What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2024-03-08 compared with 2023-09-01 · 122 added, 318 removed, 534 unchanged (45% of the section changed)

8 unchanged sentences

80,063 97,311

Inventories, net 105,368 120,890

Inventories 107,478 97,959

Income taxes receivable 7,642 8,298

Prepaid and other current assets 13,390 11,558

17 unchanged sentences

Noncurrent operating lease liabilities 40,084 40,361

Deferred pension benefits — 3,917

Deferred income taxes 30,737 29,133

6 unchanged sentences

Common stock, $ 0.01 par value, shares authorized 125,000,000 ;

issued 37,176,958 and 37,211,056 , respectively;

issue d 37,127,024 and 37,176,958 , respectively;

outstanding 33,103,593 and 33,011,119 , respectively

9 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended Nine Months Ended

July 31, July 31,

2023 2022 2023 2022

Three Months Ended

(In thousands, except per share amounts)

20 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three Months Ended Nine Months Ended

July 31, July 31,

2023 2022 2023 2022

Three Months Ended

(In thousands)

Net income $ 6,249 $ 1,909

Other comprehensive income (loss):

Foreign currency translation gain (loss) 3,078 ( 5,168 ) 17,532 ( 19,595 )

Other comprehensive income (loss) 3,078 ( 5,168 ) 17,532 ( 19,595 )

Other comprehensive income:

Foreign currency translation gain 6,081 11,372

Other comprehensive income 6,081 11,372

Comprehensive income $ 12,330 $ 13,281

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended

Three Months Ended

(In thousands)

7 unchanged sentences

Changes in assets and liabilities:

Decrease (increase) in accounts receivable 9,918 ( 5,306 )

Decrease (increase) in inventory 23,864 ( 48,280 )

Decrease in accounts receivable 18,147 20,502

(Increase) decrease in inventory ( 8,756 ) 645

Increase in other current assets ( 1,680 ) ( 1,431 )

(Decrease) increase in accounts payable ( 15,471 ) 2,765

Decrease in accounts payable ( 19,044 ) ( 21,379 )

Decrease in accrued liabilities ( 7,181 ) ( 12,686 )

(Decrease) increase in income taxes payable ( 3,534 ) 7,522

Increase (decrease) in deferred pension benefits 22 ( 239 )

Increase in income taxes payable 264 536

Increase in deferred pension benefits — 7

Increase in other long-term liabilities 852 1,461

9 unchanged sentences

Repayments of credit facility borrowings ( 5,000 ) ( 15,000 )

Debt issuance costs — ( 1,210 )

Repayments of other long-term debt ( 679 ) ( 579 )

2 unchanged sentences

Payroll tax paid to settle shares forfeited upon vesting of stock ( 1,193 ) ( 545 )

Purchase of treasury stock ( 5,593 ) ( 6,600 )

Cash provided by (used for) financing activities 26,687 ( 17,937 )

Cash (used for) provided by financing activities ( 9,117 ) 83,314

Effect of exchange rate changes on cash and cash equivalents 760 997

Increase in cash and cash equivalents 18,159 9,969

Decrease in cash and cash equivalents ( 14,052 ) ( 12,038 )

Cash and cash equivalents at beginning of period 58,474 55,093

3 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Nine Months Ended July 31, 2023 Common

Three Months Ended January 31, 2024 Common

Stock Additional

16 unchanged sentences

Balance at January 31, 2024 $ 371 $ 248,715 $ 412,922 $ ( 32,060 ) $ ( 74,919 ) $ 555,029

Net income — — 21,512 — — 21,512

Foreign currency translation adjustment — — — 3,082 — 3,082

Common dividends ($ 0.08 per share)

— — ( 2,659 ) — — ( 2,659 )

Purchase of treasury stock — — — — ( 5,593 ) ( 5,593 )

Stock-based compensation activity:

Expense related to stock-based compensation — 719 — — — 719

Other — ( 22 ) — — — ( 22 )

Balance at April 30, 2023 $ 372 $ 250,427 $ 355,557 $ ( 34,968 ) $ ( 78,661 ) $ 492,727

Net income — — 31,698 — — 31,698

Foreign currency translation adjustment — — — 3,078 — 3,078

Common dividends ($ 0.08 per share)

— — ( 2,632 ) — — ( 2,632 )

Stock-based compensation activity:

Expense related to stock-based compensation — 430 — — — 430

Stock options exercised — 25 — — 629 654

Balance at July 31, 2023 $ 372 $ 250,882 $ 384,623 $ ( 31,890 ) $ ( 78,032 ) $ 525,955

Nine Months Ended July 31, 2022 Common

Three Months Ended January 31, 2023 Common

Stock Additional

16 unchanged sentences

Balance at January 31, 2023 $ 372 $ 249,730 $ 336,704 $ ( 38,050 ) $ ( 73,068 ) $ 475,688

Net income — — 26,522 — — 26,522

Foreign currency translation adjustment — — — ( 11,268 ) — ( 11,268 )

Common dividends ($ 0.08 per share)

— — ( 2,671 ) — — ( 2,671 )

Purchase of treasury stock — — — — ( 1,569 ) ( 1,569 )

Stock-based compensation activity:

Expense related to stock-based compensation — 572 — — — 572

Stock options exercised — 9 — — 109 118

Other — ( 29 ) — — — ( 29 )

Balance at April 30, 2022 $ 373 $ 250,756 $ 292,221 $ ( 36,197 ) $ ( 70,979 ) $ 436,174

Net income — — 25,908 — — 25,908

Foreign currency translation adjustment — — — ( 5,168 ) — ( 5,168 )

Common dividends ($ 0.08 per share)

— — ( 2,658 ) — — ( 2,658 )

Purchase of treasury stock — — — — ( 5,031 ) ( 5,031 )

Stock-based compensation activity:

Expense related to stock-based compensation — 583 — — — 583

Stock options exercised — 20 — — 309 329

Balance at July 31, 2022 $ 373 $ 251,359 $ 315,471 $ ( 41,365 ) $ ( 75,701 ) $ 450,137

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

59 unchanged sentences

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The following table summarizes our product sales for the three and nine months ended July 31, 2023 and 2022 into groupings by segment which we believe depicts how the nature, amount, timing and uncertainty of our revenues and cash flows are affected by economic factors.

The following table summarizes our product sales for the three months ended January 31, 2024 and 2023 into groupings by segment which we believe depicts how the nature, amount, timing and uncertainty of our revenues and cash flows are affected by economic factors.

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

Three Months Ended Nine Months Ended

July 31, July 31,

2023 2022 2023 2022

Three Months Ended

(In thousands)

27 unchanged sentences

Related Parties

N et sales include transactions with a customer which is a related party with one of our non-employee directors for the nine months ended July 31, 2023 of approxim ately $ 0.9 million and $ 1.6 million for the comparable prior year period .

N et sales include transactions with a customer which is a related party with one of our non-employee directors for the three months ended January 31, 2024 and 2023 of approxim ately $ 0.2 million, respectively .

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.

6 unchanged sentences

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 t he Credit Facility.

For the three and nine months ended July 31, 2023, our consolidated operating results included net sales of $ 19.8 million and $ 54.0 million, respectively, and operating income of $ 1.7 million and $ 5.1 million, respectively, associated with LMI.

In connection with the Acquisition, we amended our existing financ e 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.

As of July 31, 2023, we are still determining the purchase price allocation for LMI .

A preliminary purchase price allocation of the fair value of the assets acquired and liabilities assumed is included in the table below.

These estimates are subject to change and will likely result in an increase or decrease in goodwill, particularly with regard to third-party valuations and our estimates of fixed assets, intangible assets, and inventory, during the measurement period, which may extend up to one year from the acquisition date.

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 three and nine months ended July 31, 2022.

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

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Three Months Ended Nine Months Ended

July 31, 2022 July 31, 2022

(In thousands, except per share amounts)

Net sales $ 341,925 $ 963,797

Net income $ 27,649 $ 68,252

Basic earnings per share $ 0.84 $ 2.06

Diluted earnings per share $ 0.83 $ 2.05

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.

Inventories consisted of the following at July 31, 2023 and October 31, 2022 (in thousands):

Inventories consisted of the following at January 31, 2024 and October 31, 2023 (in thousands):

2024 October 31,

3 unchanged sentences

Total $ 107,478 $ 97,959

Inventory reserves 3,021 3,129

Inventories, net $ 105,368 $ 120,890

Fixed costs related to excess manufacturing capacity, if any, have been expensed in the period they were incurred and, therefore, are not capitalized into inventory.

We recognize a right-of-use (ROU) asset and lease liability for each operating and finance lease with a contractual term greater than 12 months at the time of lease inception.

We include ROU assets and lease liabilities for leases that exist within other contracts.

Leases with an original term of 12 months or less are not recognized on the balance sheet, and the rent expense related to those short-term leases is recognized over the lease term.

We do not account for lease and non-lease (e.g., common area maintenance) components of contracts separately for any underlying asset class.

We lease certain manufacturing plants, warehouses, office space, vehicles and equipment under finance and operating leases.

Lease commencement occurs on the date we take possession or control of the property or equipment.

Original terms for our real estate-related leases are generally between five years and twenty years .

Original terms for equipment-related leases, primarily manufacturing equipment and vehicles, are generally between one year and ten years .

Some of our leases also include rental escalation clauses.

Renewal options are included in the determination of lease payments when management determines the options are reasonably certain of exercise, considering financial performance, strategic importance and/or invested capital.

If readily determinable, the rate implicit in the lease is used to discount lease payments to present value;

however, substantially all of our leases do not provide a readily determinable implicit rate.

When the implicit rate is not determinable, our estimated incremental borrowing rate is utilized, determined on a collateralized basis, to discount lease payments based on information available at lease commencement.

Total lease costs recorded include fixed operating lease costs and variable lease costs.

Most of our real estate leases require we pay certain expenses, such as common area maintenance costs, of which the fixed portion is included in operating lease costs.

We recognize operating lease costs on a straight-line basis over the lease term.

In addition to the above costs, variable lease costs are recognized when probable and are not included in determining the present value of our lease liability.

The ROU asset is measured at the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date and initial direct costs.

For operating leases, ROU assets are reduced over the lease term by the

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

recognized straight-line lease expense less the amount of accretion of the lease liability determined using the effective interest method.

For finance leases, ROU assets are amortized on a straight-line basis over the shorter of the useful life of the leased asset or the lease term.

Interest expense on each finance lease liability is recognized utilizing the effective interest method.

ROU assets are tested for impairment in the same manner as long-lived assets.

Additionally, we monitor for events or changes in circumstances that may require a reassessment of one of our leases and determine if a remeasurement is required.

The table below presents the lease-related assets and liabilities recorded on the balance sheet at July 31, 2023 and October 31, 2022 (in thousands):

Leases Classification July 31,

2023 October 31,

Operating lease assets Operating lease right-of-use assets $ 45,804 $ 56,000

Finance lease assets Property, plant and equipment (less accumulated depreciation of $ 6,073 and $ 3,726 )

58,804 22,003

Total lease assets $ 104,608 $ 78,003

Operating Current operating lease liabilities $ 7,388 $ 7,727

Finance Current maturities of long-term debt 2,579 1,336

Operating Noncurrent operating lease liabilities 39,291 49,286

Finance Long-term debt 53,189 17,816

Total lease liabilities $ 102,447 $ 76,165

The table below presents the components of lease costs for the three and nine months ended July 31, 2023 and 2022 was as follows (in thousands):

Three Months Ended Nine Months Ended

July 31, July 31,

2023 2022 2023 2022

Operating lease cost

$ 2,322 $ 2,466 $ 6,731 $ 7,540

Finance lease cost

Amortization of leased assets 824 337 2,439 929

Interest on lease liabilities 612 142 1,815 402

Variable lease costs

420 279 1,210 759

Total lease cost $ 4,178 $ 3,224 $ 12,195 $ 9,630

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The table below presents supplemental cash flow information related to leases for the nine months ended July 31, 2023 and 2022 was as follows (in thousands):

Nine Months Ended

Cash paid for amounts included in the measurement of lease liabilities:

Finance leases - financing cash flows $ 1,762 $ 838

Finance leases - operating cash flows $ 1,815 $ 402

Operating leases - operating cash flows $ 6,848 $ 7,551

Right-of-use assets obtained in exchange for lease liabilities:

Operating leases $ 3,714 $ 1,259

Finance leases $ 25,723 $ 6,028

The table below presents the weighted-average remaining lease terms and weighted-average discount rates for the Company's leases as of July 31, 2023 and October 31, 2022:

July 31, 2023 October 31,

Weighted-average remaining lease term (in years)

Operating leases 10.8 10.8

Financing leases 19.0 13.7

Weighted-average discount rate

Operating leases 4.01 % 3.84 %

Financing leases 4.49 % 3.78 %

The table below presents the maturity of the lease liabilities as of July 31, 2023 (in thousands):

Operating Leases Finance Leases

2023 (remaining three months) $ 2,352 $ 1,246

2024 8,829 4,982

2025 7,202 4,899

2026 5,847 4,731

2027 4,811 4,589

Thereafter 30,062 63,062

Total lease payments 59,103 83,509

present value discount 12,424 27,741

Total lease liabilities $ 46,679 $ 55,768

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Goodwill and Intangible Assets

The change in the carrying amount of goodwill for the nine months ended July 31, 2023 was as follows (in thousands):

Nine Months Ended

July 31, 2023

The change in the carrying amount of goodwill for the three months ended January 31, 2024 was as follows (in thousands):

Three Months Ended

January 31, 2024

Beginning balance as of November 1, 2023 $ 182,956

LMI acquisition 41,393

Foreign currency translation adjustment 2,483

1 unchanged sentence

At our last annual test date, August 31, 2023, we evaluated the recoverability of goodwill at each of our five reporting units with goodwill balances and determined that our goodwill was no t impaired.

An additional reporting unit was acquired during the nine months ended July 31, 2023.

We evaluated for indicators of impairment for all reporting units during the three and nine months ended July 31, 2023 and determined that there were no triggering events.

We evaluated for indicators of impairment for all reporting units during the three months ended January 31, 2024 and determined that there were no triggering events.

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

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Identifiable Intangible Assets

Amortizable intangible assets consisted of the following as of July 31, 2023 and October 31, 2022 (in thousands):

July 31, 2023 October 31, 2022

Amortizable intangible assets consisted of the following as of January 31, 2024 and October 31, 2023 (in thousands):

January 31, 2024 October 31, 2023

Gross Carrying

6 unchanged sentences

Total $ 240,341 $ 168,333 $ 238,275 $ 164,160

In connection to the LMI Acquisition, we added gross carrying intangibles of $ 16.0 million of customer relationships, $ 3.0 million of other technology and $ 0.5 million of trade names, each with the weighted-average amortization of twenty years.

We had aggregate amortization expense related to intangible assets for the three and nine months ended July 31, 2023 of $ 3.0 million and $ 9.1 million, respectively, and $ 3.0 million and $ 9.0 million for the comparable prior year periods.

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

We had aggregate amortization expense related to intangible assets for the three months ended January 31, 2024 of $ 3.2 million and $ 3.1 million for the comparable prior year period.

Estimated remaining amortization expense, assuming current intangible balances and no new acquisitions, for future fiscal years as of January 31, 2024 (in thousands):

Amortization Expense

2023 (remaining three months) $ 3,003

2024 (remaining nine months) $ 8,540

Thereafter 28,006

Total $ 72,008

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Debt and Finance Lease Obligations

Long-term debt consisted of the following at July 31, 2023 and October 31, 2022 (in thousands):

Long-term debt consisted of the following at January 31, 2024 and October 31, 2023 (in thousands):

2024 October 31,

13 unchanged sentences

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

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

12 unchanged sentences

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

As of July 31, 2023, we ha d $ 55.0 million of borrowings outstanding under the Credit Facility (reduced by unamortized debt issuance costs of $1.3 million), $ 5.1 million of outstanding letters of credit and $ 55.8 million outstanding primarily under finance leases and other debt.

We had $ 264.9 million available for use under the Credit Facility at July 31, 2023.

As of January 31, 2024, we had $ 10.0 million of borrowings outstanding under the Credit Facility (reduced by unamortized debt issuance costs of $1.1 million), $ 5.1 million of outstanding letters of credit and $ 55.2 million outstanding primarily under finance leases and other debt.

We had $ 309.9 million available for use under the Credit Facility at January 31, 2024.

Outstanding borrowings under the Credit Facility accrue interest at 6.68 % per annum.

Our weighted-average borrowing rate for borrowings outstanding during the three months ended January 31, 2024 and 2023 was 6.69 % and 5.43 %, respectively.

We were in compliance with our debt covenants as of January 31, 2024.

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

borrowings under the Credit Facility accrue interest at 6.67 % per annum.

Our weighted-average borrowing rate for borrowings outstanding during the nine months ended July 31, 2023 and 2022 was 5.91 % and 1.81 %, respectively.

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

Retirement Plans

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

The net periodic pension cost for this plan for the three and nine months ended July 31, 2023 and 2022 was as follows (in thousands):

Three Months Ended Nine Months Ended

July 31, July 31,

2023 2022 2023 2022

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

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.

The net periodic pension (benefit) cost for this plan for the three months ended January 31, 2024 and 2023 was as follows (in thousands):

Three Months Ended

Service cost $ — $ 96

2 unchanged sentences

Amortization of net loss — 10

Net periodic pension benefit $ 130 $ ( 80 ) $ 389 $ ( 239 )

During the nine months ended July 31, 2022, we made no contributions to fund our plan.

During fiscal 2023 , we may make a contribution to the pension plan equal to the remaining obligation in order to complete the plan termination that became effective November 1, 2022.

In August 2023, some participants began receiving pension settlements.

The pension obligation of $ 3.9 million is included in current liabilities under the caption “Accrued liabilities” within current liabilities as of July 31, 2023 and under the caption “Pension benefit obligations” as of October 31, 2023 in the accompanying condensed consolidated balance sheets.

Settlement reimbursement ( 765 ) —

Net periodic pension (benefit) cost $ ( 765 ) $ 130

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

As of July 31, 2023 and October 31, 2022, our liability under the supplemental benefit plan was approximately $ 2.0 million and $ 1.9 million, respectively.

During the three months ended July 31, 2023, the supplemental benefit plan was terminated.

As of January 31, 2024 and October 31, 2023, our liability under the supplemental benefit plan was approximately $ 2.0 million.

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 July 31, 2023 and October 31, 2022, the liability associated with the deferred compensation plan was approximately $ 4.1 million and $ 3.3 million, respectively.

As of January 31, 2024 and October 31, 2023, the liability associated with the deferred compensation plan was approximately $ 4.5 million and $ 3.9 million, respectively.

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

1 unchanged sentence

Discrete items include, among others, such events as changes in estimates due to the finalization of tax returns, tax audit settlements, expiration of statutes of limitations, tax benefits on equity compensation, and increase or decrease in valuation allowances on deferred tax assets.

Our annual effective tax rates from continuing operations for the nine months ended July 31, 2023 and 2022 were 18.2 % and 22.2 %, respectively.

Our annual effective tax rates from continuing operations for the three months ended January 31, 2024 and 2023 were 20.8 % and 19.2 %, respectively.

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

2 unchanged sentences

tax rate differential and other permanent differences.

The primary discrete item affecting the 2023 effective rate was a benefit of $ 1.7 million related to a true-up of tax provision accrual to tax return filings.

The primary discrete items affecting the 2022 effective rate were the charge of $ 0.2 million related to the vesting or exercise of equity-based compensation awards and a benefit of $ 1.0 million for the true-up of our accruals and related deferred taxes from prior year filings.

As of July 31, 2023, our liability for uncertain tax positions (UTP) of $ 1.4 million relates to certain U.S.

The primary discrete items affecting the 2024 effective rate were the benefit of $ 0.4 million related to the vesting or exercise of equity-based compensation awards, and a charge of $ 0.6 million related to the true up of the deferred tax rate.

The primary discrete item affecting the 2023 effective rate was a benefit of $ 0.2 million related to foreign entities true up.

As of January 31, 2024, our liability for uncertain tax positions (UTP) of $ 0.3 million relates to certain U.S.

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

1 unchanged sentence

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

We maintain a valuation allowance for certain state net operating losses which totaled $ 0.6 million as of January 31, 2024 and October 31, 2023, respectively.

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

As of July 31, 2023, we have an income tax receivabl e of $ 2.5 million included in current assets under the caption “Prepaid and other current assets” in the accompanying condensed consolidated balance sheets.

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

We maintain a valuation allowance for certain state net operating losses which totaled $ 0.5 million as of July 31, 2023 and October 31, 2022, respectively.

On August 16, 2022 the Inflation Reduction Act of 2022 was signed into law.

We are evaluating the regulations but do not believe they will result in a material impact to our consolidated financial statements.

Contingencies

19 unchanged sentences

• Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

• Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly or indirectly including quoted prices for similar assets or liabilities in active markets;

4 unchanged sentences

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

As a result, the fair value of our debt instrument approximates carrying value at July 31, 2023, and October 31, 2022 (Level 2 measurement).

As a result, the fair value of our debt instrument approximates carrying value at January 31, 2024, and October 31, 2023 (Level 2 measurement).

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

16 unchanged sentences

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

A summary of non-vested restricted stock awards activity during the nine months ended July 31, 2023 is presented below:

A summary of non-vested restricted stock awards activity during the three months ended January 31, 2024 is presented below:

Restricted Stock Awards Weighted-Average

4 unchanged sentences

Vested ( 66,600 ) 20.68

Non-vested at July 31, 2023 242,300 $ 22.36

The total weighted-average grant-date fair value of restricted stock awards that vested during each of the nine months ended July 31, 2023 and 2022 was $ 1.0 million and $ 1.2 million, respectively.

As of July 31, 2023, total unrecognized

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

compensation cost related to unamortized restricted stock awards was $ 2.7 million.

Non-vested at January 31, 2024 236,800 $ 25.85

The total weighted-average grant-date fair value of restricted stock awards that vested during each of the three months ended January 31, 2024 and 2023 was $ 1.4 million and $ 0.9 million, respectively.

As of January 31, 2024, total unrecognized compensation cost related to unamortized restricted stock awards was $ 4.0 million.

We expect to recognize this expense over the remaining weighted-average vesting period of 2.3 years.

5 unchanged sentences

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

The fair value of the stock options was determined on the grant date and expensed over the vesting period resulting in an increase in additional paid-in-capital.

The fair value of the stock options was determined on the grant date and expensed over the vesting period resulting in an

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

increase in additional paid-in-capital.

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

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A description of the methodology for the valuation assumptions was disclosed in our Annual Report on Form 10-K for the fiscal year ended October 31, 2023.

The following table summarizes our stock option activity for the nine months ended July 31, 2023:

The following table summarizes our stock option activity for the three months ended January 31, 2024:

Stock Options Weighted-Average

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Exercised ( 20,280 ) 19.70

Forfeited/Expired ( 4,000 ) 21.11

Outstanding at July 31, 2023 132,317 $ 19.33 2.2 $ 1,166

Vested at July 31, 2023 132,317 $ 19.33 2.2 $ 1,166

Exercisable at July 31, 2023 132,317 $ 19.33 2.2 $ 1,166

Outstanding at January 31, 2024 87,250 $ 19.43 2.2 $ 1,028

Vested at January 31, 2024 87,250 $ 19.43 2.2 $ 1,028

Exercisable at January 31, 2024 87,250 $ 19.43 2.2 $ 1,028

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

The total intrinsic value of stock options exercised during the nine months ended July 31, 2023 and 2022 was $ 0.3 million and $ 0.1 million, respectively.

The total intrinsic value of stock options exercised during the three months ended January 31, 2024 and 2023 was $ 0.2 million and less than $ 0.1 million, respectively.

Restricted Stock Units

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

During the nine months ended July 31, 2023 and 2022, non-employee directors received 38,704 and 36,669 restricted stock units, respectively, at a weighted-average grant date fair value of $ 20.67 per share and $ 22.52 per share, respectively, which vested immediately.

During the nine months ended July 31, 2023, 21,774 restricted stock units, which were awarded to key employees, vested.

D uring the nine months ended July 31, 2023, we paid $ 0.4 million and $ 1.0 million for the comparable prior year to settle vested restricted stock units.

During the three months ended January 31, 2024 and 2023, non-employee directors received 26,215 and 38,704 restricted stock units, respectively, at a weighted-average grant date fair value of $ 26.70 per share and $ 20.67 per share, respectively, which vested immediately.

During the three months ended January 31, 2023, 21,774 restricted stock units, which were awarded to key employees, vested.

D uring the three months ended January 31, 2024, we paid $ 0.1 million and $ 0.4 million for the comparable prior year to settle vested restricted stock units.

Performance Share Awards

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

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

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December 7, 2023 72,200 $ 32.15 —

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

In December 2023, 122,400 shares vested pursuant to the December 2020 grant, which were settled with a cash payment of $ 3.4 million.

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December 7, 2023 40,700 $ 30.35 —

During the nine months ended July 31, 2023 , 32,680 performance restricted stock units vested.

During the three months ended January 31, 2024 , 49,228 performance restricted stock units vested.

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

As of July 31, 2023, we have de emed 45,667 shares related to the December 2020 grant of performance restricted stock units as probable to vest.

As of January 31, 2024, we have de emed 58,957 shares related to the December 2021 grant of performance restricted stock units as probable to vest.

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The following table summarizes amounts expensed as selling, general and administrative expense related to restricted stock awards, stock options, restricted stock units, performance share awards and performance restricted stock units for the three and nine months ended July 31, 2023 and 2022 (in thousands):

Three Months Ended Nine Months Ended

July 31, 2023 July 31, 2023

2023 2022 2023 2022

The following table summarizes amounts expensed as selling, general and administrative expense related to restricted stock awards, stock options, restricted stock units, performance share awards and performance restricted stock units for the three months ended January 31, 2024 and 2023 (in thousands):

Three Months Ended

Restricted stock awards $ 317 $ 438

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

There were no charges to retained earnings during the nine months ended July 31, 2023.

The following table summarizes the treasury stock activity during the nine months ended July 31, 2023:

Nine Months Ended

July 31, 2023

There were no charges to retained earnings during the three months ended January 31, 2024.

The following table summarizes the treasury stock activity during the three months ended January 31, 2024:

Three Months Ended

January 31, 2024

Beginning Balance as of November 1, 2023 4,165,839

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Stock options exercised ( 20,280 )

Treasury stock repurchases 275,000

Balance at July 31, 2023 4,190,626

Balance at January 31, 2024 4,023,431

Segment Information

We present three reportable business segments (1) NA Fenestration, comprising four operating segments in 2023 (compared to three operating segments in 2022) primarily focused on the fenestration market in North America including vinyl profiles, insulating glass spacers, screens, custom compound mixing, and other fenestration components;

We present three reportable business segments (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 & conservatories, and the European insulating glass business manufacturing insulating glass spacers;

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

The additional NA Fenestration operating segment in 2023 is related to the Acquisition of LMI, an advanced polymer solutions provider with a focus on advanced methods for mixing rubber compounds.

For additional discussion of our Acquisition of LMI, see Note 2, “Acquisition.” Additionally, we maintain an Unallocated Corporate & Other which includes transaction expenses, stock-based compensation, long-term incentive awards based on the performance of our common stock and other factors, certain severance, legal, and other costs not deemed to be allocable to all segments, depreciation of corporate assets, interest expense, other, net, income taxes and inter-segment eliminations, and executive incentive compensation and medical expense fluctuations relative to planned costs as determined during the annual planning process.

Additionally, we maintain an Unallocated Corporate & Other which includes transaction expenses, stock-based compensation, long-term incentive awards based on the performance of our common stock and other factors, certain severance, legal, and other costs not deemed to be allocable to all segments, depreciation of corporate assets, interest expense, other, net, income taxes and inter-segment eliminations, and executive incentive compensation and medical expense fluctuations relative to planned costs as determined during the annual planning process.

Other general and administrative costs associated with the corporate office are allocated to the reportable segments, based upon a relative measure of profitability in order to more accurately reflect each reportable business segment's administrative costs.

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

Corporate general and administrative expense allocated during the three and nine month period ended July 31, 2023 was $ 6.3 million and $ 17.1 million, respectively, and $ 5.8 million and $ 17.1 million for the comparable prior year periods.

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Corporate general and administrative expense allocated during the three month period ended January 31, 2024 was $ 7.3 million and $ 4.3 million for the comparable prior year period.

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

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(3) similar types or classes of customers, namely the primary OEMs;

(4) similar distribution methods for product delivery, although the extent of the use of third-party distributors will vary amongst the businesses;

(4) similar distribution methods for product

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

delivery, although the extent of the use of third-party distributors will vary amongst the businesses;

(5) similar regulatory environment;

and (6) converging long-term economic similarities.

Segment information for the three and nine months ended July 31, 2023 and 2022, and total assets as of July 31, 2023 and October 31, 2022 are summarized in the following table (in thousands):

Segment information for the three months ended January 31, 2024 and 2023, and total assets as of January 31, 2024 and October 31, 2023 are summarized in the following table (in thousands):

NA Fenestration EU Fenestration NA Cabinet Components Unallocated Corp.

& Other Total

Three Months Ended July 31, 2023

Net sales $ 177,081 $ 67,889 $ 55,385 $ ( 715 ) $ 299,640

Depreciation and amortization 5,033 2,434 3,084 45 10,596

Operating income 22,668 16,150 2,271 ( 3,626 ) 37,463

Capital expenditures 3,201 2,244 1,744 187 7,376

Three Months Ended July 31, 2022

Net sales $ 184,744 $ 67,613 $ 72,480 $ ( 800 ) $ 324,037

Depreciation and amortization 4,044 2,327 3,273 90 9,734

Operating income (loss) 23,086 9,818 2,329 ( 1,198 ) 34,035

Capital expenditures 4,166 621 916 — 5,703

Nine Months Ended July 31, 2023

Three Months Ended January 31, 2024

Net sales $ 147,995 $ 49,437 $ 43,137 $ ( 1,414 ) $ 239,155

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Capital expenditures 5,721 1,801 1,836 222 9,580

Nine Months Ended July 31, 2022

Three Months Ended January 31, 2023

Net sales $ 152,980 $ 54,952 $ 54,674 $ ( 690 ) $ 261,916

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Capital expenditures 3,613 1,956 1,860 153 7,582

As of July 31, 2023

As of January 31, 2024

Total assets $ 372,328 $ 242,615 $ 156,353 $ 42,124 $ 813,420

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Total assets $ 379,286 $ 239,333 $ 158,824 $ 53,700 $ 831,143

The following table summarizes the change in the carrying amount of goodwill by reportable business segment for the nine months ended July 31, 2023 (in thousands):

The following table summarizes the change in the carrying amount of goodwill by reportable business segment for the three months ended January 31, 2024 (in thousands):

NA Fenestration EU Fenestration NA Cabinet Comp.

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Balance as of October 31, 2023 $ 80,105 $ 63,704 $ 39,147 $ — $ 182,956

LMI acquisition 41,393 — — — 41,393

Foreign currency translation adjustment — 2,483 — — 2,483

Balance as of July 31, 2023 $ 80,105 $ 67,157 $ 39,147 $ — $ 186,409

Balance as of January 31, 2024 $ 80,105 $ 66,187 $ 39,147 $ — $ 185,439

For further details of Goodwill, see Note 4, “Goodwill & Intangible Assets,” located herewith.

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

The following table reconciles operating income as reported above to net income for the three and nine months ended July 31, 2023 and 2022 (in thousands):

Three Months Ended Nine Months Ended

July 31, July 31,

2023 2022 2023 2022

The following table reconciles operating income as reported above to net income for the three months ended January 31, 2024 and 2023 (in thousands):

Three Months Ended

Operating income $ 7,917 $ 4,403

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We compute basic earnings per share by dividing net income 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.

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Basic and diluted earnings per share for the three and nine months ended July 31, 2023 and 2022 were calculated as follows (in thousands, except per share data):

determined using the treasury stock method prescribed by U.S.

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

Basic and diluted earnings per share for the three months ended January 31, 2024 and 2023 were calculated as follows (in thousands, except per share data):

Net Income Weighted-Average Shares Per Share

Three Months Ended July 31, 2023

Basic earnings per common share $ 31,698 32,716 $ 0.97

Effect of dilutive securities:

Stock options — 33 —

Restricted stock awards — 124 —

Performance restricted stock units — 46 —

Diluted earnings per common share $ 31,698 32,919 $ 0.96

Three Months Ended July 31, 2022

Basic earnings per common share $ 25,908 32,999 $ 0.79

Effect of dilutive securities:

Stock options — 34 —

Restricted stock awards — 99 —

Performance restricted stock units — 41 —

Diluted earnings per common share $ 25,908 33,173 $ 0.78

Nine Months Ended July 31, 2023

Three Months Ended January 31, 2024

Basic earnings per common share $ 6,249 32,825 $ 0.19

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Diluted earnings per common share $ 6,249 33,043 $ 0.19

Nine Months Ended July 31, 2022

Three Months Ended January 31, 2023

Basic earnings per common share $ 1,909 32,951 $ 0.06

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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.

There were no anti-dilutive instruments for the three and nine months ended July 31, 2023 and 2022.

There were no anti-dilutive instruments for the three months ended January 31, 2024 and 2023.

New Accounting Guidance

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

We did not adopt any new accounting pronouncements during the three and nine months ended July 31, 2023.

As of July 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.

We did not adopt any new accounting pronouncements during the three months ended January 31, 2024.

Accounting Standards Not Yet Adopted

In November 2023, the FASB issued “Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures,” which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses.

The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 with early adoption is permitted.

The guidance is to be applied retrospectively to all prior periods presented in the financial statements.

We are currently evaluating the potential impact of adopting this new guidance on our consolidated financial statements and related disclosures.

In December 2023, the FASB issued “Income Taxes (Topic 740):

Improvements to Income Tax Disclosures,” which includes updates to the income tax disclosures related to the rate reconciliation and disaggregation of income taxes paid by jurisdiction.

The amendments are effective for fiscal years beginning after December 15, 2024 with early adoption permitted.

The amendments should be applied prospectively, however retrospective application is permitted.

We are currently evaluating the potential impact of adopting this new guidance on our consolidated financial statements and related disclosures.

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

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• changes in domestic and international economic conditions;

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

• our ability to attract and retain skilled labor;

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

What changed 10-Q

Item 1. Financial Statements