What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2023-12-15 compared with 2022-12-16 · 185 added, 211 removed, 1159 unchanged (25% of the section changed)

15 unchanged sentences

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, 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”).

We have audited the accompanying consolidated balance sheets of Quanex Building Products Corporation (a Delaware corporation) and subsidiaries (the “Company”) as of October 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended October 31, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended October 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

75 unchanged sentences

Inventories, net 97,959 120,890

Income taxes receivable

Prepaid and other current assets 11,558 8,664

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Noncurrent operating lease liabilities 40,361 49,286

Deferred pension and postretirement benefits 3,917 4,737

Deferred pension — 3,917

Deferred income taxes 29,133 22,277

5 unchanged sentences

Preferred stock, no par value, shares authorized 1,000,000 issued and outstanding - none

Common stock, $ 0.01 par value, shares authorized 125,000,000 issued 37,211,056 and 37,273,510 respectively;

Comm on stock, $ 0.01 par value, shares authorized 125,000,000 issued 37,176,958 and 37,211,056 respectively;

outstanding 33,011,119 and 33,129,250 , respectively

2 unchanged sentences

Accumulated other comprehensive loss ( 38,141 ) ( 49,422 )

Treasury stock at cost, 4,081,806 and 3,998,725 shares, respectively

Treasury s tock at cost, 4,165,839 and 4,081,806 shares, respectively

( 77,571 ) ( 75,518 )

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

Foreign currency translation adjustments gain (loss) 8,542 ( 28,334 ) 7,152

Change in pension from net unamortized gain (pretax) 3,558 897 5,477

Change in pension from net unamortized gain tax expense ( 819 ) ( 215 ) ( 1,375 )

Total other comprehensive income (loss), net of tax 11,281 ( 27,652 ) 11,254

Comprehensive income $ 93,782 $ 60,684 $ 68,234

11 unchanged sentences

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

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

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

— — — — 4,102 — — 4,102

5 unchanged sentences

Restricted stock awards granted — — ( 1,282 ) — — 73,300 1,282 —

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

Performance restricted stock unit awards vested — — ( 565 ) — — 32,322 565 —

Other ( 22,656 ) — ( 492 ) — — — — ( 492 )

6 unchanged sentences

— — — ( 10,598 ) — — — ( 10,598 )

Expense related to stock-based compensation — — 1,970 — — — 1,970

Treasury shares purchased, at cost — — — — — ( 291,000 ) ( 6,600 ) ( 6,600 )

Expense related to stock-based compensation — — 2,291 — — — 2,291

Stock options exercised — — 38 — — 35,600 651 689

Restricted stock awards granted — — ( 1,534 ) — — 84,400 1,534 —

Performance share awards vested — — ( 565 ) — — 32,322 565 —

Performance restricted stock unit awards vested — — ( 1,598 ) — — 87,919 1,598 —

Other ( 62,454 ) ( 1 ) ( 1,412 ) — — — — ( 1,413 )

10 unchanged sentences

Restricted stock awards granted — — ( 1,752 ) — — 94,700 1,752 —

Performance share awards vested — — ( 1,598 ) — — 87,919 1,598 —

Performance restricted stock unit awards vested — — ( 605 ) — — 32,680 605 —

Other ( 34,098 ) — ( 567 ) — — — — ( 567 )

17 unchanged sentences

Decrease (increase) in accounts receivable 6,969 6,945 ( 19,017 )

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

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

Decrease (increase) in inventory 30,024 ( 32,035 ) ( 31,382 )

Increase in other current assets ( 1,880 ) ( 970 ) ( 1,817 )

(Decrease) increase in accounts payable ( 11,611 ) ( 3,047 ) 7,097

(Decrease) increase in accrued liabilities ( 4,249 ) ( 3,159 ) 16,212

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

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

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

Decrease in income taxes payable ( 9,009 ) ( 5,192 ) ( 378 )

(Decrease) increase in deferred pension ( 359 ) 77 ( 708 )

Increase in other long-term liabilities 683 305 477

Other, net 1,642 194 ( 528 )

1 unchanged sentence

Investing activities:

Acquisitions, net of cash acquired ( 91,302 ) — —

Capital expenditures ( 37,390 ) ( 33,121 ) ( 24,008 )

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We also manufacture cabinet doors and other components for OEMs in the kitchen and bathroom cabinet industry.

In addition, we provide certain other non-fenestration components and products, which include solar panel sealants, trim moldings, vinyl decking, fencing, water retention barriers, and conservatory roof components.

In addition, we provide certain other non-fenestration components and products, which include custom mixing, solar panel sealants, trim moldings, vinyl decking, fencing, water retention barriers, and conservatory roof components.

We have organized our business into three reportable business segments:

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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 years ended October 31, 2023 and 20 22, one c ustomer 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.

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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.

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 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)

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.

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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.

There were no other indicators of triggering events noted for any period in the years ended October 31, 2023 and 2022.

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, 2023, 2022 and 2021.

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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.

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 one of the reporting units in the NA Fenestration segment and two of the reporting units in the EU Fenestration segment.

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

At our annual testing date, August 31, 2023, we had six reporting units with goodwill balances:

three 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 segmen t.

We performed a qualitative assessment of three 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.

Therefore, no additional testing was deemed necessary for these five 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 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.

We determined that the fair value of this reporting unit exceeded the carrying value an d concluded that no impairment was necessary.

Restructuring

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

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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Retirement Plans

We sponsor a defined benefit pension plan and an unfunded postretirement plan that provides health care and life insurance benefits for a limited pool of eligible retirees and dependents.

To measure our liabilities associated with these plans, we make assumptions related to future events, including expected return on plan assets, rate of compensation increases, and healthcare cost trend rates.

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

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.

Actual pension plan asset investment performance, as well as other economic experience such as discount rate and demographic experience, will either reduce or increase unamortized pension losses at the end of any fiscal year, which ultimately affects future pension costs.

We have historically sponsored a defined benefit pension plan.

To measure our liabilities associated with these plans, we made assumptions related to future events, including expected return on plan assets, and rate of compensation increases.

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

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

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

During the year ended October 31, 2023, the defined benefit pension plan as terminated and the pension obligation was settled.

Warranty Obligations

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Our ability to estimate our warranty obligations is subject to significant uncertainties, including changes in product design and our overall product sales mix.

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

We record the estimated future tax effects of temporary differences between the tax basis of assets and liabilities and the amounts reported in our consolidated balance sheets, as well as net operating losses and tax credit carry forwards.

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To the extent that our tax positions do not meet the more-likely-than-not criteria, we record a liability for uncertain tax positions.

We have recorded a liability for uncertain tax positions which stem from certain federal and state tax items related to the interpretation of tax laws and regulations.

We have recorded a liability for uncertain tax positions which stem from certain state tax items related to the interpretation of tax laws and regulations.

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

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)

This Act did not have a material impact to our consolidated financial statements.

Derivative Instruments

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

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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).

As of October 31, 2023 , we have deemed 122,400 performance share awards related to the December 2020 grants as probable to vest.

9 unchanged sentences

When we subsequently reissue these shares, proceeds in excess of cost upon the issuance of treasury shares are credited to additional paid-in-capital, while any deficiency is charged to retained earnings.

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Earnings per Share Data

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Noncash investing and financing activities:

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

Increase (decrease) in capitalized expenditures in accounts payable $ 1,953 $ ( 1,692 ) $ 1,124

Related Party Transactions

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.

N et sales for the year ended October 31, 2023, 2022, and 2021 included approxim ately $ 1.2 million, $ 1.9 million and zero 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.

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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.”

date the financial statements were is sued.

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 paid $91.3 million in cash utilizing funds borrowed under our Credit Facility.

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

For the twelve months ended October 31, 2023, our consolidated operating results included net sales of $ 75.6 million and operating income of $ 8.3 million associated with LMI.

In connection with the Acquisition, we amended our existing finance lease with Lauren Real Estate Hol ding 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 purchase price has been allocated to the fair value of the assets acquired and liabilities assumed, as indicated in the table below.

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

As of Date of

Opening Balance Sheet

(In thousands)

Net assets acquired:

Accounts receivable $ 7,012

Inventories, net 5,684

Other assets 790

Property, plant and equipment, net 35,887

Goodwill 41,393

Intangible assets, net 19,500

Accounts payable ( 4,736 )

Accrued liabilities ( 507 )

Long-term debt (finance leases) ( 13,721 )

Net assets acquired $ 91,302

Consideration:

Cash, net of cash and cash equivalents acquired $ 91,302

We used recognized valuation techniques to determine the preliminary fair value of the assets and liabilities, including the excess earnings method for customer relationships and relief from royalty method for trade names and other technology with a discount rate that reflects the risk of the expected future cash flows.

The goodwill balance is deductible for tax purposes.

LMI is allocated entirely to our North American Fenestration reportable operating segment.

Pro Forma Results

We calculated the pro forma impact of the LMI acquisitions and the associated debt financing on our operating results for the twelve months ended October 31, 2022 and 2021.

The following pro forma results give effect to these acquisitions, assuming the transaction occurred on November 1, 2021.

For the Years Ended

October 31, 2022 October 31, 2021

(In thousands, except per share amounts)

Net sales $ 1,291,620 $ 1,129,355

Net income $ 94,235 $ 61,621

Basic earnings per share $ 2.85 $ 1.86

Diluted earnings per share $ 2.84 $ 1.84

We derived the pro forma results for the LMI acquisition based on historical financial information obtained from the sellers and certain management assumptions.

Our pro forma adjustm ents relate to the elimination of LMI intercompany sales to our North American Fenestration reportable segment and related cost of sales, incremental depreciation and amortization expense associated with property, plant and equipment and intangible assets to affect the transactions, assu ming a November 1, 2021 effective date.

In addition, we calculated the tax impact of these adjustments at a 25 % effective tax rate.

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Accounts Receivable and Allowance for Credit Losses

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present value discount

12,728 27,008

Total lease liabilities $ 47,585 $ 54,985

4 unchanged sentences

$ 137,855 $ 149,205

LMI acquisition 41,393 —

Foreign currency translation adjustment 3,708 ( 11,350 )

1 unchanged sentence

$ 182,956 $ 137,855

At our annual testing date, August 31, 2022, we ha d five reporting units with goodwill balances.

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.

At our annual testing date, August 31, 2023, we ha d six reporting units with goodwill balances.

Three of these units were included in our NA Fenestration segment and had goodwill balances of $ 41.4 million, $ 35.9 million and $ 2.8 million, two units were included in our EU Fenestration segment with goodwill balances of $ 47.8 million and $ 15.9 million, and our NA Cabinet Components segment had one unit with a goodwill balance of $ 39.2 million.

The details of the results of our goodwill assessments during the year ended October 31, 2023 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 17, “Segment Information.”

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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, 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, 2023, 2022, and 2021 was $ 12.1 million, $ 11.9 million and $ 12.8 million, respectively.

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

Estimated remaining amortization expense, assuming current in tangible balances and no new acquisitions, for future fiscal years as of October 31, 2023 (in thousands):

Amortization Expense

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Deferred compensation (current portion) 1,969 —

Goods and services 4,189 —

Deferred revenue 1,021 792

1 unchanged sentence

Audit, legal, and other professional fees 3,572 3,136

Accrued taxes 2,864 3,258

Accrued taxes, other 1,980 2,864

Freight 1,071 666

Utilities 1,389 539

Other 3,938 5,538

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

under finance leases.

primarily under finance leases and other debt.

We had $ 305.0 million available for use under the Credit Facility at October 31, 2023.

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.

The borrowings outstanding as of October 31, 2023 under the Credit Facility accrue interest at 6.67 % per annum, and our weighted average borrowing rate for borrowings outstanding during the years ended October 31, 2023 and 2022 was 6.01 % and 2.16 %, respectively.

We were in compliance with our debt covenants as of October 31, 2023.

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Defined Benefit Plan

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

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.

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

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 benefit plan in lieu of participation in a defined benefit plan.

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.

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

This Act introduces a Medicare prescription-drug benefit beginning in 2006 as well as a federal subsidy to sponsors of retiree health care plans that provide a benefit at least “actuarially equivalent” to the Medicare benefit.

We concluded that our plans are at least “actuarially equivalent” to the Medicare benefit.

For those who are otherwise eligible for the subsidy, we have not included this subsidy per the Act in our benefit calculations.

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

During the year ended October 31.

2023, we terminated our defined contribution plan and settled the obligation during the three months ended October 31, 2023.

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

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

For the remaining participants, the benefit formula was a traditional formula for retirement benefits, whereby the plan payed benefits to employees using a formula which considered years of service and pensionable compensation.

QUANEX BUILDING PRODUCTS CORPORATION

7 unchanged sentences

Interest cost 1,558 806

Actuarial loss ( 6,944 ) ( 849 )

Actuarial loss (gain) 1,315 ( 6,944 )

Benefits paid ( 389 ) ( 349 )

2 unchanged sentences

Projected benefit obligation at October 31, 2023 and 2022

$ 32,529 $ 42,379

Change in Plan Assets:

7 unchanged sentences

Fair value of plan assets at October 31, 2023 and 2022

$ 28,612 $ 37,642

Noncurrent liability - Funded Status $ — $ ( 3,917 )

As of October 31, 2022 and 2021, included in our accumulated comprehensive loss was a net actuarial loss of $ 3.6 million and $ 4.5 million, respectively.

As of October 31, 2023 and 2022, included in our accumulated comprehensive loss was a net actuarial loss of zero and $ 3.6 million, respectively.

There were no net prior service costs or transition obligations for the years ended October 31, 2023 and 2022.

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

As of October 31, 2023 and 2022, the accumulated benefit obligation was zero and $ 32.5 million, respectively.

The accumulated benefit obligation is the present value of pension benefits (whether vested or unvested) attributed to employee service rendered before the measurement date, and based on employee service and compensation prior to that date.

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2023 2022 2021

Net (gain) loss arising during the period $ ( 495 ) $ ( 5,112 ) $ 2,141

Net loss (gain) arising during the period $ 1,915 $ ( 495 ) $ ( 5,112 )

Amortization of net loss 42 6 143

Curtailments — — 1,141

Settlements 5,431 396 222

Total recognized in other comprehensive (income) loss $ ( 897 ) $ ( 5,477 ) $ 376

Total recognized in other comprehensive income $ ( 3,558 ) $ ( 897 ) $ ( 5,477 )

Measurement Date and Assumptions

9 unchanged sentences

The discount rate was used to calculate the present value of the projected benefit obligation for pension benefits.

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

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

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.

8 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The following tables provide our target allocation for the year ended October 31, 2022, as well as the actual asset allocation by asset category and fair value measurements as of October 31, 2022 and 2021:

Target Allocation Actual Allocation

October 31, 2022 October 31, 2022 October 31, 2021

The following tables provides our asset allocation by asset category and fair value measurements as of October 31, 2022.

Our asset balance as of October 31, 2023 was zero as all funds were used during the settlement process.

Actual Allocation

October 31, 2022

Equity securities — %

1 unchanged sentence

Fair Value Measurements at

October 31, 2022 October 31, 2021

October 31, 2022

(In thousands)

Money market fund $ 22,508

Large capitalization — 8,231

Small capitalization — 1,493

International equity — 6,992

Other — 2,236

Equity securities $ — $ 18,952

High-quality core bond 4,980

3 unchanged sentences

Total securities (1)

$ 28,612 $ 37,642

(1) Quoted prices in active markets for identical assets (Level 1).

Inputs and valuation techniques used to measure the fair value of plan assets vary according to the type of security being valued.

All of the equity and debt securities held directly by the plans were actively traded and fair values were determined based on quoted market prices.

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

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, 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.

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The following table presents the total benefit payments expected to be paid to participants by year, which includes payments funded from our assets, as well as payments paid from the plan for the year ended October 31, (in thousands):

Pension Benefits

2023 $ 22,880

2028 - 2032 3,415

Total $ 29,248

Benefit Payments and Funding

For the fiscal years ended October 31, 2023, 2022 and 2021, we made total pension contributio ns of $ 6.3 million, zero and $ 0.5 million, respectively.

As of October 31, 2023, no more contributions are expected to be made to the plan.

Defined Contribution Plan

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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 $ 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.

A s of October 31, 2023 and 2022, o ur liability under the supplemental benefit plan was approximately $ 2.0 million and $ 1.9 million , respectively.

During the year ended October 31, 2023 , the supplemental benefit plan was terminated.

Benefits associated with this plan will be distributed in June 2024 in accordance with Internal Revenue Service regulations.

As of October 31, 2023 and 2022 our liability under the deferred compensation plan was approximately $ 3.9 million a nd $ 3.3 million, respectively.

As of October 31, 2023 and 2022, 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.

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The provision or benefit for income taxes includes U.S.

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Total income tax expense $ 14,545 $ 21,427 $ 23,114

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For financial reporting purposes, income before income taxes for the years ended October 31, 2023, 2022 and 2021 includes the following components (in thousands):

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United States tax at statutory rate 21.0 % 21.0 % 21.0 %

State and local income tax 0.4 % 3.1 % 1.7 %

Non-United States income tax ( 0.8 ) % 2.3 % 1.2 %

State and local income taxes net of federal tax benefit 1.8 % 1.6 % 2.3 %

Foreign tax rate differential 1.1 % 0.3 % 0.5 %

patent box benefit ( 5.9 ) % ( 1.2 ) % ( 1.4 ) %

income tax credits ( 4.9 ) % ( 3.2 ) % ( 4.2 ) %

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

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

Foreign inclusions (including global intangible low-taxed income) 4.6 % 3.2 % 4.2 %

Permanent differences 1.3 % 0.6 % 1.7 %

Tax return to accrual adjustments ( 2.3 ) % ( 3.0 ) % ( 1.5 ) %

Change in deferred tax rate — % — % 3.9 %

Change in uncertain tax position ( 1.1 ) % — % 1.1 %

Other ( 0.6 ) % 0.2 % 1.3 %

Effective tax rate 15.0 % 19.5 % 28.9 %

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

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Our earnings from our foreign subsidiaries qualifies for Dividend Received Deduction and are not subject to 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.

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Inventory 1,159 1,409

Research and development 2,075 —

Loss and tax credit carry forwards 1,203 1,589

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Net deferred tax liabilities $ 29,133 $ 22,277

At October 31, 2022, state operating loss carry forwards totaled $ 31.3 million .

As of October 31, 2023, gross state operating loss carry forwards totaled $ 24.9 million.

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

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 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, 2023 and 2022, totaling $ 0.6 million and $ 0.5 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.

To fully realize these net deferred tax assets, we will need to generate sufficient future taxable income in the countries where these tax attributes exist during the periods in which the attributes can be utilized.

During the year ended October 31, 2023, we recorded a net $0.1 million increase in our state valuation allowance.

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

To fully realize these net deferred tax assets, we will need to generate sufficient future taxable income in the jurisdictions where these tax attributes exist during the periods in which the attributes can be utilized.

As of each reporting date, management considers the weight of all evidence, both positive and negative, to determine if a valuation allowance is necessary for each jurisdiction’s net deferred tax assets.

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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, 2023, 2022 and 2021 (in thousands):

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Balance at October 31, 2021

Additions for tax positions related to the prior year 953

Reassessment of position ( 27 )

Balance at October 31, 2022

Reassessment of position ( 27 )

Lapse of statute of limitations ( 1,111 )

Balance at October 31, 2023

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 account for uncertain tax benefits in accordance with guidance in ASC 740, which prescribes the minimum recognition threshold a tax position taken or expected to be tak en in a tax return is required to meet before being recognized in the financial statements.

During the year ended October 31, 2023, we reversed $1.1 million of unrecognized tax benefits due to expiration of the statute of limitations.

The remaining liability for unrecognized tax benefits of $ 0.2 million related to certain 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 su bsidiaries, file income tax returns in the U.S.

We, along with our subsidiaries, 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 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, 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.

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.

The state impact of a reported federal adjustment or change remains subject to examination by various states within the longer of one year or the expiration date of the otherwise applicable statute of limitations.

Commitments and Contingencies

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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 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.

We are depreciating the asset and accre ting the liability 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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From time to time, we incur routine expenses and capital expenditures associated with compliance with existing environmental regulations, including control of air emissions and water discharges, and plant decommissioning costs.

We have not incurred any material expenses or capital expenditures related to environmental matters during the past three fiscal years, and do not expect to incur a material amount of such costs in fi scal 2023.

We have not incurred any material expenses or capital expenditures related to environmental matters during the past three fiscal years,

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

and do not expect to incur a material amount of such costs in fi scal 2024.

Wh ile we will continue to have future expenditures related to environmental matters, any such amounts are impossible to reasonably estimate at this time.

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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

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.

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.

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

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

For further information refer to Note 13.

Stock-Based Compensation - Performance Share Awards.

For further information refer to Note 14, “Stock-Based Compensation - Performance Share Awards.”

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Stock-Based Compensation

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Restricted stock awards are granted to key employees and officers annually, and typically cliff vest over a three-year period with service and continued employment as the only vesting criteria.

The recipient of a restricted stock award is entitled to all of the rights of a shareholder, except that the awards are nontransferable during the vesting period.

The recipient of a restricted stock award is entitled to all of the rights of a shareholder, except that the awards are nontransferable during the vesting period and dividends are not paid until vesting.

The fair value of the restricted stock award is established on the grant date and then expensed over the vesting period resulting in an increase in additional paid-in-capital.

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

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

A summary of non-vested restricted stock award activity during the years ended October 31, 2023, 2022 and 2021, follows:

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As a result, stock options were not granted during the years ended October 31, 2023, 2022 and 2021 .

Stock options typically vested ratably over a three-year period with service and continued employment as the vesting conditions.

Stock options typically vested ratably over a three-year period with service and continued employment as the

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

vesting conditions.

Our stock options may be exercised up to a maximum of ten years from the date of grant.

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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 CONSOLIDATED FINANCIAL STATEMENTS (continued)

The following table summarizes our stock option activity for the years ended October 31, 2023, 2022 and 2021.

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For the years ended October 31, 2023, 2022 and 2021, the total intrinsic value of our stock options that were exercised to taled $ 0.5 million, $ 0.2 million and $ 4.2 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, 2023, 2022 and 2021, 38,704 , 36,669 and 28,826 restricted stock units, respectively, were granted with corresponding weighted average grant date fair value of $ 20.67 , $ 22.52 , and $ 18.79 , respectively.

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 fiscal year ended October 31, 2023, 21,774 restricted stock units, which were awarded to key employees, vested.

During the years ended October 31, 2023, 2022 and 2021, we paid $ 0.4 million, $ 1.0 million and $ 0.8 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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In December 2022, 101,200 shares vested pursuant to the December 2019 grant, which were settled with a cash payment of $ 2.2 million.

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

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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December 7, 2022 51,500 $ 23.22 3,100

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, 2023, 2022 and 2021 (in thousands):

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Restricted stock awards $ 1,712 $ 1,452 $ 1,235

Stock options — — 10

Restricted stock units 1,686 1,167 1,197

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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.

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.

During December 2021, our Board of Directors approved a 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, 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.

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

During the years ended October 31, 2023 and 2022, we purchased 275,000 shares and 291,000 shares, respectively, at a cost of $ 5.6 million and $ 6.6 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.

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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.

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, 2023, 2022 and 2021, refer to the Consolidated Statement of Stockholders' Equity located elsewhere herein.

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2023 2022 2021

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

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

Pension service benefit 783 839 243

Foreign currency transaction (losses) gains $ ( 146 ) $ 386 $ ( 98 )

Foreign currency exchange derivative gains 1 19 —

Pension service (expense) benefit ( 5,566 ) 783 839

Interest income 248 19 5

Other ( 56 ) ( 166 ) 8

Other income $ 1,041 $ 754 $ 280

Other (loss) income $ ( 5,519 ) $ 1,041 $ 754

Segment Information

We present three reportable business segments:

(1) NA Fenestration, comprising three operating segments primarily focused on the fenestration market in North America including vinyl profiles, insulating glass spacers, screens & other fenestration components;

(2) EU Fenestration, comprising our U.K.-based vinyl extrusion business, manufacturing vinyl profiles & conservatories, and the European insulating glass business manufacturing insulating glass spacers;

(1) NA Fenestration, comprising four operating segments primarily focused on the fenestration market in North America including vinyl profiles, insulating glass spacers, screens, custom compound mixing, and other fenestration components;

(2) EU Fenestration, comprising our U.K.-based vinyl extrusion business, manufacturing vinyl profiles and conservatories, and the European insulating glass business manufacturing insulating glass spacers;

and (3) NA Cabinet Components, comprising our cabinet door and components segment.

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Balance as of October 31, 2022 $ 38,712 $ 59,996 $ 39,147 $ — $ 137,855

LMI acquisition 41,393 — — — 41,393

Foreign currency translation adjustment — 3,708 — — 3,708

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

Year Ended October 31,

2022 2021 2020

Stock options — — 1,032

Restricted stock awards — — —

Performance share awards — — —

Total — — 1,032

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Unaudited Quarterly Data

Selected quarterly financial data for the years ended October 31, 2022 and 2021 was as follows (amounts in thousands, except per share amounts):

For the Quarter Ended January 31, 2022 April 30, 2022 July 31, 2022 October 31, 2022

Net sales $ 267,040 $ 322,893 $ 324,037 $ 307,532

Cost of sales (excluding depreciation and amortization) 211,834 249,651 251,446 240,073

Depreciation and amortization 10,257 10,563 9,734 9,555

Operating income 14,126 34,550 34,035 28,570

Net income 11,239 26,522 25,908 24,667

Basic earnings per share 0.34 0.80 0.79 0.75

Diluted earnings per share 0.34 0.80 0.78 0.75

Cash dividends paid per common share 0.08 0.08 0.08 0.08

For the Quarter Ended January 31, 2021 April 30, 2021 July 31, 2021 October 31, 2021

Net sales $ 230,147 $ 270,357 $ 279,877 $ 291,768

Cost of sales (excluding depreciation and amortization) 176,397 208,460 219,866 226,818

Depreciation and amortization 11,015 10,845 10,683 10,189

Operating income 11,835 21,380 21,562 27,093

Net income 7,852 14,551 13,679 20,898

Basic earnings per share 0.24 0.44 0.41 0.63

Diluted earnings per share 0.24 0.43 0.41 0.62

Cash dividends paid per common share 0.08 0.08 0.08 0.08

Qu arterly earnings per share results may not sum to the consolidated earnings per share results on the accompanying consolidated statements of income due to roun ding and changes in weighted average shares during the respective periods.

New Accounting Guidance

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As of October 31, 2023, 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.

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