Quanex Building Products CORP 10-Q

Item 3. Quantitative and Qualitative Disclosures About Market Risk The following discussion of our exposure to various market risks contains “forward looking statements” regarding our estimates, assumptions and beliefs concerning our exposure. Although we believe these estimates and assumptions are reasonable in light of information currently available to us, we cannot provide assurance that these estimates will not materially differ from actual results due to the inherent unpredictability of interest rates, foreign currency rates and commodity prices as well as other factors. We do not use derivative financial instruments for speculative or trading purposes. Interest Rate Risk Ou r debt bears interest at variable rates and accordingly is sensitive to changes in interest rates. During the third quarter of fiscal 2026, we entered into a pay-fixed, receive-floating interest rate swap agreement, based on one-month Term SOFR, to manage the variability in cash flows associated with interest payments on $175.0 million of our outstanding variable-rate borrowings. The interest rate swap effectively converts a portion of our variable-rate debt to a fixed-rate basis for the term of the agreement. Based upon the balances of the variable rate debt at July 31, 2026 , after giving effect to the interest rate swap agreement, a hypothetical 1.0% increase or decrease in interest rates could result in approximately $4.4 million of additional pretax charges or credit to our net income per year. This sensitivity pertains primarily to our revolving credit facility borrowings outstanding under the Credit Facility as of July 31, 2026. Foreign Currency Rate Risk Our international operations have exposure to foreign currency rate risks, due primarily to fluctuations in the Euro, the British Pound Sterling (“GBP”) and the Mexican Peso (“MXN”) exchange rates, to the U.S. Dollar (“USD”). From time to time, we enter into foreign exchange contracts associated with our operations to manage a portion of the foreign currency rate risk and the potential impact to ongoing cash flows. Hedge accounting is not applied to our foreign exchange contracts. As of July 31, 2026, we had no outstanding forward foreign exchange contracts to hedge our exposure to foreign currency fluctuations, as contracts entered into earlier in the fiscal year matured and settled during the period. During the nine months ended July 31, 2026, we used forward foreign exchange contracts to hedge our foreign currency exposures against the Mexican Peso (“MXN”) to the U.S. Dollar (“USD”). During the nine months ended July 31, 2025, we used forward foreign exchange contracts to hedge our foreign currency exposures against USD to the Great British Pound (“GBP”) and MXN to USD. Hedge accounting is not applied to our forward exchange contracts. We recognized a gain of zero and $0.3 million related to our forward foreign exchange contracts during the three and nine months ended July 31, 2026, respectively, and a loss of $0.5 million and gain of $0.3 million for the comparable prior year periods, respectively. The value of forward foreign exchange contracts fluctuates based on exchange rate fluctuations for currencies stated in the foreign exchange contracts. Commodity Price Risk We purchase PVC as the significant raw material consumed in the manufacture of vinyl extrusions. We have resin adjusters in place with a majority of our customers and our resin supplier that is adjusted based upon published indices for lagging resin prices. These adjusters effectively share the base pass-through price changes of PVC with our customers commensurate with the market at large. Our long-term exposure to changes in PVC prices is somewhat mitigated due to the contractual component of the resin adjuster program. However, there is a level of exposure to short-term volatility due to timing lags. We adjust the pricing of petroleum-based raw materials for the majority of our customers who purchase products using these materials. This is intended to offset the fluctuating cost of products which are highly correlated to the price of oil including butyl and other oil-based raw materials. This program is adjusted monthly based upon the 90-day average published price for Brent crude. The oil-based raw materials that we purchase are subject to similar pricing schemes. As such, our long-term exposure to increases in oil-based raw material prices is significantly reduced under this program. Similarly, we include a price index provision to insulate against significant fluctuations in the price for various hardwood products used as the primary raw material for kitchen and bathroom cabinet doors. Like our vinyl extrusion business, we are exposed to short-term volatility in wood prices due to a lag in the timing of price updates which generally could extend for up to three months. For our remaining businesses, contractual price adjustment mechanisms are in place for key commodities including stainless steel and zinc for most large U.S. customers, but not all. For those customers not covered by contractual mechanisms, we have successfully implemented surcharges and general price increases to share the impact of price changes with our 37 Table of Contents customers. Like our other businesses, there is exposure to short-term volatility due to a lag in the timing of implementing price increases. We have begun implementing additional programs for other raw materials to facilitate more accurate pricing and reduce our exposure to changing material costs when necessary, however these are also subject to timing lags. While we maintain surcharges and other adjusters to manage our exposure to changes in the prices of our critical raw materials, we use several commodities in our business that are not covered by contractual surcharges or adjusters for which pricing can fluctuate, including PVC compound micro ingredients, silicone, polypropylene and other inputs. Certain raw materials and commodities we use to manufacture our products are subject to tariffs. There is uncertainty regarding how recently enacted tariffs and potential future tariffs may affect the price of these raw materials and commodities. We are constantly assessing potential supply chain vulnerability and implementing strategies (i.e. surcharges) to mitigate potential tariff impacts. We are also utilizing local supply chains where possible to reduce supply and cost risks. Additionally, we continue to explore alternative supply sources and evaluate shifts in demand. Further discussion of our industry risks is included within our Annual Report on Form 10-K for the fiscal year ended October 31, 2025 and the section entitled “Item 1A. Risk Factors” within this Form 10-Q.