What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2024-12-16 compared with 2023-12-15 · 248 added, 237 removed, 1107 unchanged (30% of the section changed)

17 unchanged sentences

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of October 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended October 31, 2024, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of October 31, 2023, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated December 15, 2023 expressed an unqualified opinion.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of October 31, 2024, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated December 16, 2024 expressed an adverse opinion.

Basis for opinion

22 unchanged sentences

• We tested the effectiveness of controls over goodwill impairment including those over the determination of fair value, including controls relating to management’s development of forecasts of future revenues, earnings, cash flows and WACC.

• We evaluated management’s ability to accurately forecast revenues, earnings and cash flows by comparing actual results to management’s historical forecasts.

• We evaluated the reasonableness of management’s forecasts of revenues, earnings and cash flows by comparing the forecasts to historical revenues, earnings and cash flows, current budgets, our understanding of the current business strategy, communications to the Board of Directors, press releases and industry reports.

9 unchanged sentences

We have audited the internal control over financial reporting of Quanex Building Products Corporation (a Delaware corporation) and subsidiaries (the “Company”) as of October 31, 2024, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of October 31, 2023, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended October 31, 2023, and our report dated December 15, 2023 expressed an unqualified opinion on those financial statements.

In our opinion, because of the effect of the material weakness described in the following paragraphs on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of October 31, 2024, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.

A material weakness is a deficiency, or combination of control deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

The following material weakness has been identified and included in management’s assessment.

Management identified a material weakness in internal controls related to the design and operation of controls over the Company’s preparation and review of the statement of cash flows.

The material weakness identified above was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2024 consolidated financial statements, and this report does not affect our report dated December 16, 2024, which expressed an unqualified opinion on those financial statements.

Basis for opinion

7 unchanged sentences

We believe that our audit provides a reasonable basis for our opinion.

Our audit of, and opinion on, the Company’s internal control over financial reporting does not include the internal control over financial reporting of Tyman plc, a wholly-owned subsidiary, whose financial statements reflect total assets and revenues constituting 54% and 16%, respectively, of the related consolidated financial statement amounts as of and for the year ended October 31, 2024.

As indicated in Management’s Annual Report on Internal Control Over Financial Reporting, Tyman plc, was acquired on August 1, 2024.

Managements assertion on the effectiveness of the Company’s internal control over financial reporting excluded internal controls over financial reporting of Tyman plc.

Definition and limitations of internal control over financial reporting

1 unchanged sentence

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

10 unchanged sentences

Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

As permitted under the SEC rules, we have elected to exclude Tyman plc from management’s assessment of effectiveness of internal controls as of October 31, 2024.

Prior to acquisition by us on August 1, 2024, Tyman plc was listed publicly on the London Stock Exchange, which reported financial results pursuant to International Financial Reporting Standards and, therefore, had no requirement to comply with the Sarbanes-Oxley Act of 2002.

We are evaluating internal control procedures and expect to implement changes in internal control over financial reporting to fully comply with the Sarbanes-Oxley Act of 2002 during fiscal 2025.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of October 31, 2024, using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control — Integrated Framework (2013).

Based on this assessment, management has concluded that, as of October 31, 2023, the Company’s internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles based on such criteria.

Based on this assessment, management identified a material weakness in the Company’s internal control over financial reporting related to related to the design and operation of controls over the Company’s preparation and review of the statement of cash flows.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis.

As a result of the identified material weakness, management has concluded that the Company’s internal control over financial reporting was not effective as of October 31, 2024.

We are actively implementing remedial measures to address the identified material weakness.

We expect the remediation of this material weakness to be completed prior to the end of fiscal year 2025.

Grant Thornton LLP , the Company’s independent registered public accounting firm, has issued an attestation report on the effectiveness of the Company’s internal control over financial reporting.

5 unchanged sentences

Cash and cash equivalents $ 97,744 $ 58,474

Restricted cash 5,251 —

Accounts receivable, net of allowance for credit losses of $ 254 and $ 843

197,689 97,311

Inventories, net 97,959 120,890

Income taxes receivable

Inventories 275,550 97,959

Income tax receivable

Prepaid and other current assets 29,097 11,558

3 unchanged sentences

Operating lease right-of-use assets 126,715 46,620

Deferred income tax assets 3,845 —

Goodwill 574,711 182,956

11 unchanged sentences

Long-term debt 737,198 66,435

Noncurrent operating lease liabilities 40,361 49,286

Deferred pension — 3,917

Non-current operating lease liabilities 117,560 40,361

Deferred income taxes 162,304 29,133

5 unchanged sentences

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

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

Common stock, $ 0.01 par value, shares authorized 125,000,000 issued 51,266,501 and 37,176,958 respectively;

outstanding 47,252,070 and 33,011,119 , respectively

2 unchanged sentences

Accumulated other comprehensive loss ( 46,428 ) ( 38,141 )

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

Treasury stock at cost, 4,014,431 and 4,165,839 shares, respectively

( 74,752 ) ( 77,571 )

12 unchanged sentences

Selling, general and administrative 190,470 123,957 117,108

Restructuring charges — — 39

Depreciation and amortization 60,328 42,866 40,109

22 unchanged sentences

Other comprehensive income:

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

Foreign currency translation adjustments (loss) gain, net of tax ( 8,287 ) 8,542 ( 28,334 )

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

Change in pension from net unamortized gain tax expense — ( 819 ) ( 215 )

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

Total other comprehensive (loss) income, net of tax ( 8,287 ) 11,281 ( 27,652 )

Comprehensive income $ 24,772 $ 93,782 $ 60,684

37 unchanged sentences

Foreign currency translation adjustments — — — — ( 8,287 ) — — ( 8,287 )

Change in pension from net unamortized gain (net of tax expense of $ 819 )

— — — — 2,739 — — 2,739

Common dividends ($ 0.32 per share)

— — — ( 11,972 ) — — — ( 11,972 )

Treasury shares purchased, at cost — — — — — ( 275,000 ) ( 5,593 ) ( 5,593 )

Issuance of common stock, acquisition 14,139,477 142 449,918 — — — — 450,060

Expense related to stock-based compensation — — 2,952 — — — 2,952

15 unchanged sentences

Depreciation and amortization 60,328 42,866 40,109

Loss on disposition of capital assets 278 109 3,039

(Gain) loss on disposition of capital assets ( 5,218 ) 278 109

Stock-based compensation 2,952 2,521 2,291

Deferred income tax ( 15,336 ) 5,147 2,097

Charge for deferred loan costs and debt discount 3,469 — —

Gain on deal contingent foreign exchange forward currency contract ( 6,512 ) — —

Other, net 4,495 1,529 1,905

Changes in assets and liabilities:

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

Decrease in accounts receivable 973 6,969 6,945

Decrease (increase) in inventory 33,484 30,024 ( 32,035 )

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

Increase (decrease) in other current assets 4,297 ( 1,880 ) ( 970 )

(Decrease) increase in accounts payable ( 35,824 ) ( 11,611 ) ( 3,047 )

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

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

Increase (decrease) in accrued liabilities 6,250 ( 4,249 ) ( 3,159 )

Increase (decrease) in income taxes payable 9,139 ( 9,009 ) ( 5,192 )

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

Increase in other long-term liabilities 683 305 477

(Decrease) increase in other long-term liabilities ( 7,155 ) 683 305

Other, net 411 1,642 194

12 unchanged sentences

Issuance of common stock 573 1,215 689

Proceeds from deal contingent foreign exchange forward currency contract 6,512 — —

Payroll tax paid to settle shares forfeited upon vesting of stock ( 1,193 ) ( 567 ) ( 1,413 )

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

Cash used for financing activities ( 16,151 ) ( 45,879 ) ( 71,861 )

Effect of exchange rate changes on cash and cash equivalents 919 ( 4,092 ) 421

Increase (decrease) in cash and cash equivalents 3,381 15,032 ( 11,560 )

Cash and cash equivalents at beginning of period 55,093 40,061 51,621

Cash and cash equivalents at end of period $ 58,474 $ 55,093 $ 40,061

Cash provided by (used for) financing activities 385,156 ( 16,151 ) ( 45,879 )

Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 8,853 ) 919 ( 4,092 )

Increase in cash, cash equivalents and restricted cash 44,521 3,381 15,032

Cash, cash equivalents and restricted cash at beginning of period 58,474 55,093 40,061

Cash, cash equivalents and restricted cash at end of period $ 102,995 $ 58,474 $ 55,093

See notes to consolidated financial statements.

6 unchanged sentences

Examples of fenestration components include:

(1) energy-efficient flexible insulating glass spacers, (2) extruded vinyl profiles, (3) window and door screens, and (4) precision-formed metal and wood products.

(1) energy-efficient flexible insulating glass spacers, (2) extruded vinyl profiles, (3) window and door screens, (4) window and door hardware, and (5) precision-formed metal and wood products.

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 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:

(1) North American Fenestration (NA Fenestration), (2) European Fenestration (EU Fenestration) and (3) North American Cabinet Components (NA Cabinet Components).

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

We have organized our business into four reportable business segments:

(1) North American Fenestration (NA Fenestration), (2) European Fenestration (EU Fenestration), (3) North American Cabinet Components (NA Cabinet Components), and (4) Tyman, which was acquired on August 1, 2024.

For additional discussion of our reportable business segments, see Note 17, “Segment Information.” We use low-cost production processes and engineering expertise to provide our customers with specialized products for their specific window, door, and cabinet applications.

We believe these capabilities provide us with unique competitive advantages.

We serve a primary customer base in North America and the United Kingdom (U.K.), and also serve customers in international markets through our operating plants in the U.K.

and Germany, as well as through sales and marketing efforts in other countries.

We serve a primary customer base in North America and the United Kingdom (U.K.), and also serve customers in international markets through our operating locations in the U.K., Germany, Mexico, Canada and Italy, as well as through sales and marketing efforts in other countries.

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.

2 unchanged sentences

We consolidate our wholly-owned subsidiaries and eliminate intercompany sales and transactions.

We have no cost or equity investments in companies that are not wholly-owned.

In our opinion, these audited financial statements contain all adjustments necessary to fairly present our financial position, results of operations and cash flows for the periods presented.

We have no cost or equity investments in companies that are not wholl y-owned.

Certain reclassifications were made to prior period balances for current period presentation.

In our opinion, these au dited financial statements contain all adjustments necessary to fairly present our financial position, results of operations and cash flows for the periods presented.

Use of Estimates

7 unchanged sentences

Revenue for product sales is recognized when control of the promised products is transferred to our customers, and we are entitled to consideration in exchange for such transfer.

We account for a contract when a customer provides us with a firm purchase order that identifies the products to be provided, the payment terms for those products, and when collectability of the consideration due is probable.

Performance obligations

21 unchanged sentences

and astragals, thresholds and screens.

In addition, we produce certain non-fenestration products, including kitchen and bath cabinet doors and components, flooring and trim moldings, solar edge tape, plastic decking, fencing, water retention barriers, conservatory roof components, and other products.

In addition, we produce certain non-fenestration products, including kitchen and bath cabinet door and components, flooring and trim moldings, solar edge tape, plastic decking, fencing, water retention barriers, conservatory roof components, commercial building starts to evaluate the commercial access market, and other products.

The following table summarizes our product sales for the three years ended October 31, 2024, 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.

20 unchanged sentences

$ 198,424 $ 215,445 $ 275,704

United States - fenestration $ 127,749 $ — $ —

International - fenestration 75,082 — —

United States - non-fenestration 604 — —

$ 203,435 $ — $ —

Unallocated Corporate & Other:

2 unchanged sentences

Net sales $ 1,277,862 $ 1,130,583 $ 1,221,502

Cash and Cash Equivalents

Cash, Cash Equivalents and Restricted Cash

Cash equivalents include all highly liquid investments with an original maturity of three months or less.

Such securities with an original maturity which exceeds three months are deemed to be short-term investments.

We maintain cash and cash equivalents at several financial institutions, which at times may not be federally insured or may exceed federally insured limits.

Restricted cash is cash held in a foreign subsidiary that is not available for use as a result of exchange control restrictions.

We maintain cash, cash equivalents and restricted cash at several financial institutions, which at times may not be federally insured or may exceed federally insured limits.

We have not experienced any losses in such accounts and believe we are not exposed to any significant credit risks on such accounts.

1 unchanged sentence

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

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, 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.

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

For the years ended October 31, 2024, 2023 and 2022, one customer provided more than 10 % of our consolidated net sales and accounts receivable.

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

77 unchanged sentences

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.

At our annual testing date, August 31, 2024, we had seven 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, one reporting unit included in our NA Cabinet Components operating segmen t, and one reporting unit in our Tyman operating segment, which was acquired on August 1, 2024.

We performed a qualitative assessment of the reporting units in the NA Fenestration, EU Fenestration, and Tyman operating segments.

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 five reporting units.

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

15 unchanged sentences

Retirement Plans

We have historically sponsored a defined benefit pension plan.

We 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.

18 unchanged sentences

In the event the estimates and assumptions indicate we will not generate sufficient future taxable income to realize our deferred tax assets, we record a valuation allowance against a portion of our deferred tax assets.

The deferred tax assets, net of valuation allowance, offset the deferred liability within a jurisdiction.

We evaluate our ongoing tax positions to determine if it is more-likely-than-not we will be successful in defending such positions if challenged by taxing authorities.

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 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.

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

As of October 31, 2024, we do not have any liability for uncertain tax positions recorded.

Derivative Instruments

We have historically used financial and commodity-based derivative contracts to manage our exposure to fluctuations in foreign currency exchange rates and aluminum prices.

We have historically used financial and commodity-based derivative contracts to manage our exposure to fluctuations in foreign currency exchange rates and raw material prices.

All derivatives are measured at fair value on a recurring basis.

5 unchanged sentences

Our consolidated financial statements are presented in our reporting currency, the United States Dollar.

Our German and U.K.

operations are measured using the local currency as the functional currency.

Our foreign operations are measured using the local currency as the functional currency.

The assets and liabilities of our foreign operations which are denominated in other currencies are translated to United States Dollars using the prevailing exchange rates as of the balance sheet date.

1 unchanged sentence

The resulting translation adjustments are recorded as a component of accumulated other comprehensive loss on the consolidated balance sheets.

Occasionally, we enter into transactions that are denominated in currencies other than our functional currency.

We enter into transactions that are denominated in currencies other than our functional currency.

At each balance sheet date, we translate these asset or liability accounts to our functional currency and record unrealized transaction gains or losses.

25 unchanged sentences

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.

As of October 31, 2024 , we have deem ed 78,589 p erformance share awards related to the December 2021 grants as probable to vest.

We have also granted performance restricted stock units which settle in shares upon vesting.

23 unchanged sentences

Noncash investing and financing activities:

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

(Decrease) increase in capitalized expenditures in accounts payable $ ( 2,229 ) $ 1,953 $ ( 1,692 )

Issuance of common stock for acquisition 450,060 — —

Related Party Transactions

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.

N et sales for the year ended October 31, 2024, 2023, and 2022 included approxim ately $ 1.2 million, $ 1.2 million and $ 1.9 million of transactions with a customer which is a related party with one of our non-employee directors.

Purchases for the year ended October 31, 2024, 2023, and 2022 included approxim ately $ 0.2 million, zero 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.

3 unchanged sentences

date the financial statements were is sued.

Tyman Acquisition

On August 1, 2024, we completed the acquisition of Tyman plc (the “Tyman Acquisition”), a company incorporated in England and Wales (“Tyman”).

The aggregate consideration due pursuant to the Tyman Acquisition at closing comprised of 14,139,477 newly issued Quanex common shares (“New Quanex Shares”) and cash consideration of approximately $ 504.1 million (being the Pound Sterling amount of cash consideration of £ 392.2 million in respect of all of the Tyman Shares converted to U.S.

Dollars at an exchange rate of 1.2855 ).

New Quanex Shares issued in connection with the Tyman Acquisition on the New York Stock Exchange took effect on August 2, 2024 and Tyman’s shares on the London Stock Exchange were canceled.

On June 12, 2024, in connection with the Tyman Acquisition, the Company, Wells Fargo Bank, National Association (“Wells Fargo Bank”, acting as agent, swingline lender and issuing lender, the “Agent”), the other entities therein specified in the capacities therein specified, and the lenders parties thereto, entered into an amendment to the Second Amended and Restated Credit Agreement, dated as of July 6, 2022 (the “Existing Credit Agreement”, and the Existing Credit Agreement as so

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

amended, the “Amended Credit Agreement”).

The Amended Credit Agreement did not become effective until August 1, 2024 upon the completion of the Tyman Acquisition.

The Amended Credit Agreement (i) increased the senior secured revolving credit facility to an aggregate principal amount of $ 475 million (the “Revolving Credit Facility”) and (ii) provided for a senior secured term loan A facility in an aggregate principal amount of $ 500 million (the “Term Loan A Facility” and together with the Revolving Credit Facility, the “Facilities”).

The Revolving Credit Facility includes alternative currency, letter of credit, and swing-line sub-facilities of $ 100 million, $ 30 million, and $ 15 million, respectively.

The maturity date of the Facilities will be five years after the acquisition effective date, maturing on August 1, 2029.

As of October 31, 2024, we are still determining the purchase price allocation for the Tyman Acquisition.

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, inventory, and deferred income taxes, 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 $ 99,574

Inventories 211,617

Prepaid and other assets 21,516

Property, plant and equipment 157,981

Operating lease right-of-use assets 65,414

Goodwill 385,045

Intangible assets 539,285

Accounts payable ( 66,769 )

Accrued liabilities ( 41,958 )

Long-term debt ( 300,684 )

Operating lease liabilities ( 66,228 )

Deferred income taxes ( 145,677 )

Other liabilities ( 10,502 )

Net assets acquired $ 848,614

Consideration:

Total Consideration, net of cash and cash equivalents $ 848,614

We used recognized valuation techniques to determine the preliminary fair value of the assets and liabilities, including the multi period 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.

Tyman is allocated entirely to our Tyman reportable operating segment.

LMI Acquisition

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.

1 unchanged sentence

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)

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.

As of Date of

3 unchanged sentences

Accounts receivable $ 7,012

Inventories, net 5,684

Inventories 5,684

Other assets 790

Property, plant and equipment, net 35,887

Property, plant and equipment 35,887

Goodwill 41,393

Intangible assets, net 19,500

Intangible assets 19,500

Accounts payable ( 4,736 )

8 unchanged sentences

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.

We calculated the pro forma impact of the Tyman and LMI acquisitions and the associated debt financing on our operating results for the twelve months ended October 31, 2024, 2023, and 2022.

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

Year ended October 31,

2024 2023 2022

(In thousands, except per share amounts)

3 unchanged sentences

Diluted earnings per share $ 1.40 $ 1.03 $ 1.27

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.

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

Our Tyman pro forma adjustments relate to the impact of preliminary fair value adjustments on the underlying assets and liabilities of Tyman, transaction costs and the financing of the Tyman Acquisition, and the conversion of Tyman’s financial information prepared in accordance with IFRS to Quanex accounting policies in accordance with U.S.

Our LMI 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.

QUANEX BUILDING PRODUCTS CORPORATION

22 unchanged sentences

Total $ 275,550 $ 97,959

Inventory reserves 3,114 3,129

Inventories, net $ 97,959 $ 120,890

The changes in our inventory reserve accounts were as follows (in thousands):

Year Ended October 31,

2023 2022 2021

Beginning balance as of November 1, 2022, 2021 and 2020 $ 3,129 $ 2,936 $ 6,484

Charged to cost of sales 210 494 ( 568 )

Write-offs ( 293 ) ( 133 ) ( 3,060 )

Other 68 ( 168 ) 80

Balance as of October 31, 2023, 2022 and 2021 $ 3,114 $ 3,129 $ 2,936

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Property, Plant and Equipment

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If there are indicators of potential impairment, we evaluate our property, plant and equipment for recoverability over the remaining useful lives of the assets.

We did not incur impairment losses associated with these assets for the years ended October 31, 2023, 2022, and 2021.

We did not incur impairment losses associated with these assets for the years ended

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

October 31, 2024, 2023, and 2022.

See further discussion at Note 1, “Nature of Operations, Basis of Presentation and Significant Accounting Policies - Long-Lived Assets - Property, Plant and Equipment and Intangible Assets with Defined Lives.”

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The table below presents the maturity of the lease liabilities as of October 31, 2024 (in thousands):

Year ended October 31, 2024

Operating Leases Finance Leases

14 unchanged sentences

$ 182,956 $ 137,855

LMI acquisition 41,393 —

Acquisitions 385,045 41,393

Foreign currency translation adjustment 6,710 3,708

1 unchanged sentence

$ 574,711 $ 182,956

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.

At our annual testing date, August 31, 2024, we ha d seven 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 $ 50.7 million and $ 16.5 million, our NA Cabinet Components segment had one unit with a goodwill balance of $ 39.1 million, and our Tyman segment, which was acquired on August 1, 2024, had one unit with a goodwill balance of $ 388.3 million.

The details of the results of our goodwill assessments during the year ended October 31, 2024 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."

In connection to the Tyman Acquisition, we added gross carrying intangibles of $ 352.3 million of customer relationships, and $ 187.2 million of trade names, with the weighted-average amortization of eighteen and nineteen years, respectively.

The aggregate amortization expense associated with identifiable intangible assets for the years ended October 31, 2024, 2023, and 2022 was $ 21.6 million, $ 12.1 million and $ 11.9 million, respectively.

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We did no t incur impairment losses related to our identifiable intangible assets during the years ended October 31, 2024, 2023, and 2022.

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Accrued Liabilities

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Accrued liabilities $ 103,623 $ 50,319

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

Term Loan A Facility $ 493,750 $ —

Revolving Credit Facility 222,500 15,000

4 unchanged sentences

Long-term debt $ 737,198 $ 66,435

Revolving Credit Facility

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

serving as Syndication Agent.

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

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

Revolving Credit Facility and Term A Facility

The Amended Credit Agreement did not become effective until August 1, 2024 upon the completion of the Tyman Acquisition.

Our previous credit facility is more fully described in our Annual Report on Form 10-K for the fiscal year ended October 31, 2023.

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

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

As of October 31, 2023, the applicable rate was RFR + 1.25 %.

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

Pricing Level Consolidated Leverage Ratio Commitment Fee Eurocurrency Rate Loans and RFR Loans Base Rate Loans

The Amended Credit Agreement (i) increased the senior secured revolving credit facility to an aggregate principal amount of $ 475 million (the “Revolving Credit Facility”) and (ii) provides for a senior secured term loan A facility in an aggregate principal amount of $ 500 million (the “Term A Facility” and together with the Revolving Credit Facility, the “Facilities”).

The Revolving Credit Facility will include alternative currency, letter of credit, and swing-line sub-facilities of $ 100 million, $ 30 million, and $ 15 million, respectively.

We capitalized $ 13.8 million of deferred financing fees related to the Amended Credit Agreement.

The maturity date of the Facilities will be five years after the acquisition effective date, maturing on August 1, 2029.

The Term A Facility amortizes on a quarterly basis at 5 % per annum of the original principal amount of the Term A Facility, with the remainder due at maturity.

The Term A Facility must be prepaid with 100 % of the net cash proceeds of the

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

issuance or incurrence of debt and 100 % of the net cash proceeds of all asset sales, insurance and condemnation recoveries, and other asset dispositions.

Borrowings under the Facilities bear interest, at our option, at (1) the Base Rate plus an applicable margin or (2) Adjusted Term SOFR plus an applicable margin.

The applicable margin will range from 1.0 % to 1.75 % for Base Rate loans and 2.0 % to 2.75 % for Adjusted Term SOFR loans.

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

The applicable margin percentages are based on the Consolidated Net Leverage Ratio outlined in the following table:

Pricing Level Consolidated Leverage Ratio Commitment Fee Term SOFR Loans, Eurocurrency Rate Loans and RFR Loans Base Rate Loans

I Less than or equal to 1.50 to 1.00 0.150 % 2.00 % 1.00 %

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

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

The Facilities provides for incremental revolving credit commitments for a minimum principal amount of $ 10.0 million, up to an aggregate amount of the greater of (1) $ 310.0 million and (2) 100% of Consolidated EBITDA, subject to the lender's discretion to elect or decline the incremental increase.

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

The Credit Facility contains a:

The Facilities contains a:

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

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

In addition to maintaining these financial covenants, the Facilities also limits our ability to enter into certain business transactions, such as to incur indebtedness or liens, to acquire businesses or dispose of material assets, make restricted payments, pay dividends (limited to $ 35.0 million per year) and other transactions as further defined in the Credit Facility.

Some of these limitations, however, do not take effect so long as total leverage is less than or equal to 2.75 to 1.00 and available liquidity exceeds $ 25.0 million.

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

As of October 31, 2023, we had $ 15.0 million of borrowings outstanding under the Credit Facility (reduced by unamortized debt issuance costs of $ 1.2 million), $ 5.0 million of outstanding letters of credit and $ 55.0 million outstanding

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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, 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.

As of October 31, 2024, we had $ 716.3 million of borrowings outstanding under the Facilities (reduced by unamortized debt issuance costs of $ 14.0 million), $ 7.0 million of outstanding letters of credit and $ 60.7 million outstanding primarily under finance leases and other debt.

We had $ 245.5 million available for use under the Revolving Credit Facility at October 31, 2024.

The borrowings outstanding as of October 31, 2024 under the Facilities accrue interest at 6.79 % per annum, and our weighted average borrowing rate for borrowings outstanding during the years ended October 31, 2024 and 2023 was 7.20 % and 6.01 %, respectively.

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

1 unchanged sentence

Refer to Note 6 “Leases” for further information regarding our finance leases.

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The table below presents the scheduled maturity dates of our long-term debt outstanding (excluding deferred financing fees of $ 14.0 million) at October 31, 2024 (in thousands):

Revolving Credit Facility Finance Leases and Other Obligations Aggregate Maturities

Facilities Finance Leases Aggregate Maturities

2025 $ 25,000 $ 6,618 $ 31,618

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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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Funded Status and Net periodic Benefit Cost

The changes in benefit obligation and plan assets, and our funded status (reported in deferred pension and postretirement benefits on the consolidated balance sheets) were as follows (in thousands):

Change in Benefit Obligation:

Beginning balance as of November 1, 2022 and 2021

$ 32,529 $ 42,379

Service cost 383 860

Interest cost 1,558 806

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

Benefits paid ( 389 ) ( 349 )

Administrative expenses ( 356 ) ( 604 )

Settlements ( 35,040 ) ( 3,619 )

Projected benefit obligation at October 31, 2023 and 2022

Change in Plan Assets:

Beginning balance as of November 1, 2022 and 2021

$ 28,612 $ 37,642

Actual return on plan assets 862 ( 4,458 )

Employer contributions 6,311 —

Benefits paid ( 389 ) ( 349 )

Administrative expenses ( 356 ) ( 604 )

Settlements ( 35,040 ) ( 3,619 )

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

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

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, 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.

The accumulated benefit obligation differs from the projected benefit obligation in that it includes no assumption about future compensation levels.

We contributed $ 6.3 million to the plan in connection with the termination and distribution of the obligation.

The net periodic benefit cost for the years ended October 2023 and 2022, was as follows (in thousands):

Year Ended October 31,

2023 2022 2021

Service cost $ 383 $ 860

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Net periodic benefit cost $ 5,949 $ 77

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The changes in plan assets and projected benefit obligations which were recognized in our other comprehensive loss for the years ended October 31, 2023, 2022 and 2021 were as follows (in thousands):

Year Ended October 31,

2023 2022 2021

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

Amortization of net loss 42 6 143

Settlements 5,431 396 222

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

Measurement Date and Assumptions

We generally determine our actuarial assumptions on an annual basis, with a measurement date of October 31.

The following table presents our assumptions for pension benefit calculations for the years ended October 31, 2023, 2022 and 2021:

For the Year Ended October 31,

2023 2022 2021 2023 2022 2021

Weighted Average Assumptions:

Benefit Obligation Net Periodic Benefit Cost

Discount rate — % 5.36 % 2.77 % 5.36 % 2.77 % 2.60 %

Rate of compensation increase — % — % — % — % — % — %

Expected return on plan assets n/a n/a n/a 5.50 % 5.50 % 6.00 %

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

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.

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

This model assumes spot rates will remain level beyond the 30-year point.

We determine the present value of plan benefits by applying the discount rates to projected benefit cash flows.

The expected return on plan assets was used to determine net periodic pension expense.

The rate of return assumptions were based on projected long-term market returns for the various asset classes in which the plans were invested, weighted by the target asset allocations.

We review the return assumption at least annually.

The rate of compensation increase represents the long-term assumption for expected increases in salaries.

Defined Contribution Plan

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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 — %

Fixed income 100.0 %

Fair Value Measurements at

October 31, 2022

(In thousands)

Money market fund $ 22,508

High-quality core bond 4,980

High-quality government bond 547

High-yield bond 577

Fixed income $ 6,104

Total securities (1)

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

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

We also sponsor two defined contribution plans into which we and our employees make contributions.

As of January 1, 2020, we match 100 % up to the first 5 % of employee annual salary deferrals under our plan for all employees excluding NA Cabinet Components participants, who receive a 100 % match up to 4 % of employee annual salary deferrals.

Between January 1, 2018 and January 1, 2020, we matched 50 % up to the first 5 % of employee salary deferrals.

We also sponsor several defined contribution plans into which we and our employees make contributions.

We match 100 % up to between the first 3 % to 5 % of employee annual salary deferrals under our plan for all employees.

We do not offer our common stock as a direct investment option under these plans.

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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.

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.

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

During the year ended October 31, 2024 , the supplemental benefit plan was terminated and the benefits associated with this plan were distributed in accordance with Internal Revenue Service regulations.

As of October 31, 2024 and 2023 our liability under the deferred compensation plan was approximately $ 4.7 million a nd $ 3.9 million, respectively.

As of October 31, 2024 and 2023, 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.

federal income taxes (determined on a consolidated return basis), foreign income taxes and state income taxes.

federal income taxes foreign income taxes and state income taxes.

We provide for income taxes on taxable income at the applicable statutory rates.

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Total income before income taxes $ 42,082 $ 97,046 $ 109,763

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The following table reconciles our effective income tax rate to the federal statutory rate for the years ended October 31, 2024, 2023 and 2022:

5 unchanged sentences

patent box benefit ( 12.5 ) % ( 5.9 ) % ( 1.2 ) %

Non-deductible transaction costs 8.4 % — % — %

income tax credits ( 8.4 ) % ( 4.9 ) % ( 3.2 ) %

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Tax return to accrual adjustments 3.5 % ( 2.3 ) % ( 3.0 ) %

Change in deferred tax rate — % — % 3.9 %

Change in valuation allowance ( 3.1 ) % — % — %

Change in uncertain tax position 0.1 % ( 1.1 ) % — %

1 unchanged sentence

Effective tax rate 21.4 % 15.0 % 19.5 %

Our earnings from our foreign subsidiaries qualifies for Federal and Dividend Received Deduction and are not subject to withholding taxes upon remittances to the U.S.

However, some of the states do not conform to the Federal Dividend Received Deduction.

As a result, we have $ 0.5 million of future tax liability related to potential repatriation of unremitted foreign retained earnings.

The amount of undistributed foreign earnings and profits from international operations as of the years ended October 31, 2024 and 2023, respectively, was $ 21.7 million and $ 21.3 million.

The Organization for Economic Co-operation and Development ("OECD") Inclusive Framework on Base Erosion and Profit Shifting (“BEPS”) developed an agreement on a two-pillar approach to help address the tax challenges arising from the digitalization of the economy.

Pillar One applies to large multinational enterprises and re-allocate part of their profit to the countries where they sell their products and provide services.

Quanex does not expect to be subject to the Pillar One rules.

Pillar Two aims to establish a minimum global tax rate of 15%, assessed through a top-up tax imposed on a country-by-country basis.

In 2023, certain jurisdictions in which we operate enacted legislation consistent with the OECD Pillar Two model effective for taxation year beginning on or after January 1, 2024.

The Pillar Two legislation does not impact our FY2024 annual effective tax rate.

However, further changes to our entity structure or changes in jurisdictions in which we operate could adversely impact analysis.

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.

The amount of undistributed foreign earnings from international operations as of the years ended October 31, 2023 and 2022, respectively, was $ 21.3 million and $ 19.8 million.

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

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Inventory 2,368 1,159

Right of use liability 31,399 6,337

Research and development 5,810 2,075

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Goodwill and intangibles 138,396 18,908

Investments in foreign subsidiaries 500 —

Right of use asset 29,939 6,082

Total deferred tax liabilities 214,389 46,627

Net deferred tax liabilities $ 158,459 $ 29,133

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.

As of October 31, 2024, foreign capital loss, net operating loss and gross state operating loss carry forwards totaled $ 14.0 million, $ 18.8 million and $ 19.6 million, respectively.

The capital loss and the majority of the foreign net operating loss can be carried forward indefinitely.

The majority of the state losses begin to expire in 2033.

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

We have recorded a valuation allowance for certain state net operating losses as of October 31, 2023 and 2022, totaling $ 0.6 million and $ 0.5 million, respectively.

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.

We have recorded a valuation allowance for the foreign capital loss and certain foreign operating and state net operating losses as of October 31, 2024 and 2023, totaling $ 3.8 million and $ 0.6 million, respectively.

The valuation allowa nce 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.

7 unchanged sentences

Balance at October 31, 2021

Additions for tax positions related to the prior year 953

Reassessment of position ( 27 )

2 unchanged sentences

Balance at October 31, 2023

Lapse of statute of limitations ( 1,111 )

Reversal ( 250 )

Balance at October 31, 2024

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.

During the year ended October 31, 2024, we reversed $ 0.3 million of unrecognized tax benefits due to certain state tax items regarding nexus as voluntary disclosure have been filed.

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.

and various state and foreign jurisdictions.

In certain jurisdictions, the statute of limitations has not yet expired.

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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.

We classifies interest on income tax as income tax expenses and classifies penalties on income tax as other expenses.

Commitments and Contingencies

5 unchanged sentences

Asset Retirement Obligation

We maintain an asset retirement obligation associated with a leased facility in Kent, Washington.

We maintain asset retirement obligations associated with leased facilities primarily in the U.K.

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 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.

We are depreciating the assets and accre ting the liabilities over the terms of the corresponding leases and have included an asset retirement obligation of $ 3.7 million in Other Liabilities on the Consolidated Balance Sheet.

Remediation and Environmental Compliance Costs

3 unchanged sentences

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,

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.

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 2025.

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

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

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

From time to time, we, along with our subsidiaries, are involved in various litigation matters arising in the ordinary course of our business, including those arising from or related to contractual matters, commercial disputes, intellectual property, personal injury, environmental matters, product performance or warranties, product liability, insurance coverage and personnel and employment disputes.

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

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).

Our outstanding forward foreign exchange contracts have a notional principal amount of $ 18.6 million at October 31, 2024.

Hedge accounting is not applied to our forward exchange contracts.

These contracts have a range of maturities up to May 12, 2025.

Our forward foreign exchange contracts are adjusted to fair value by recording gains and losses to “Other, net,” and we record the related liability to “Current Liabilities” in the accompanying condensed consolidated statement of income and condensed consolidated balance sheets, respectively.

During the year ended October 31, 2024 and 2023, we recognized a loss of $ 0.3 million and zero , respectively, related to our forward foreign exchange contracts.

The value of our forward foreign exchange contracts fluctuates based on exchange rate fluctuations against the USD and GBP (Level 2 measurement).

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.

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

We performed a fair value assessment corresponding with the purchase of Tyman.

Due to the unique nature of this acquisition, this is considered a Level 3 measurement.

For further information refer to Note 2, “Acquisitions.”

QUANEX BUILDING PRODUCTS CORPORATION

20 unchanged sentences

Vested ( 88,700 ) 13.74

Forfeited — —

Non-vested at October 31, 2022 212,100 20.86

36 unchanged sentences

Exercised ( 29,280 ) 19.58

Forfeited/Expired ( 4,000 ) 21.11

Outstanding at October 31, 2024 78,250 19.45 1.5 $ 752

13 unchanged sentences

During the years ended October 31, 2024, 2023 and 2022, we paid $ 0.6 million, $ 0.4 million and $ 1.0 million to settle restricted stock units.

During the year ended October 31, 2024, 166,070 restricted stock units were granted to key employees with a weighted average grant date fair value of $ 31.83 .

These key employee grants vest in accordance with criteria which extend up to three years.

During the year, 42,933 of these grants vested and 1,242 were forfeited.

We paid approximately $ 1.2 million to settle these grants during the year.

QUANEX BUILDING PRODUCTS CORPORATION

48 unchanged sentences

As of October 31, 2024 and 2023, we had 51,266,501 and 37,176,958 shares of common stock issued, respectively, and 47,252,070 and 33,011,119 shares of common stock outstanding, respectively.

T here were no shares of preferred stock issued or outstanding at October 31, 2023 and 2022.

There were no shares of preferred stock issued or outstanding at October 31, 2024 and 2023.

Stock Repurchase Program and Treasury Stock

2 unchanged sentences

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.

During the years ended October 31, 2024 and 2023, we purchased zero shares and 275,000 shares, respectively, at a cost of zero and $ 5.6 million respectively, under this program.

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

10 unchanged sentences

Foreign currency exchange derivative gains 6,232 1 19

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

Pension service benefit (expense) 903 ( 5,566 ) 783

Interest income 1,690 248 19

Other ( 299 ) ( 56 ) ( 166 )

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

Other income (loss) $ 7,849 $ ( 5,519 ) $ 1,041

Segment Information

We present three reportable business segments:

We present four 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 and conservatories, and the European insulating glass business manufacturing insulating glass spacers;

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

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

and (4) Tyman, which was acquired on August 1 2024, comprising a leading international supplier of engineered fenestration components and access solutions to the construction industry.

We maintain a grouping called 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 and legal 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.

We allocate corporate expenses to businesses acquired mid-year from the date of acquisition.

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

11 unchanged sentences

NA Fenestration EU Fenestration NA Cabinet Comp.

Unallocated Corp.

Tyman Unallocated Corp.

& Other Total

18 unchanged sentences

NA Fenestration EU Fenestration NA Cabinet Comp.

Unallocated Corp.

Tyman Unallocated Corp.

& Other Total

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

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

LMI acquisition 41,393 — — — 41,393

Tyman acquisition — — — 385,045 — 385,045

Foreign currency translation adjustment — 3,490 — 3,220 — 6,710

13 unchanged sentences

Geographic Information

Our manufacturing facilities and all long-lived assets are located in the U.S., U.K.

Our manufacturing facilities and all long-lived assets are located primarily in the U.S.

We attribute our net sales to a geographic region based on the location of the customer.

10 unchanged sentences

United States $ 1,229,157 $ 384,318

Germany 44,098 41,669

United Kingdom 125,939 118,005

Europe 441,129 170,037

Other foreign countries 31,515 —

Total long-lived assets, net $ 1,701,801 $ 554,355

30 unchanged sentences

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

We had 1,471 of anti-dilutive restricted stock award equivalents for the year ended October 31, 2024 and no corresponding equivalents for the comparable prior years.

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.

2 unchanged sentences

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

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.

QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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.

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