the 313,595 square feet of rentable area located in Cambridge, Ohio.

The initial accounting for this business combination is in process which includes conducting a valuation analysis to value the assets and liabilities assumed as a result of the Acquisition.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

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 8. Financial Statements and Supplementary Data