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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
 ________________________________________________
FORM 10-Q
 ________________________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 2023
OR 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to            
Commission File Number 1-33913
  ________________________________________________
 QUANEX BUILDING PRODUCTS CORPORATION
(Exact name of registrant as specified in its charter)
  ________________________________________________ 
Delaware26-1561397
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
1800 West Loop South, Suite 1500, Houston, Texas 77027
(Address of principal executive offices and zip code)
Registrant’s telephone number, including area code: (713961-4600
  ________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareNXNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filerAccelerated filer
Non-accelerated filer
  (Do not check if a smaller reporting company)
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Securities Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No 
The number of shares outstanding of the registrant's Common Stock as of May 25, 2023 was 32,952,532.



QUANEX BUILDING PRODUCTS CORPORATION

INDEX
 
PART I.
Item 1:
Condensed Consolidated Balance Sheets – April 30, 2023 and October 31, 2022
Condensed Consolidated Statements of Cash Flows – Six Months Ended April 30, 2023 and 2022
Item 2:
Item 3:
Item 4:
PART II.
Item 1A:
Item 2:
Item 5:
Item 6:


Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
QUANEX BUILDING PRODUCTS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) 
April 30,
2023
October 31,
2022
 (In thousands, except share 
amounts)
ASSETS
Current assets:
Cash and cash equivalents$43,496 $55,093 
Accounts receivable, net of allowance for credit losses of $398 and $289
94,038 96,018 
Inventories, net114,015 120,890 
Prepaid and other current assets12,210 8,664 
Total current assets263,759 280,665 
Property, plant and equipment, net of accumulated depreciation of $364,437 and $348,528
242,521 180,400 
Operating lease right-of-use assets45,725 56,000 
Goodwill185,224 137,855 
Intangible assets, net80,981 65,035 
Other assets3,902 4,662 
Total assets$822,112 $724,617 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable$64,477 $77,907 
Accrued liabilities44,655 52,114 
Income taxes payable 1,049 
Current maturities of long-term debt2,113 1,046 
Current operating lease liabilities7,403 7,727 
Total current liabilities118,648 139,843 
Long-term debt132,150 29,628 
Noncurrent operating lease liabilities39,215 49,286 
Deferred pension benefits 3,917 
Deferred income taxes23,396 22,277 
Other liabilities15,976 14,831 
Total liabilities329,385 259,782 
Commitments and contingencies
Stockholders’ equity:
Preferred stock, no par value, shares authorized 1,000,000; issued and outstanding - none
  
Common stock, $0.01 par value, shares authorized 125,000,000; issued 37,187,058 and 37,211,056, respectively; outstanding 32,962,632 and 33,129,250, respectively
372 372 
Additional paid-in-capital250,427 251,947 
Retained earnings355,557 337,456 
Accumulated other comprehensive loss(34,968)(49,422)
Less: Treasury stock at cost, 4,224,426 and 4,081,806 shares, respectively
(78,661)(75,518)
Total stockholders’ equity492,727 464,835 
Total liabilities and stockholders' equity$822,112 $724,617 

The accompanying notes are an integral part of the financial statements.
1

Table of Contents
QUANEX BUILDING PRODUCTS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
Three Months EndedSix Months Ended
 April 30,April 30,
 2023202220232022
 (In thousands, except per share amounts)
Net sales$273,535 $322,893 $535,451 $589,933 
Cost and expenses:
Cost of sales (excluding depreciation and amortization)206,372 249,651 416,521 461,485 
Selling, general and administrative27,371 28,129 64,115 58,952 
Depreciation and amortization10,456 10,563 21,076 20,820 
Operating income29,336 34,550 33,739 48,676 
Non-operating (expense) income:
Interest expense(2,244)(602)(4,503)(1,125)
Other, net(29)453 189 507 
Income before income taxes27,063 34,401 29,425 48,058 
Income tax expense(5,551)(7,879)(6,004)(10,297)
Net income$21,512 $26,522 $23,421 $37,761 
Basic earnings per common share$0.65 $0.80 $0.71 $1.14 
Diluted earnings per common share$0.65 $0.80 $0.71 $1.13 
Weighted-average common shares outstanding:
Basic32,858 33,157 32,905 33,140 
Diluted33,017 33,291 33,070 33,292 
Cash dividends per share$0.08 $0.08 $0.16 $0.16 

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

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QUANEX BUILDING PRODUCTS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months EndedSix Months Ended
 April 30,April 30,
 2023202220232022
 (In thousands)
Net income21,512 26,522 $23,421 $37,761 
Other comprehensive income (loss):
Foreign currency translation gain (loss)3,082 (11,268)14,454 (14,427)
Other comprehensive income (loss)3,082 (11,268)14,454 (14,427)
Comprehensive income$24,594 $15,254 $37,875 $23,334 

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

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QUANEX BUILDING PRODUCTS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Six Months Ended
 April 30,
 20232022
 (In thousands)
Operating activities:
Net income$23,421 $37,761 
Adjustments to reconcile net income to cash provided by (used for) operating activities:
Depreciation and amortization21,076 20,820 
Stock-based compensation1,398 1,124 
Deferred income tax97 583 
Other, net982 1,534 
Changes in assets and liabilities:
Decrease (increase) in accounts receivable11,564 (13,008)
Decrease (increase) in inventory14,799 (39,771)
Increase in other current assets(1,746)(3,541)
(Decrease) increase in accounts payable(19,825)7,381 
Decrease in accrued liabilities(14,407)(15,984)
(Decrease) increase in income taxes payable(1,754)1,679 
Increase (decrease) in deferred pension benefits17 (159)
Increase in other long-term liabilities1,808 443 
Other, net1,030 (743)
Cash provided by (used for) operating activities38,460 (1,881)
Investing activities:
Business acquisition(91,302) 
Capital expenditures(15,074)(13,785)
Proceeds from disposition of capital assets101 36 
Cash used for investing activities(106,275)(13,749)
Financing activities:
Borrowings under credit facilities102,000 70,500 
Repayments of credit facility borrowings(35,000)(45,500)
Repayments of other long-term debt(1,306)(432)
Common stock dividends paid(5,320)(5,258)
Issuance of common stock99 173 
Payroll tax paid to settle shares forfeited upon vesting of stock(567)(1,412)
Purchase of treasury stock(5,593)(1,569)
Cash provided by financing activities54,313 16,502 
Effect of exchange rate changes on cash and cash equivalents1,905 (2,033)
Decrease in cash and cash equivalents(11,597)(1,161)
Cash and cash equivalents at beginning of period55,093 40,061 
Cash and cash equivalents at end of period$43,496 $38,900 

The accompanying notes are an integral part of the financial statements.
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QUANEX BUILDING PRODUCTS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
 
Six Months Ended April 30, 2023Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive Loss
Treasury
Stock
Total
Stockholders’
Equity
(In thousands, no per share amounts shown except in verbiage)
Balance at October 31, 2022$372 $251,947 $337,456 $(49,422)$(75,518)$464,835 
Net income— — 1,909 — — 1,909 
Foreign currency translation adjustment — — — 11,372 — 11,372 
Common dividends ($0.08 per share)
— — (2,661)— — (2,661)
Stock-based compensation activity:
Expense related to stock-based compensation— 679 — — — 679 
Stock options exercised— 6 — — 93 99 
Restricted stock awards granted— (1,752)— — 1,752 — 
Performance restricted stock units vested— (605)— — 605 — 
Other— (545)— — — (545)
Balance at January 31, 2023$372 $249,730 $336,704 $(38,050)$(73,068)$475,688 
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 
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Six Months Ended April 30, 2022Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive Loss
Treasury
Stock
Total
Stockholders’
Equity
(In thousands, no per share amounts shown except in verbiage)
Balance at October 31, 2021$373 $254,162 $259,718 $(21,770)$(72,701)$419,782 
Net income— — 11,239 — — 11,239 
Foreign currency translation adjustment— — — (3,159)— (3,159)
Common dividends ($0.08 per share)
— — (2,587)— — (2,587)
Stock-based compensation activity:
Expense related to stock-based compensation— 552 — — — 552 
Stock options exercised— 5 — — 50 55 
Restricted stock awards granted— (1,534)— — 1,534 — 
Performance restricted stock units vested— (1,598)— — 1,598 — 
Other— (1,383)— — — (1,383)
Balance at January 31, 2022$373 $250,204 $268,370 $(24,929)$(69,519)$424,499 
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 

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

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QUANEX BUILDING PRODUCTS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Nature of Operations and Basis of Presentation
Quanex Building Products Corporation is a global, publicly traded manufacturing company primarily serving original equipment manufacturers (OEMs) in the fenestration, cabinetry, solar, refrigeration and outdoor products markets. These components can be categorized as window and door (fenestration) components and kitchen and bath cabinet components. 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. We also manufacture cabinet doors and other components for OEMs in the kitchen and bathroom cabinet industry. In addition, we provide certain other non-fenestration components and products, which include solar panel sealants, trim moldings, vinyl decking, vinyl fencing, customized compounds, water retention barriers, and conservatory roof components. We have organized our business into three reportable business segments. For additional discussion of our reportable business segments, see Note 12, “Segment Information.” We use low-cost, short lead-time 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.
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.
Basis of Presentation and Principles of Consolidation
The accompanying interim unaudited condensed consolidated financial statements include the accounts of Quanex Building Products Corporation. All intercompany accounts and transactions have been eliminated in consolidation. These financial statements have been prepared by us, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) have been condensed or omitted pursuant to such rules and regulations. The condensed consolidated balance sheet as of October 31, 2022 was derived from audited financial information but does not include all disclosures required by U.S. GAAP. The accompanying financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto, included in our Annual Report on Form 10-K for the fiscal year ended October 31, 2022. In our opinion, the accompanying financial statements contain all adjustments (which consist of normal recurring adjustments, except as disclosed herein) necessary to fairly present our financial position, results of operations and cash flows for the interim periods. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year or for any future periods.
Use of Estimates
In preparing financial statements, we make informed judgments and estimates that affect the reported amounts of assets and liabilities as of the date of the financial statements and affect the reported amounts of revenues and expenses during the reporting period. We review our estimates on an on-going basis, including those related to impairment of long-lived assets and goodwill, contingencies and income taxes. Changes in facts and circumstances may result in revised estimates and actual results may differ from these estimates.
Revenue from Contracts with Customers
Revenue recognition
We recognize revenue that reflects the consideration we expect to receive for product sales upon transfer to customers. 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
A performance obligation is a promise to provide the customer with a good or service. Our performance obligations include product sales, with each product included in a customer contract being recognized as a separate performance obligation.
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QUANEX BUILDING PRODUCTS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
For contracts with multiple performance obligations, the standalone selling price of each product is generally readily observable.
Revenue from product sales is recognized at a point in time when the product is transferred to the customer, in accordance with the shipping terms, which is generally upon shipment. We estimate a provision for sales returns and warranty allowances to account for product returns related to general returns and product nonconformance.
We generally expense incremental costs of obtaining a contract when incurred because the amortization period would be less than one year. Additionally, we do not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.
Pricing and sales incentives
Pricing is established at or prior to the time of sale with our customers and we record sales at the agreed-upon net selling price, reflective of current and prospective discounts.
Shipping and handling costs
We account for shipping and handling services as fulfillment services; accordingly, freight revenue is combined with the product deliverable rather than being accounted for as a distinct performance obligation within the terms of the agreement. Shipping and handling costs incurred by us for the delivery of goods to customers are considered a cost to fulfill the contract and are included in cost of sales in the accompanying condensed consolidated statements of income.
Contract assets and liabilities
Deferred revenue, which is not significant, is recorded when we have remaining unsatisfied performance obligations for which we have received consideration.
Disaggregation of revenue
We produce a wide variety of products that are used in the fenestration industry, including window spacer systems; extruded vinyl products; metal fabricated products; 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.
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QUANEX BUILDING PRODUCTS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table summarizes our product sales for the three and six months ended April 30, 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. For further details regarding our results by segment, refer to Note 13, “Segment Information”.
Three Months EndedSix Months Ended
April 30,April 30,
 2023202220232022
(In thousands)
North American Fenestration:
United States - fenestration$120,756 $156,843 $241,523 $285,210 
International - fenestration8,350 11,094 13,477 20,230 
United States - non-fenestration24,334 7,077 47,400 13,793 
International - non-fenestration3,535 2,894 7,555 5,306 
$156,975 $177,908 $309,955 $324,539 
European Fenestration:
International - fenestration$47,903 $54,863 $90,257 $99,484 
International - non-fenestration15,860 18,564 28,458 32,857 
$63,763 $73,427 $118,715 $132,341 
North American Cabinet Components:
United States - fenestration$4,219 $4,666 $8,127 $8,431 
United States - non-fenestration48,526 67,383 98,575 125,150 
International - non-fenestration773 829 1,490 1,650 
$53,518 $72,878 $108,192 $135,231 
Unallocated Corporate & Other
Eliminations$(721)$(1,320)$(1,411)$(2,178)
$(721)$(1,320)$(1,411)$(2,178)
Net sales$273,535 $322,893 $535,451 $589,933 
Allowance for Credit Losses
We have established an allowance for credit losses to estimate the risk of losses, which represents an estimate of expected losses over the remaining contractual life of our receivables. The allowance is determined using two methods. The amounts calculated from each of these methods are combined to determine the total amount reserved. First, a specific reserve is established for individual accounts where information indicates the customers may have an inability to meet financial obligations. Second, a reserve is determined for all customers based on a range of percentages applied to aging categories. These percentages are based on historical collection rates, write-off experience, and forecasts of future economic conditions. Actual write-offs are charged against the allowance when collection efforts have been unsuccessful.
Related Parties
Net sales include transactions with a customer which is a related party with one of our non-employee directors for the six months ended April 30, 2023 of approximately $0.6 million and $1.1 million for the comparable prior year period. 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. We are not aware of any other related party transactions with any of our current non-employee directors or officers outside of their normal business functions or expected contractual duties.
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QUANEX BUILDING PRODUCTS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. 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. Subsequent to the Acquisition, we had approximately $215 million available for use under the Credit Facility. For the three and six months ended April 30, 2023, our consolidated operating results included net sales of $17.8 million and $34.2 million, respectively, and operating income of $1.4 million and $3.4 million, respectively, associated with LMI. In connection with the Acquisition, we amended our existing finance 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 April 30, 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. During the three months ended April 30, 2023, we reduced both the opening balance of goodwill and consideration paid by $0.7 million due to the settlement of the post-closing working capital adjustment with LMI.
As of Date of
Opening Balance Sheet
(In thousands)
Net assets acquired:
Accounts receivable$7,012 
Inventories, net5,684 
Other assets790 
Property, plant and equipment, net35,887 
Goodwill41,393 
Intangible assets, net19,500 
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 months ended April 30, 2022. The following pro forma results give effect to these acquisitions, assuming the transactions occurred on November 1, 2021.
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QUANEX BUILDING PRODUCTS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Pro Forma Results
For the Three Months EndedFor the Six Months Ended
April 30, 2022April 30, 2022
(In thousands, except per share amounts)
Net sales$339,514 $621,872 
Net income$27,884 $40,603 
Basic earnings per share$0.84 $1.23 
Diluted earnings per share$0.84 $1.22 
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 adjustments 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, assuming a November 1, 2021 effective date. In addition, we calculated the tax impact of these adjustments at a 25% effective tax rate.
3. Inventories
Inventories consisted of the following at April 30, 2023 and October 31, 2022 (in thousands):
April 30,
2023
October 31,
2022
Raw materials$63,681 $68,455 
Finished goods and work in process51,401 54,013 
Supplies and other1,727 1,551 
Total116,809 124,019 
Less: Inventory reserves2,794 3,129 
Inventories, net$114,015 $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.
4. Leases
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 and twenty years. Original terms for equipment-related leases, primarily manufacturing equipment and vehicles, are generally between one 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.
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QUANEX BUILDING PRODUCTS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 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 April 30, 2023 and October 31, 2022 (in thousands):
LeasesClassificationApril 30,
2023
October 31,
2022
Assets
Operating lease assetsOperating lease right-of-use assets$45,725 $56,000 
Finance lease assets
Property, plant and equipment (less accumulated depreciation of $5,236 and $3,726)
58,013 22,003 
Total lease assets$103,738 $78,003 
Liabilities
Current
OperatingCurrent operating lease liabilities$7,403 $7,727 
FinanceCurrent maturities of long-term debt2,409 1,336 
Noncurrent
OperatingNoncurrent operating lease liabilities39,215 49,286 
FinanceLong-term debt53,187 17,816 
Total lease liabilities$102,214 $76,165 
The table below presents the components of lease costs for the three and six months ended April 30, 2023 and 2022 was as follows (in thousands):
Three Months EndedSix Months Ended
April 30,April 30,
2023202220232022
Operating lease cost
$2,239 $2,537 $4,408 $5,074 
Finance lease cost
Amortization of leased assets815 294 1,614 592 
Interest on lease liabilities602 128 1,202 261 
Variable lease costs
467 257 790 480 
Total lease cost$4,123 $3,216 $8,014 $6,407 
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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 six months ended April 30, 2023 and 2022 was as follows (in thousands):
Six Months Ended
April 30,
20232022
Cash paid for amounts included in the measurement of lease liabilities:
Finance leases - financing cash flows$1,145 $553 
Finance leases - operating cash flows$1,202 $261 
Operating leases - operating cash flows$4,513 $5,082 
Right-of-use assets obtained in exchange for lease liabilities:
Operating leases$2,169 $933 
Finance leases$25,206 $167 
The table below presents the weighted-average remaining lease terms and weighted-average discount rates for the Company's leases as of April 30, 2023 and October 31, 2022:
April 30, 2023October 31,
2022
Weighted-average remaining lease term (in years)
Operating leases11.010.8
Financing leases19.313.7
Weighted-average discount rate
Operating leases3.92 %3.84 %
Financing leases4.48 %3.78 %
The table below presents the maturity of the lease liabilities as of April 30, 2023 (in thousands):
Operating LeasesFinance Leases
2023 (remaining six months)$4,626 $2,403 
20248,452 4,793 
20256,649 4,731 
20265,294 4,614 
20274,527 4,493 
Thereafter29,472 62,787 
Total lease payments59,020 83,821 
Less: present value discount12,402 28,225 
Total lease liabilities$46,618 $55,596 
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QUANEX BUILDING PRODUCTS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. Goodwill and Intangible Assets
Goodwill
The change in the carrying amount of goodwill for the six months ended April 30, 2023 was as follows (in thousands):
Six Months Ended
 April 30, 2023
Beginning balance as of November 1, 2022$137,855 
LMI acquisition41,393 
Foreign currency translation adjustment5,976 
Balance as of the end of the period$185,224 
At our last annual test date, August 31, 2022, we evaluated the recoverability of goodwill at each of our five reporting units with goodwill balances and determined that our goodwill was not impaired. An additional reporting unit was acquired during the six months ended April 30, 2023. We evaluated for indicators of impairment for all reporting units during the three and six months ended April 30, 2023 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 12, “Segment Information.”
Identifiable Intangible Assets
Amortizable intangible assets consisted of the following as of April 30, 2023 and October 31, 2022 (in thousands):
 April 30, 2023October 31, 2022
Gross Carrying
Amount
Accumulated
Amortization
Gross Carrying
Amount
Accumulated
Amortization
Customer relationships$158,850 $94,866 $139,607 $88,646 
Trademarks and trade names55,899 42,099 54,389 40,610 
Patents and other technology25,148 21,951 22,390 22,095 
Total$239,897 $158,916 $216,386 $151,351 
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. We had aggregate amortization expense related to intangible assets for the three and six months ended April 30, 2023 of $3.0 million and $6.1 million, respectively, $3.0 million and $6.0 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 April 30, 2023 (in thousands):
Estimated
Amortization Expense
2023 (remaining six months)$5,981 
202411,367 
202510,139 
202610,064 
202710,065 
Thereafter33,365 
Total$80,981 

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QUANEX BUILDING PRODUCTS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. Debt and Finance Lease Obligations
Long-term debt consisted of the following at April 30, 2023 and October 31, 2022 (in thousands):
April 30,
2023
October 31,
2022
Revolving Credit Facility$80,000 $13,000 
Finance lease obligations and other55,626 19,202 
Unamortized deferred financing fees(1,363)(1,528)
Total debt$134,263 $30,674 
Less: Current maturities of long-term debt2,113 1,046 
Long-term debt$132,150 $29,628 
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. This $325.0 million revolving credit facility has a five-year term, maturing on July 6, 2027, and replaces our previous credit facility. Our previous credit facility is more fully described in our Annual Report on Form 10-K for the fiscal year ended October 31, 2022.
Interest payments for the Credit Facility are calculated, at our election and depending upon the Consolidated Net Leverage Ratio, at a Base Rate (as defined within the Credit Facility) 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.
The applicable margin and commitment fees are outlined in the following table:
Pricing LevelConsolidated Net Leverage RatioCommitment FeeEurocurrency Rate Loans and RFR LoansBase Rate Loans
ILess than or equal to 1.50 to 1.000.150%1.25%0.25%
IIGreater than 1.50 to 1.00, but less than or equal to 2.25 to 1.000.175%1.50%0.50%
IIIGreater than 2.25 to 1.00, but less than or equal to 3.00 to 1.000.200%1.75%0.75%
IVGreater than 3.00 to 1.000.250%2.00%1.00%
In the event of default, outstanding borrowings would 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. 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 Facility.
The Credit Facility contains a: (1) Consolidated Interest Coverage Ratio requirement whereby we must not permit the Consolidated Interest Coverage Ratio, as defined, to be less than 3.00 to 1.00, and (2) Consolidated Net Leverage Ratio requirement, whereby we must not permit the Consolidated Net Leverage Ratio, as defined, to 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. Some of these limitations, however, do not take effect so long as Consolidated Net Leverage Ratio 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, are used as collateral for the Credit Agreement.
As of April 30, 2023, we had $80.0 million of borrowings outstanding under the Credit Facility (reduced by unamortized debt issuance costs of $1.4 million), $5.1 million of outstanding letters of credit and $55.6 million outstanding primarily under finance leases and other debt. We had $239.9 million available for use under the Credit Facility at April 30, 2023. Outstanding
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borrowings under the Credit Facility accrue interest at 6.33% per annum. Our weighted-average borrowing rate for borrowings outstanding during the six months ended April 30, 2023 and 2022 was 5.71% and 1.48%, respectively. We were in compliance with our debt covenants as of April 30, 2023.
7. Retirement Plans
Pension Plan
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 six months ended April 30, 2023 and 2022 was as follows (in thousands):
Three Months EndedSix Months Ended
April 30,April 30,
 2023202220232022
Service cost$96 $214 $192 $430 
Interest cost389 201 779 403 
Expected return on plan assets(367)(497)(733)(995)
Amortization of net loss11 2 21 3 
Net periodic pension benefit$129 $(80)$259 $(159)
During the six months ended April 30, 2022, we made no contributions to fund our plan. During fiscal 2023, we do not expect to need to make a contribution to the pension plan to maintain targeted funding levels and meet minimum contribution requirements. During the year ended October 31, 2022, we notified participants that our pension plan will be terminated effective November 1, 2022, with final settlement expected to occur in the next twelve months, depending upon the timing of I.R.S. approvals. During the three months ended January 31, 2023, we reclassified the pension obligation of $3.9 million from long-term liabilities under the caption “Deferred pension benefits” to current liabilities under the caption “Accrued liabilities” in the accompanying condensed consolidated balance sheets.
Other Plans
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 April 30, 2023 and October 31, 2022, our liability under the supplemental benefit plan was approximately $2.0 million and $1.9 million, respectively. As of April 30, 2023 and October 31, 2022, the liability associated with the deferred compensation plan was approximately $3.4 million and $3.3 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.
8. Income Taxes
To determine our income tax expense or benefit for interim periods, consistent with accounting standards, we apply the estimated annual effective income tax rate to year-to-date results, plus any applicable discrete items, which are recorded in the period in which they occur. 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 six months ended April 30, 2023 and 2022 were 19.74% and 25.20%, respectively. The difference between our effective income tax rate and the U.S. federal statutory rate of 21% principally results from discrete tax items, U.S. state tax, non-U.S. tax rate differential and other permanent differences. The primary discrete items affecting the 2023 effective rate was a benefit of $0.2 million related to the rate change on deferred taxes. 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 April 30, 2023, our liability for uncertain tax positions (UTP) of $1.4 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. 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.
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of April 30, 2023, we have an income tax receivable of $0.6 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 April 30, 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.
9. Contingencies
Remediation and Environmental Compliance Costs
Under applicable state and federal laws, we may be responsible for, among other things, all or part of the costs required to remove or remediate wastes or hazardous substances at locations we, or our predecessors, have owned or operated. From time to time, we also have been alleged to be liable for all or part of the costs incurred to clean up third-party sites where there might have been an alleged improper disposal of hazardous substances. Currently, we are not involved in any such matters.
From time to time, we incur routine expenses and capital expenditures associated with compliance with existing environmental regulations, including control of air emissions and water discharges, and plant decommissioning costs. We have not incurred any material expenses or capital expenditures related to environmental matters during the past three fiscal years, and do not expect to incur a material amount of such costs in fiscal 2023. While 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.
Litigation
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. We regularly review with legal counsel the status of all ongoing proceedings, and we maintain insurance against these risks to the extent deemed prudent by our management and to the extent such insurance is available. However, there is no assurance that we will prevail in these matters or that our insurers will accept full coverage of these matters, and we could, in the future, incur judgments, enter into settlements of claims, or revise our expectations regarding the outcome or insurability of matters we face, which could materially impact our results of operations.
We have been and are currently party to multiple claims, some of which are in litigation, relating to alleged defects in a commercial sealant product that was manufactured and sold during the 2000’s. While we believe that our product was not defective and that we would prevail in these commercial sealant product claims if taken to trial, the timing, ultimate resolution and potential impact of these claims is not currently determinable. Nevertheless, after taking into account all currently available information, including our defenses, the advice of our counsel, and the extent and currently-expected availability of our existing insurance coverage, we believe that the eventual outcome of these commercial sealant claims will not have a material adverse effect on our overall financial condition, results of operations or cash flows, and we have not recorded any accrual with regard to these claims.
10. Fair Value Measurement of Assets and Liabilities
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity's own assumptions about market data developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to Level 1 and the lowest priority to Level 3. The three levels of the fair value hierarchy are described below:
Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
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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; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates) and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3 - Inputs that are both significant to the fair value measurement and unobservable.
Carrying amounts reported on the balance sheet for cash, cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term maturity of these instruments. 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 April 30, 2023, and October 31, 2022 (Level 2 measurement).
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). For further information, refer to Note 11, “Stock-Based Compensation - Performance Share Awards.”
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 (Level 3 measurement). For further information, refer to Note 2, “Acquisition.”
11. Stock-Based Compensation
We have established and maintain an Omnibus Incentive Plan (2020 Plan) that provides for the granting of restricted stock awards, stock options, restricted stock units, performance share awards, performance restricted stock units, and other stock-based and cash-based awards. The 2020 Plan is administered by the Compensation and Management Development Committee of the Board of Directors.
The aggregate number of shares of common stock authorized for grant under the 2020 Plan is 3,139,895 as approved by shareholders. Any officer, key employee and/or non-employee director is eligible for awards under the 2020 Plan. We grant restricted stock units to non-employee directors on the first business day of each fiscal year. As approved by the Compensation & Management Development Committee of our Board of Directors annually, we grant a mix of restricted stock awards, performance shares and performance restricted stock units to officers, management and key employees. We also historically granted stock options to certain officers, directors and key employees. Occasionally, we may make additional grants to key employees at other times during the year.
Restricted Stock Awards
Restricted stock awards are granted to key employees and officers annually, and typically cliff vest over a three-year period with service and continued employment as the only vesting criteria. The recipient of the restricted stock award is entitled to all of the rights of a shareholder, except that the award is nontransferable during the vesting period and quarterly dividends are not paid until the award vests. The fair value of the restricted stock award is established on the grant date and then expensed over the vesting period resulting in an increase in additional paid-in-capital. Shares are generally issued from treasury stock at the time of grant.
A summary of non-vested restricted stock awards activity during the six months ended April 30, 2023 is presented below:
Restricted Stock AwardsWeighted-Average
Grant Date Fair Value per Share
Non-vested at October 31, 2022212,100 $20.86 
Granted94,700 23.49 
Forfeited  
Vested(50,700)18.72 
Non-vested at April 30, 2023256,100 $22.26 
The total weighted-average grant-date fair value of restricted stock awards that vested during each of the six months ended April 30, 2023 and 2022 was $0.9 million and $1.2 million, respectively. As of April 30, 2023, total unrecognized
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compensation cost related to unamortized restricted stock awards was $3.3 million. We expect to recognize this expense over the remaining weighted-average vesting period of 2.1 years.
Stock Options
Historically, stock options have been awarded to key employees, officers and non-employee directors. In December 2017, the Compensation & Management Development Committee of the Board of Directors approved a change to the long-term incentive award program eliminating the grant of stock options and replacing this award with a grant of performance restricted stock units and performance shares as further described below. As a result, the final stock options were granted during the fiscal year ended October 31, 2017. Stock options typically vested ratably over a three-year period with service and continued employment as the vesting conditions. 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. 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.
We use a Black-Scholes pricing model to estimate the fair value of stock options. 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, 2022.
The following table summarizes our stock option activity for the six months ended April 30, 2023:
Stock OptionsWeighted-Average
Exercise Price
Weighted-Average
Remaining Contractual
Term (in years)
Aggregate
Intrinsic
Value (000s)
Outstanding at October 31, 2022175,117 $19.39 
Granted  
Exercised(5,000)19.61 
Forfeited/Expired(4,000)21.11 
Outstanding at April 30, 2023166,117 $19.34 2.6$20 
Vested at April 30, 2023166,117 $19.34 2.6$20 
Exercisable at April 30, 2023166,117 $19.34 2.6$20 
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 six months ended April 30, 2023 and 2022 was less than $0.1 million.
Restricted Stock Units
Restricted stock units may be awarded to key employees and officers from time to time, and annually to non-employee directors. The non-employee director restricted stock units vest immediately but are payable only upon the director's cessation of service unless an election is made by the non-employee director to settle and pay the award on an earlier specified date. Restricted stock units awarded to employees and officers typically cliff vest after a three-year period with service and continued employment as the vesting conditions. Restricted stock units are not considered outstanding shares and do not have voting rights, although the holder does receive a cash payment equivalent to the dividend paid, on a one-for-one basis, on our outstanding common shares. Once the criteria is met, each restricted stock unit is payable to the holder in cash based on the market value of one share of our common stock. 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 six months ended April 30, 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 six months ended April 30, 2023, 21,774 restricted stock units, which were awarded to key employees, vested. During the six months ended April 30, 2023, we paid $0.4 million and $1.0 million for the comparable prior year to settle vested restricted stock units.
Performance Share Awards
We have awarded annual grants of performance shares to key employees and officers. 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.
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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. Depending on the achievement of the performance conditions, 0% to 200% of the awarded performance shares may ultimately vest.
The following table summarizes our performance share grants and the grant date fair value for the RONA performance metrics:
Grant DateShares AwardedGrant Date Fair ValueShares Forfeited
December 2, 202065,300 $20.68  
December 9, 202180,900 $22.54  
December 7, 202289,300 $23.49  
In December 2022, 101,200 shares vested pursuant to the December 2018 grant, which were settled with a cash payment of $2.2 million.
Performance share awards are payable in cash based upon the number of performance shares ultimately earned, and are therefore not considered outstanding shares.
Performance Restricted Stock Units
We award performance restricted stock units to key employees and officers. These awards cliff vest upon a three-year service period with the absolute total shareholder return of our common stock over this three-year term as the vesting criteria. The number of shares earned is variable depending on the metric achieved, and the settlement method is 100% in our common stock, with accrued dividends paid in cash at the time of vesting, assuming the shares had been outstanding throughout the performance period.
To value the performance restricted stock units, we used a Monte Carlo simulation model to arrive at a grant-date fair value. This amount will be adjusted for forfeitures and expensed over the three-year term of the award with a credit to additional paid-in-capital. Depending on the achievement of the performance conditions, a minimum of 0% and a maximum of 150% of the awarded performance restricted stock units may vest. Specifically, the awards vest on a continuum with the following Absolute Total Shareholder Return (A-TSR) milestones:
Vesting LevelVesting CriteriaPercentage of Award Vested
Level 1A-TSR greater than or equal to 50%150%
Level 2A-TSR less than 50% and greater than or equal to 20%100%
Level 3A-TSR less than 20% and greater than or equal to -20%50%
Level 4A-TSR less than -20%%
The following table summarizes our performance restricted stock unit grants and the grant date fair value for the A-TSR performance metric:
Grant DateShares AwardedGrant Date Fair ValueShares Forfeited
December 2, 202038,400 $20.68  
December 9, 202150,900 $21.06  
December 7, 202251,500 $23.22  
During the six months ended April 30, 2023, 32,680 performance restricted stock units vested.
The performance restricted stock units are not considered outstanding shares, do not have voting rights, and are excluded from diluted weighted-average shares used to calculate earnings per share until the performance criteria is probable to result in the issuance of contingent shares. As of April 30, 2023, we have deemed 27,882 shares related to the December 2020 grant of performance restricted stock units as probable to vest.
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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 six months ended April 30, 2023 and 2022 (in thousands):
 Three Months EndedSix Months Ended
April 30, 2023April 30, 2023
 2023202220232022
Restricted stock awards$464 $360 $902 $708 
Restricted stock units(1,062)(278)429 716 
Performance share awards703 316 3,342 1,656 
Performance restricted stock units255 212 496 416 
Total compensation expense$360 $610 $5,169 $3,496 
Treasury Shares
We record treasury stock purchases under the cost method whereby the entire cost of the acquired stock is recorded as treasury stock. Shares are generally issued from treasury stock at the time of grant of restricted stock awards, upon the exercise of stock options, and upon the vesting of performance shares and performance restricted stock units. On the subsequent issuance of treasury shares, we record proceeds in excess of cost as an increase in additional paid in capital. 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 six months ended April 30, 2023.
The following table summarizes the treasury stock activity during the six months ended April 30, 2023:
Six Months Ended
 April 30, 2023
Beginning Balance as of November 1, 20224,081,806 
Restricted stock awards granted(94,700)
Performance restricted stock units vested(32,680)
Stock options exercised(5,000)
Treasury stock repurchases275,000 
Balance at April 30, 20234,224,426 
12. 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; (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. 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 condensed consolidated financial statements. Corporate general and administrative expense allocated during the three and six month period ended April 30, 2023 was $6.1 million and $10.8 million, respectively, and $5.5 million and $11.3 million for the comparable prior year periods.
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
ASC Topic 280-10-50, “Segment Reporting” (ASC 280) permits aggregation of operating segments based on factors including, but not limited to: (1) similar nature of products serving the building products industry, primarily the fenestration business; (2) similar production processes, although there are some differences in the amount of automation amongst operating plants; (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; (5) similar regulatory environment; and (6) converging long-term economic similarities.
Segment information for the three and six months ended April 30, 2023 and 2022, and total assets as of April 30, 2023 and October 31, 2022 are summarized in the following table (in thousands):
NA FenestrationEU FenestrationNA Cabinet Comp.Unallocated Corp. & OtherTotal
Three Months Ended April 30, 2023
Net sales$156,975 $63,763 $53,518 $(721)$273,535 
Depreciation and amortization5,050 2,353 2,970 83 10,456 
Operating income15,295 12,506 846 689 29,336 
Capital expenditures4,859 1,100 1,481 52 7,492 
Three Months Ended April 30, 2022
Net sales$177,908 $73,427 $72,878 $(1,320)$322,893 
Depreciation and amortization4,038 2,522 3,917 86 10,563 
Operating income (loss)22,221 12,596 568 (835)34,550 
Capital expenditures3,632 1,252 1,499 32 6,415 
Six Months Ended April 30, 2023
Net sales$309,955 $118,715 $108,192 $(1,411)$535,451 
Depreciation and amortization10,295 4,701 5,904 176 21,076 
Operating income (loss)25,018 19,902 (343)(10,838)33,739 
Capital expenditures8,472 3,056 3,341 205 15,074 
Six Months Ended April 30, 2022
Net sales$324,539 $132,341 $135,231 $(2,178)$589,933 
Depreciation and amortization8,177 5,091 7,380 172 20,820 
Operating income (loss)34,372 20,411 (885)(5,222)48,676 
Capital expenditures8,937 2,206 2,572 70 13,785 
As of April 30, 2023
Total assets$385,283 $238,604 $162,154 $36,071 $822,112 
As of October 31, 2022
Total assets$279,139 $223,729 $176,154 $45,595 $724,617 
The following table summarizes the change in the carrying amount of goodwill by reportable business segment for the six months ended April 30, 2023 (in thousands):
NA FenestrationEU FenestrationNA Cabinet Comp.Unallocated Corp. & OtherTotal
Balance as of October 31, 2022$38,712 $59,996 $39,147 $ $137,855 
LMI acquisition41,393 — — — 41,393 
Foreign currency translation adjustment 5,976   5,976 
Balance as of April 30, 2023$80,105 $65,972 $39,147 $ $185,224 
For further details of Goodwill, see Note 5, “Goodwill & Intangible Assets,” located herewith.
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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 six months ended April 30, 2023 and 2022 (in thousands):
Three Months EndedSix Months Ended
April 30,April 30,
2023202220232022
Operating income$29,336 $34,550 $33,739 $48,676 
Interest expense(2,244)(602)(4,503)(1,125)
Other, net(29)453 189 507 
Income tax expense(5,551)(7,879)(6,004)(10,297)
Net income$21,512 $26,522 $23,421 $37,761 

13. Earnings Per Share
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.
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Basic and diluted earnings per share for the three and six months ended April 30, 2023 and 2022 were calculated as follows (in thousands, except per share data):
Net IncomeWeighted-Average SharesPer Share
Three Months Ended April 30, 2023
Basic earnings per common share$21,512 32,858 $0.65 
Effect of dilutive securities:
Stock options— 25 — 
Restricted stock awards— 106 — 
Performance restricted stock units— 28 — 
Diluted earnings per common share$21,512 33,017 $0.65 
Three Months Ended April 30, 2022
Basic earnings per common share$26,522 33,157 $0.80 
Effect of dilutive securities:
Stock options— 24 — 
Restricted stock awards— 82 — 
Performance restricted stock units— 28 — 
Diluted earnings per common share$26,522 33,291 $0.80 
Six Months Ended April 30, 2023
Basic earnings per common share$23,421 32,905 $0.71 
Effect of dilutive securities:
Stock options— 28 — 
Restricted stock awards— 109 — 
Performance restricted stock units— 28 — 
Diluted earnings per common share$23,421 33,070 $0.71 
Six Months Ended April 30, 2022
Basic earnings per common share$37,761 33,140 $1.14 
Effect of dilutive securities:
Stock options— 29 — 
Restricted stock awards— 95 — 
Performance restricted stock units— 28 — 
Diluted earnings per common share$37,761 33,292 $1.13 
We do not include equity instruments in our calculation of diluted earnings per share if those instruments would be anti-dilutive. 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 six months ended April 30, 2023 and 2022.
14. 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 six months ended April 30, 2023. As of April 30, 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.
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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.
Cautionary Note Regarding Forward-Looking Statements
Certain of the statements contained in this document and in documents incorporated by reference herein, including those made under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are “forward-looking” statements as defined under the Private Securities Litigation Reform Act of 1995. Generally, the words “expect,” “believe,” “intend,” “estimate,” “anticipate,” “project,” “will” and similar expressions identify forward-looking statements, which generally are not historical in nature. Forward looking statements are (1) all statements which address future operating performance, (2) events or developments that we expect or anticipate will occur in the future, including statements relating to volume, sales, operating income and earnings per share, and (3) statements expressing general outlook about future operating results. Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our current projections or expectations. As and when made, we believe that these forward-looking statements are reasonable. However, caution should be taken not to place undue reliance on any such forward-looking statements since such statements speak only as of the date when made and there can be no assurance that such forward-looking statements will occur. We are not obligated to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include, but are not limited to the following:
impacts from public health issues (including pandemics, such as the COVID-19 pandemic and quarantines) on the economy, demand for our products or our operations, including the responses of governmental authorities to contain such public health issues;
changes in market conditions, particularly in the new home construction, and residential remodeling and replacement (R&R) activity markets in the United States, United Kingdom, Germany and elsewhere;
changes in non-pass-through raw material costs;
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;
changes in purchases by our principal customers;
fluctuations in foreign currency exchange rates;
our ability to maintain an effective system of internal controls;
our ability to successfully implement our internal operating plans and acquisition strategies;
our ability to successfully implement our plans with respect to information technology (IT) systems and processes;
our ability to control costs and increase profitability;
changes in environmental laws and regulations;
changes in warranty obligations;
changes in energy costs and the availability of energy;
changes in tax laws, and interpretations thereof;
changes in interest rates;
our ability to service our debt facilities and remain in good standing with our lenders;
changes in the availability or applicability of our insurance coverage;
our ability to maintain good relationships with our suppliers, subcontractors, and key customers; and
the resolution of litigation and other legal proceedings.
For information on additional factors that could cause actual results to differ materially, please refer to the section entitled “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended October 31, 2022.
About Third-Party Information
In this report, we rely on and refer to information regarding industry data obtained from market research, publicly available information, industry publications, U.S. government sources and other third parties. Although we believe this information is reliable, we cannot guarantee the accuracy or completeness of the information and have not independently verified it.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and related notes as of April 30, 2023, and for the three and six months ended April 30, 2023 and 2022, included elsewhere herein. For additional information pertaining to our business, including risk factors which should be considered before investing in our common stock, refer to our Annual Report on Form 10-K for the fiscal year ended October 31, 2022.
Our Business
We manufacture components for original equipment manufacturers (OEMs) in the building products industry. These components can be categorized as window and door (fenestration) components and kitchen and bath cabinet components. 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. We also manufacture cabinet doors and other components for OEMs in the kitchen and bathroom cabinet industry. In addition, we provide certain other non-fenestration components and products, which include solar panel sealants, trim moldings, vinyl decking, vinyl fencing, customized compounds, water retention barriers, and conservatory roof components. We use low-cost, short lead-time 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 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 continue to invest in organic growth initiatives and we intend to continue evaluating business acquisitions that allow us to expand our existing fenestration and cabinet component footprint, enhance our product offerings, provide new complementary technology, enhance our leadership position within the markets we serve and expand into new markets or service lines. We have disposed of non-core businesses in the past, and continue to evaluate our business portfolio to ensure that we are investing in markets where we believe there is potential future growth.
We currently have three reportable business segments: (1) North American Fenestration segment (“NA Fenestration”), comprising four operating segments, manufacturing vinyl profiles, IG spacers, screens, custom compound mixing, and other fenestration components; (2) European Fenestration segment (“EU Fenestration”), comprising our U.K.-based vinyl extrusion business, manufacturing vinyl profiles and conservatories, and the European insulating glass business manufacturing IG spacers; and (3) North American Cabinet Components segment (“NA Cabinet Components”), comprising our North American cabinet door and components business and two wood-manufacturing plants. 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, 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 corporate general and administrative costs have been allocated to the reportable business 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 our accompanying condensed consolidated financial statements.
Recent Transactions and Events
On November 1, 2022, we entered into an Asset Purchase Agreement with 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 and also agreed to assume certain liabilities relating to the Acquisition. As consideration for the Purchased Assets, we paid $91.3 million in cash utilizing funds borrowed under our Credit Facility. In connection with the Acquisition, we amended our existing finance 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.
U.S. and global markets are experiencing volatility and disruption following the escalation of geopolitical tensions and the military conflict between Russia and Ukraine. Although the length and impact of the ongoing military conflict is highly unpredictable, the conflict in Ukraine could lead to market or operational disruptions, including significant volatility in commodity prices, credit and capital markets, as well as supply chain interruptions. Russia, Europe’s largest provider of natural gas, has significantly reduced the export of natural gas compared to the same time last year resulting in the increase in natural gas prices and the potential for natural gas shortages. If this trend continues, this would not only negatively impact our
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European manufacturing facilities, this may also impact our customers and their demand for our products. We continue to monitor these situations and their impact on our business.
The war in Ukraine and the impact on the global economy including inflation and the price of raw materials, supply chain disruptions, and the volatility in interest rates including home mortgage rates are unpredictable and there may be developments outside our control requiring us to adjust our operating plan.
Market Overview and Outlook
We believe the primary drivers of our operating results continue to be North American new home construction and residential remodeling and replacement (R&R) activity. We believe that housing starts and window shipments are indicators of activity levels in the homebuilding and window industries, and we use this data, as published by or derived from third-party sources, to evaluate the market. We have evaluated the market using data from the National Association of Homebuilders (NAHB) with regard to housing starts, and published reports by Ducker Worldwide, LLC (Ducker), a consulting and research firm, with regard to window shipments in the U.S. We obtain market data from Catalina Research, a consulting and research firm, for insight into the U.S. residential wood cabinet demand.
In May 2023, the NAHB forecasted calendar-year housing starts to be 1.3 million in the 2023 and 2024 calendar-years and 1.5 million in 2025. In May 2023, the Ducker forecast indicated that total window shipments are expected to decrease 5.9% in calendar-year 2023 and 2.8% in 2024.
Several commodities in our business are subject to pricing fluctuations, including polyvinyl resin (PVC), titanium dioxide (TiO2), petroleum products, aluminum and wood. For the majority of our customers and critical suppliers, we have price adjusters in place which effectively share the impact of pass-through price changes for our primary commodities with our customers commensurate with the market at large. Our long-term exposure to these price fluctuations is somewhat mitigated due to the contractual component of the adjuster programs. However, these adjusters are not in place with all customers and for all commodities, and there is a level of exposure to such volatility due to the lag associated with the timing of price updates in accordance with our customer agreements, particularly with regard to hardwoods. In addition, some of these commodities are in high demand, particularly in Europe, which can affect the cost of the raw materials, a portion of which we may not be able to fully recover.
The global economy remains uncertain due to currency devaluations, political unrest, terror threats, global pandemics such as COVID-19, and even the political landscape in the U.S. These and other macro-economic factors have impacted the global financial markets, which may have contributed to significant changes in foreign currencies. We continue to monitor our exposure to changes in exchange rates.
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Results of Operations
Three Months Ended April 30, 2023 Compared to Three Months Ended April 30, 2022
Three Months Ended April 30,
 20232022Change $% Variance
 (Dollars in thousands)
Net sales$273,535 $322,893 $(49,358)(15)%
Cost of sales (excluding depreciation and amortization)206,372 249,651 (43,279)17 %
Selling, general and administrative27,371 28,129 (758)%
Depreciation and amortization10,456 10,563 (107)%
Operating income29,336 34,550 (5,214)(15)%
Interest expense(2,244)(602)(1,642)(273)%
Other, net(29)453 (482)(106)%
Income tax expense(5,551)(7,879)2,328 30 %
Net income$21,512 $26,522 $(5,010)(19)%
Our period-over-period results by reportable segment follow.
Changes Related to Operating Income by Reportable Segment:
NA Fenestration
Three Months Ended April 30,
20232022$ Change% Variance
 (Dollars in thousands)
Net sales$156,975 $177,908 $(20,933)(12)%
Cost of sales (excluding depreciation and amortization)122,472 137,571 (15,099)11%
Selling, general and administrative14,158 14,078 80 (1)%
Depreciation and amortization5,050 4,038 1,012 (25)%
Operating income$15,295 $22,221 $(6,926)(31)%
Operating income margin10 %12 %
Net Sales. Net sales decreased $20.9 million, or 12%, for the three months ended April 30, 2023 compared to the same period in 2022, which was primarily driven by a $33.1 million decrease in volumes mainly due to softer market demand, a return to normal seasonality, customer destocking, and a decrease in price and raw material surcharges of $5.6 million, partially offset by a $17.8 million contribution from the addition of LMI in 2023.
Cost of Sales. The cost of sales decreased $15.1 million, or 11%, for the three months ended April 30, 2023 compared to the same period in 2022. Cost of sales, including labor, decreased primarily due to lower volumes and deflation of raw materials during the period partially offset by LMI’s cost of sales in 2023.
Selling, General and Administrative. Selling, general and administrative expenses increased $0.1 million, or 1%, for the three months ended April 30, 2023 compared to the same period in 2022, which was essentially flat year-over-year.
Depreciation and Amortization. Depreciation and amortization expense increased $1.0 million, or 25%, for the three months ended April 30, 2023 as compared to the same period in 2022, primarily due to the acquisition of LMI’s property, plant and equipment and intangible assets.
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EU Fenestration
Three Months Ended April 30,
20232022$ Change% Variance
 (Dollars in thousands)
Net sales$63,763 $73,427 $(9,664)(13)%
Cost of sales (excluding depreciation and amortization)40,452 49,708 (9,256)19%
Selling, general and administrative8,452 8,601 (149)2%
Depreciation and amortization2,353 2,522 (169)7%
Operating income$12,506 $12,596 $(90)(1)%
Operating income margin20 %17 %
Net Sales. Net sales decreased $9.7 million, or 13%, for the three months ended April 30, 2023 compared to the same period in 2022, which was primarily driven by a $7.7 million decrease in volumes largely due to softer market demand, a return to normal seasonality, customer destocking, and $4.8 million of foreign currency rate change, partially offset by $2.8 million of base price increases.
Cost of Sales. The cost of sales decreased $9.3 million, or 19%, for the three months ended April 30, 2023 compared to the same period in 2022. Cost of sales decreased primarily due to lower volumes and foreign currency rate changes during the period partially offset by inflation of raw materials.
Selling, General and Administrative. Selling, general and administrative expense decreased $0.1 million, or 2%, for the three months ended April 30, 2023 compared to the same period in 2022. The decrease is primarily due to a decrease in professional fees, labor costs and foreign currency impacts year-over-year.
NA Cabinet Components
Three Months Ended April 30,
20232022$ ChangeVariance %
 (Dollars in thousands)
Net sales$53,518 $72,878 $(19,360)(27)%
Cost of sales (excluding depreciation and amortization)43,731 63,175 (19,444)31%
Selling, general and administrative5,971 5,218 753 (14)%
Depreciation and amortization2,970 3,917 (947)24%
Operating income$846 $568 $278 49%
Operating income margin%%
Net Sales. Net sales decreased $19.4 million, or 27%, for the three months ended April 30, 2023 compared to the same period in 2022, which was driven by an $18.1 million decrease in volumes due to softer market demand driven by weaker consumer confidence and a $1.3 million decrease in price and raw material indexes.
Cost of Sales. Cost of sales decreased $19.4 million, or 31%, for the three months ended April 30, 2023 compared to the same period in 2022. Cost of sales decreased primarily due to lower volumes during the period and lumber price deflation.
Selling, General and Administrative. Selling, general and administrative expense increased $0.8 million, or 14%, for the three months ended April 30, 2023 compared to the same period in 2022. The increase is primarily due to a loss on an asset caused by wind damage to a manufacturing facility and an increase in professional fees partially offset by a decrease in labor costs.
Depreciation and Amortization. Depreciation and amortization expense decreased $0.9 million, or 24%, for the three months ended April 30, 2023 as compared to the same period in 2022, reflecting the run-off of depreciation expense related to
existing assets.


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Unallocated Corporate & Other
Three Months Ended April 30,
20232022$ ChangeVariance %
 (Dollars in thousands)
Net sales$(721)$(1,320)$599 45%
Cost of sales (excluding depreciation and amortization)(283)(803)520 (65)%
Selling, general and administrative(1,210)232 (1,442)622%
Depreciation and amortization83 86 (3)3%
Operating income (loss)$689 $(835)$1,524 183%
Net Sales. Net sales for Unallocated Corporate & Other represents the elimination of inter-segment sales for the three months ended April 30, 2023 and 2022.
Cost of Sales. Cost of sales for Unallocated Corporate & Other consists of the elimination of inter-segment sales, profit in inventory, and other costs.
Selling, General and Administrative. Selling, general and administrative expenses decreased $1.4 million, or 622%, for the three months ended April 30, 2023 compared to the same period in 2022. This decrease is primarily attributable to a decrease in medical expense claims and lower compensation expense including the valuations of our stock-based compensation awards during the three months ended April 30, 2023 as compared to the prior year period.
Changes related to Non-Operating Items:
Interest Expense. Interest expense increased $1.6 million for the three months ended April 30, 2023 compared to the same period in 2022 as a result of higher borrowings outstanding during the period and an increase in interest rates.
Income Taxes. We recorded income tax expense of $5.6 million on pre-tax income of $27.1 million for the three months ended April 30, 2023, an effective rate of 20.5%, and income tax expense of $7.9 million on pre-tax income of $34.4 million for the three months ended April 30, 2022, an effective rate of 22.9%. The decrease in income tax expense year-over-year was primarily driven by the decrease in pre-tax book income during the three months ended April 30, 2023, relative to the three months ended April 30, 2022.
Six Months Ended April 30, 2023 Compared to Six Months Ended April 30, 2022
Six Months Ended April 30,
 20232022Change $% Variance
 (Dollars in thousands)
Net sales$535,451 $589,933 $(54,482)(9)%
Cost of sales (excluding depreciation and amortization)416,521 461,485 (44,964)10 %
Selling, general and administrative64,115 58,952 5,163 (9)%
Depreciation and amortization21,076 20,820 256 (1)%
Operating income33,739 48,676 (14,937)(31)%
Interest expense(4,503)(1,125)(3,378)(300)%
Other, net189 507 (318)(63)%
Income tax expense(6,004)(10,297)4,293 42 %
Net income$23,421 $37,761 $(14,340)(38)%
Our period-over-period results by reportable segment follow.
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Changes Related to Operating Income by Reportable Segment:
NA Fenestration
Six Months Ended April 30,
20232022$ Change% Variance
 (Dollars in thousands)
Net sales$309,955 $324,539 $(14,584)(4)%
Cost of sales (excluding depreciation and amortization)247,189 253,535 (6,346)3%
Selling, general and administrative27,453 28,455 (1,002)4%
Depreciation and amortization10,295 8,177 2,118 (26)%
Operating income$25,018 $34,372 $(9,354)(27)%
Operating income margin%11 %
Net Sales. Net sales decreased $14.6 million, or 4%, for the six months ended April 30, 2023 compared to the same period in 2022, which was primarily driven by a $48.3 million decrease in volumes mainly due to softer market demand, a return to normal seasonality, customer destocking, and an decrease in price and raw material surcharges of $0.5 million, partially offset by a $34.2 million contribution from the addition of LMI in 2023.
Cost of Sales. The cost of sales decreased $6.3 million, or 3%, for the six months ended April 30, 2023 as compared to the same period in 2022. Cost of sales, including labor, decreased primarily due to lower volumes and deflation of raw materials during the period partially offset by LMI’s cost of sales in 2023.
Selling, General and Administrative. Selling, general and administrative expenses decreased $1.0 million, or 4%, for the six months ended April 30, 2023 as compared to the same period in 2022. This decrease was primarily due to a decrease in labor costs year-over-year.
Depreciation and Amortization. Depreciation and amortization expense increased $2.1 million, or 26%, for the six months ended April 30, 2023 as compared to the same period in 2022, primarily due to the acquisition of LMI’s property, plant and equipment and intangible assets.
EU Fenestration
Six Months Ended April 30,
20232022$ ChangeVariance %
 (Dollars in thousands)
Net sales$118,715 $132,341 $(13,626)(10)%
Cost of sales (excluding depreciation and amortization)78,155 90,935 (12,780)14%
Selling, general and administrative15,957 15,904 53 —%
Depreciation and amortization4,701 5,091 (390)8%
Operating income$19,902 $20,411 $(509)(2)%
Operating income margin17 %15 %
Net Sales. Net sales decreased $13.6 million, or 10%, comparing the six months ended April 30, 2023 to the same period in 2022, which was primarily driven by a $12.0 million decrease in volumes largely due to softer market demand, a return to normal seasonality, customer destocking, and $10.8 million of foreign currency rate change, partially offset by $9.2 million of base price increases.
Cost of Sales. The cost of sales decreased $12.8 million, or 14%, for the six months ended April 30, 2023 compared to the same period in 2022. Cost of sales decreased primarily due to a decrease in volumes and foreign currency impacts partially offset by inflation of raw materials.
Selling, General and Administrative. Selling, general and administrative expense increased $0.1 million, for the six months ended April 30, 2023 compared to the same period in 2022, which was essentially flat year-over-year.
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NA Cabinet Components
Six Months Ended April 30,
20232022$ ChangeVariance %
 (Dollars in thousands)
Net sales$108,192 $135,231 $(27,039)(20)%
Cost of sales (excluding depreciation and amortization)91,787 118,248 (26,461)22%
Selling, general and administrative10,844 10,488 356 (3)%
Depreciation and amortization5,904 7,380 (1,476)20%
Operating loss$(343)$(885)$542 61%
Operating loss margin— %(1)%
Net Sales. Net sales decreased $27.0 million, or 20%, for the six months ended April 30, 2023 compared to the same period in 2022, which was driven by a $29.1 million decrease in volumes due to softer market demand driven by weaker consumer confidence partially offset by a $2.1 million increase in price and raw material indexes.
Cost of Sales. Cost of sales decreased $26.5 million, or 22%, for the six months ended April 30, 2023 compared with the same period in 2022, primarily as a result of lower volumes year-over-year and lumber price deflation.
Selling, General and Administrative. Selling, general and administrative expense increased $0.4 million, or 3%, for the six months ended April 30, 2023 compared to the same period in 2022 primarily due to a loss on an asset caused by wind damage to a manufacturing facility and an increase in professional fees partially offset by a decrease in labor costs.
Depreciation and Amortization. Depreciation and amortization expense decreased $1.5 million, or 20%, for the six months ended April 30, 2023 as compared to the same period in 2022, reflecting the run-off of depreciation expense related to
existing assets.
Unallocated Corporate & Other
Six Months Ended April 30,
20232022$ ChangeVariance %
 (Dollars in thousands)
Net sales$(1,411)$(2,178)$767 35%
Cost of sales (excluding depreciation and amortization)(610)(1,233)623 (51)%
Selling, general and administrative9,861 4,105 5,756 (140)%
Depreciation and amortization176 172 (2)%
Operating loss$(10,838)$(5,222)$(5,616)(108)%
Net Sales. Net sales for Unallocated Corporate & Other represents the elimination of inter-segment sales for the six months ended April 30, 2023 and 2022.
Cost of Sales. Cost of sales for Unallocated Corporate & Other consists of the elimination of inter-segment sales, profit in inventory, and other costs.
Selling, General and Administrative. Selling, general and administrative expenses increased $5.8 million, or 140%, for the six months ended April 30, 2023 compared to the same period in 2022. This increase is primarily attributable an increase in transaction fees and compensation expense including the valuations of our stock-based compensation awards, partially offset by a decrease related to medical expense claims during the six months ended April 30, 2023 as compared to the prior year period.
Changes related to Non-Operating Items:
Interest Expense. Interest expense increased $3.4 million for the six months ended April 30, 2023 compared to the same period in 2022 as a result of higher borrowings outstanding during the period and an increase in interest rates.
Income Taxes. We recorded income tax expense of $6.0 million on pre-tax income of $29.4 million for the six months ended April 30, 2023, an effective rate of 20.4%, and income tax expense of $10.3 million on a pre-tax income of $48.1 million for the six months ended April 30, 2022, an effective rate of 21.4%. The decrease in income tax expense year-over-year was primarily driven by the decrease in pre-tax book income during the six months ended April 30, 2023, relative to the six months ended April 30, 2022.
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Liquidity and Capital Resources
Overview
Historically, our principal sources of funds have been cash on hand, cash flow from operations, and borrowings under our credit facilities.
We maintain a $325.0 million revolving credit facility (the Credit Facility) that matures in 2027 (5-year term) and requires interest payments calculated at a variable market rate depending upon our Consolidated Net Leverage Ratio. The applicable rate during the six months ended April 30, 2023 was RFR Rate + 1.25%. Our cost of capital could increase depending upon the Consolidated Net Leverage Ratio at the end of any given quarter. In addition to the Consolidated Net Leverage Ratio covenant, we are required to meet a Consolidated Interest Coverage Ratio covenant, and there are limitations on certain transactions including our ability to incur indebtedness, incur liens, dispose of material assets, acquire businesses, make restricted payments and pay dividends (limited to $25.0 million per year). We are amortizing deferred financing fees of $1.4 million straight-line over the remaining term of the facility. For further details of the Credit Facility, refer to Note 6, “Debt and Finance Lease Obligations” to the accompanying unaudited condensed consolidated financial statements contained elsewhere herein.
As of April 30, 2023, we had $43.5 million of cash and equivalents, $80.0 million outstanding under the Credit Facility, $5.1 million of outstanding letters of credit and $55.6 million outstanding under finance leases and other debt. Of the $55.6 million outstanding under finance leases and other debt, $53.1 million relates to real estate leases. We had $239.9 million available for use under the Credit Facility at April 30, 2023.
We repatriated $21.2 million and $4.1 million of foreign cash during the six months ended April 30, 2023 and 2022, respectively. We expect to repatriate excess cash moving forward and use the funds to retire debt or meet current working capital needs. In the U.K., we insure against a portion of our credit losses. We believe our business model, our current cash reserves and our strong balance sheet leave us well-positioned to manage our business and remain in compliance with our debt covenants.
Analysis of Cash Flow
The following table summarizes our cash flow results for the six months ended April 30, 2023 and 2022:
Six Months Ended
April 30,
 20232022
 (Dollars in thousands)
Cash provided by (used for) operating activities$38,460 $(1,881)
Cash used for investing activities$(106,275)$(13,749)
Cash provided by financing activities$54,313 $16,502 
Operating Activities. Cash provided by operating activities increased $40.3 million for the six months ended April 30, 2023 compared to the six months ended April 30, 2022. The increase in operating cash flows is primarily due to favorable changes to working capital partially offset by lower net income year-over-year due to a decrease in customer demand. The favorable changes in working capital were largely driven by an increase in inventory value due to raw material price inflation and a decrease in accounts receivable partially offset by a decrease in accounts payable.
Investing Activities. Cash used for investing activities increased $92.5 million for the six months ended April 30, 2023 compared to the same period in 2022, primarily as a result of the Acquisition of LMI.
Financing Activities. Cash provided by financing activities was $54.3 million for the six months ended April 30, 2023, which included $65.7 million of net borrowings of long-term debt, $5.6 million related to the purchase of treasury stock $5.3 million of dividends paid to our shareholders, and $0.6 million of payroll tax paid to settle shares forfeited upon vesting of stock.
Liquidity Requirements
Historically, our strategy for deploying cash has been to invest in organic growth opportunities, develop our infrastructure, and explore strategic acquisitions. Other uses of cash include paying cash dividends to our shareholders and repurchasing our common stock. During the six months ended April 30, 2023 and 2022, we repatriated $21.2 million and $4.1 million, respectively, of foreign earnings from our foreign locations. We maintain cash balances in foreign countries which total $13.1 million as of April 30, 2023.
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Critical Accounting Policies and Estimates
The preparation of our financial statements in accordance with accounting principles generally accepted in the U.S. (U.S. GAAP) requires us to make estimates and assumptions that affect the reported amount of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. Estimates and assumptions about future events and their effects cannot be perceived with certainty. Estimates may change as new events occur, as more experience is acquired, as additional information becomes available and as our operating environment changes. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, and that we believe provide a basis for making judgments about the carrying value of assets and liabilities that are not readily available through open market quotes. We must use our judgment with regard to uncertainties in order to make these estimates. Actual results could differ from these estimates.
For a description of our critical accounting policies and estimates, see our Annual Report on Form 10-K for the fiscal year ended October 31, 2022. Our critical accounting policies and estimates have not changed materially during the six months ended April 30, 2023.
New Accounting Pronouncements
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 six months ended April 30, 2023. As of April 30, 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.


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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
Our outstanding debt bears interest at variable rates and accordingly is sensitive to changes in interest rates. Based upon the balances of the variable rate debt at April 30, 2023, a hypothetical 1.0% increase or decrease in interest rates could result in approximately $0.8 million of additional pretax charges or credit to our net income per year. This sensitivity is impacted by the amount of borrowings under our credit facilities, and amounts outstanding under finance leases.
Foreign Currency Rate Risk
Our international operations have exposure to foreign currency rate risks, primarily due to fluctuations in the Euro, the British Pound Sterling and the Canadian Dollar. From time to time, we enter into foreign exchange contracts associated with our operations to manage a portion of the foreign currency rate risk. There were no corresponding foreign currency derivatives as of April 30, 2023 or October 31, 2022. These foreign currency derivative contracts hedge cross-border intercompany and commercial activity for our insulating glass spacer business. Although these derivatives hedge our exposure to fluctuations in foreign currency rates, we do not apply hedge accounting and therefore, the change in the fair value of these foreign currency derivatives is recorded directly to other income and expense in the accompanying condensed consolidated statements of income. To the extent the gain or loss on the derivative instrument offsets the gain or loss from the re-measurement of the underlying foreign currency balance, changes in exchange rates should have no effect.
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, NA Cabinet Components includes a price index provision in the majority of its customer arrangements 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.
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 and other inputs. Further discussion of our industry risks is included within our Annual Report on Form 10-K for the fiscal year ended October 31, 2022.
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (1934 Act) as of April 30, 2023. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of April 30, 2023, the disclosure controls and procedures are effective.
Changes in Internal Control over Financial Reporting
There have been no changes in internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the 1934 Act) during the most recent fiscal quarter that have materially affected or are reasonably likely to materially affect our internal control over financial reporting, except with regard to the internal controls of LMI which were acquired by us on November 1, 2022. Prior to the acquisition, LMI was a privately-held company incorporated in the United States, reporting financial results pursuant to accounting principles generally accepted in the United States. Therefore, LMI was not previously required to comply with the Sarbanes-Oxley Act of 2002. Management is currently evaluating internal control procedures and implementing changes in internal control over financial reporting with regard to LMI in order to fully comply with the requirements of the Sarbanes-Oxley Act of 2002 as of October 31, 2023.

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PART II. OTHER INFORMATION
Item 1A. Risk Factors
Company Risks

Bank failures or other events affecting financial institutions could adversely affect our liquidity and financial performance.

The recent and potential future disruptions in access to bank deposits or lending commitments due to bank failures and banking industry instability could materially and adversely affect the Company’s liquidity, access to cash and credit, and the Company’s business, financial condition and results of operations, as well those of the Company’s third-party suppliers or vendors. The recent closures of Silicon Valley Bank (SVB) and Signature Bank and their placement into receivership with the Federal Deposit Insurance Company (FDIC) along with the FDIC’s seizure and sale of First Republic Bank created market disruption and uncertainty with respect to the financial condition of a number of other banking institutions in the United States. While the Company does not have any direct exposure to SVB, Signature Bank, or First Republic Bank, the Company does maintain its cash at financial institutions, sometimes in balances that exceed the current FDIC insurance limits.

If other banks and financial institutions enter receivership or become insolvent in the future due to financial conditions affecting the banking system and financial markets, the Company’s ability to access its cash and cash equivalents, including transferring funds, making payments or receiving funds, and the Company’s access to credit, as well as those of its third-party suppliers or vendors, may be threatened and could have a material adverse effect on the Company’s business and financial condition.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
During the three months ended April 30, 2023, we repurchased common stock as follows:
Period(a) Total Number of Shares Purchased(b) Average Price Paid per Share
(c) Total Number of Shares Purchased as Part of a Publicly Announced Plans or Programs (1)
(d) Maximum US Dollars Remaining that May Yet Be Used to Purchase Shares Under the Plans or Programs (1)
February 2023— $— — $68,399,526 
March 2023275,000 20.34 275,000 $62,806,991 
April 2023— — — $62,806,991 
Total275,000 $20.34 275,000 
(1) In December 2021, our Board of Directors approved a stock repurchase program that authorized the repurchase of up to $75.0 million worth of shares of our common stock. Repurchases under the new program are made in open market transactions or privately negotiated transactions, subject to market conditions, applicable legal requirements and other relevant factors. The program does not have an expiration date or a limit on the number of shares that may be purchased.
Item 5. Other Information
Effective June 1, 2023, the Company elected to terminate the Quanex Building Products Corporation Restoration Plan, filed as Exhibit 10.8 of Amendment No. 4 to the Company’s Registration Statement on Form 10 (Reg. No. 001-33913), as filed with the Securities and Exchange Commission on March 17, 2008, as amended (the “Restoration Plan”). In connection with the termination, the Company entered into the Amendment to the Restoration Plan (the “RP Amendment”). The RP Amendment provides that covered participants of the Restoration Plan shall receive a single lump-sum distribution of any accrued benefits under the Restoration Plan on or around June 03, 2024, provided, that, covered participants in the Restoration Plan who incur a separation from service on or before December 1, 2023 shall receive their lump distribution from the Restoration Plan on the six-month anniversary of their separation from service with the Company and its subsidiaries.
Effective June 1, 2023, the Company elected to terminate the Quanex Building Products Corporation Supplemental Employees Retirement Plan, filed as Exhibit 10.9 of Amendment No. 4 to the Company’s Registration Statement on Form 10 (Reg. No. 001-33913), as filed with the Securities and Exchange Commission on March 17, 2008, as amended (the “SERP”). In connection with the termination, the Company entered into the Amendment to the SERP (the “SERP Amendment”). The SERP Amendment provides that covered participants of the SERP shall receive a single lump-sum distribution of any accrued benefits under the SERP on or around June 03, 2024.
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The description of the RP Amendment and the SERP Amendment contained in this Form 10-Q is not intended to be complete, and is qualified in its entirety by reference to the complete text of the RP Amendment and the SERP Amendment, a copy of which is attached as Exhibit 10.1 and Exhibit 10.2 and, respectively, and incorporated by reference herein.
Item 6. Exhibits
The exhibits required to be furnished pursuant to Item 6 are listed in the Exhibit Index filed herewith, which Exhibit Index is incorporated herein by reference.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 QUANEX BUILDING PRODUCTS CORPORATION
Date:June 2, 2023 /s/ Scott M. Zuehlke
 Scott M. Zuehlke
 Senior Vice President - Chief Financial Officer & Treasurer
(Principal Financial Officer)
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EXHIBIT INDEX
Exhibit NumberDescription of Exhibits
*101.INSXBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
*101.SCHXBRL Taxonomy Extension Schema Document
*101.CALXBRL Taxonomy Extension Calculation Linkbase Document
*101.DEFXBRL Taxonomy Extension Definition Linkbase Document
*101.LABXBRL Taxonomy Extension Label Linkbase Document
*101.PREXBRL Taxonomy Extension Presentation Linkbase Document
 
* Filed herewith

As permitted by Item 601(b)(4)(iii)(A) of Regulation S-K, the Registrant has not filed with this Quarterly Report on Form 10-Q certain instruments defining the rights of holders of long-term debt of the Registrant and its subsidiaries because the total amount of securities authorized under any of such instruments does not exceed 10% of the total assets of the Registrant and its subsidiaries on a consolidated basis. The Registrant agrees to furnish a copy of any such agreements to the Securities and Exchange Commission upon request.


40
Document


Exhibit 10.1
AMENDMENT TO
QUANEX BUILDING PRODUCTS CORPORATION
RESTORATION PLAN


THIS AMENDMENT to the Quanex Building Products Corporation Restoration Plan (the “Plan”) is made and entered into this 31st day of May, 2023, by Quanex Building Products Corporation (hereinafter referred to as the “Company”) to be effective on June 1, 2023.

WITNESSETH:

WHEREAS, Quanex Corporation (“Quanex”) previously established the Quanex Corporation Supplemental Salaried Employees’ Pension Plan (the “Prior Plan”) to provide a retirement pay supplement for a select group of management or highly compensated employees so as to retain their loyalty and to offer a further incentive to them to maintain and increase their standard of performance;

WHEREAS, in connection with the transactions contemplated by the Distribution Agreement dated as of December 19, 2007 among Quanex Corporation, Quanex Building Products Corporation LLC, and Quanex Building Products Corporation (the “Distribution Agreement”), Quanex, Quanex Building Products Corporation LLC (the “LLC”) and the Company determined to spin-off from the Prior Plan a mirror image pension plan for the exclusive benefit of employees previously employed by Quanex in connection with its Building Products businesses and the employees of the corporate office of Quanex who are employed by the LLC or the Company at or after the “Distribution” (as defined in the Distribution Agreement);

WHEREAS, subsequent to the Distribution, the Company assumed the sponsorship of the spun-off portion of the Prior Plan;

WHEREAS, effective as of, and contingent upon, the closing of the Distribution, the LLC and the Company agreed that the spun-off portion of the Prior Plan shall be amended and restated as the “Quanex Building Products Corporation Restoration Plan” (the “Plan”) as set forth therein;

WHEREAS, the Company may amend the Plan pursuant to Section 7.01 of the Plan;

WHEREAS, the Company reserved the right pursuant to Section 7.02 of the Plan to terminate the Plan at any time and Treas. Reg. §1.409A-3(j)(4)(ix)(C) permits the Company to terminate the Plan under certain circumstances; and

WHEREAS, the Company now desires to adopt this Amendment to the Plan in order to terminate the Plan effective June 1, 2023 and in connection therewith, provide for the single lump sum distributions on June 3, 2024 of the accrued benefits under the Plan determined as of June 1, 2024;





Exhibit 10.1
NOW, THEREFORE, in consideration of the premises and the covenants herein contained, the Company hereby adopts the following Amendment to the Plan:

1.Section 1.18 of the Plan is hereby amended by inserting a semi-colon after “October 31” thereof and by adding a new phrase to the end thereof to read as follows:

; provided that the final Plan Year shall be the period from November 1, 2023 through June 3, 2024.

2.Section 3.08 is hereby added to the Plan to read as follows:

3.08    Determination of Benefit and Time of Distribution of Benefit Following Termination of the Plan. In connection with the termination by the Company of the Plan pursuant to Section 7.02 effective as of June 1, 2023, all accrued benefits under the Plan shall be determined as of June 1, 2024 subject to the following:

(a)    Due to the termination of the Qualified Plan, the cash balance crediting rate was changed for Cash Balance Participants to 2.26% effective November 1, 2022. The single lump sum distribution to be paid on June 3, 2024 under the Plan to the Cash Balance Participants will be equal to the cash balance amounts determined pursuant to Section 3.05 with interest through May 31, 2024.

(b)    The actuarial equivalence assumptions for determining the single lump sum distributions to Participants other than Cash Balance Participants will be based on (i) the 2023 PPA Annuitant and Non-Annuitant mortality tables and (ii) the interest rates based on the 3-tier segment rates applicable for March 2023 (5.00% for the first segment, 5.20% for the second segment, and 5.15% for the third segment). If such a Participant would have been early retirement eligible, assuming a termination on May 31, 2024, then the immediate lump sum factor will apply and will be applied to the single life annuity that would have been calculated based on the Participant’s age and assumed retirement at May 31, 2024. If such a Participant would not have been early retirement eligible, assuming a termination on May 31, 2024, then the deferred to age 65 lump sum factor will apply, based on the Participant’s age as of June 1, 2024.

Notwithstanding the foregoing, for Separations from Service occurring on or before December 1, 2023, the Plan’s lump sum payment will be made six months after Separation of Service in accordance with Section 3.06. For Participants other than Cash Balance Participants, this only applies to Participants who are eligible for early retirement on or before June 1, 2024. For Cash Balance Participants benefits, this applies to all such Participants.

3.    Section 7.02 of the Plan is hereby amended by adding the following paragraph to end thereof to read as follows:

2



Exhibit 10.1
As permitted by Treas. Reg. §1.409A-3(j)(4)(ix)(C), the Company has determined to terminate the Plan effective June 1, 2023 subject to, and in connection therewith, (i) to also terminate the Quanex Building Products Corporation Supplemental Employees Retirement Plan (the “SERP”) and (ii) to distribute on June 3, 2024 the lump sum value of all accrued benefits under the Plan and the SERP as each determined as of June 1, 2024.

IN WITNESS WHEREOF, this Amendment has been executed by the duly authorized officer of the Company as of the day and year first written above.
QUANEX BUILDING PRODUCTS CORPORATION


 By:________________________________________
Paul Cornett, Senior Vice President -
 General Counsel & Secretary
3
Document


Exhibit 10.2
AMENDMENT TO
QUANEX BUILDING PRODUCTS CORPORATION
SUPPLEMENTAL EMPLOYEES RETIREMENT PLAN


THIS AMENDMENT to the Quanex Building Products Corporation Supplemental Employees Retirement Plan (the “Plan”) is made and entered into this 31st day of May, 2023, by Quanex Building Products Corporation (hereinafter referred to as the “Company”) to be effective on June 1, 2023.

WITNESSETH:

WHEREAS, Quanex Corporation (“Quanex”) previously established the Quanex Corporation Supplemental Benefit Plan (the “Prior Plan”) to provide a retirement pay supplement for a select group of management or highly compensated employees so as to retain their loyalty and to offer a further incentive to them to maintain and increase their standard of performance;

WHEREAS, the Prior Plan was adopted effective February 28, 1980 and amended and restated October 22, 1981, November 1, 1988, June 1, 1999, January 1, 2004 and January 1, 2005;

WHEREAS, in connection with the transactions contemplated by the Distribution Agreement dated as of December 19, 2007 among Quanex Corporation, Quanex Building Products Corporation LLC, and Quanex Building Products Corporation (the “Distribution Agreement”), Quanex, Quanex Building Products Corporation LLC (the “LLC”) and the Company determined to spin-off from the Prior Plan a mirror image pension plan for the exclusive benefit of employees previously employed by Quanex in connection with its Building Products businesses and the employees of the corporate office of Quanex who are employed by the LLC or the Company at or after the “Distribution” (as defined in the Distribution Agreement);

WHEREAS, in connection with the Distribution, the Company assumed the sponsorship of the spun-off portion of the Prior Plan;

WHEREAS, effective as of, and contingent upon, the closing of the Distribution, the LLC and the Company agreed that the spun-off portion of the Prior Plan shall be amended and restated as the “Quanex Building Products Corporation Supplemental Employees Retirement Plan” (the “Plan”) as set forth therein;

WHEREAS, the Company may amend the Plan pursuant to Section 10.01 of the Plan;

WHEREAS, the Company reserved the right pursuant to Section 10.02 of the Plan to terminate the Plan at any time and Treas. Reg. §1.409A-3(j)(4)(ix)(C) permits the Company to terminate the Plan under certain circumstances; and





Exhibit 10.2
WHEREAS, the Company now desires to adopt this Amendment to the Plan in order to terminate the Plan effective June 1, 2023 and in connection therewith, provide for the single lump sum distributions on June 3, 2024 of the accrued benefits under the Plan determined as of June 1, 2024;

NOW, THEREFORE, in consideration of the premises and the covenants herein contained, the Company hereby adopts the following Amendment to the Plan:

1.    Section 2.21 of the Plan is hereby amended by inserting a semi-colon after “October 31” thereof and by adding a new phrase to the end thereof to read as follows:

; provided that the final Plan Year shall be the period from November 1, 2023 through June 3, 2024.

2.     Section 4.11 is hereby added to the Plan to read as follows:

4.11    Determination of Benefit and Time of Distribution of Benefit Following Termination of the Plan. In connection with the termination by the Company of the Plan pursuant to Section 10.02 effective as of June 1, 2023, the present value all accrued benefits under the Plan shall be determined as of June 1, 2024 subject to the following:

(a)    For purposes of the calculation as of June 1, 2024, the Participant’s Social Security Benefit will be based on an assumed age 65 payment using law year 2023 or, if earlier, the law year of the calendar year including the date the Participant’s Separation From Service occurs and assuming that the taxable wage base is earned through December 31, 2023 or through the end of the calendar year including the date of the Participant’s Separation From Service, if earlier.

(b)    The actuarial equivalence assumptions for determining the single lump sum distributions to Participants will be based on (i) the 2023 PPA Annuitant and Non-Annuitant mortality tables and (ii) the interest rates based on the 3-tier segment rates applicable for March 2023 (5.00% for the first segment, 5.20% for the second segment, and 5.15% for the third segment). If such a Participant would have been early retirement eligible, assuming a termination on May 31, 2024, then the immediate lump sum factor will apply and will be applied to the single life annuity that would have been calculated based on the Participant’s age and assumed retirement at May 31, 2024. If such a Participant would not have been early retirement eligible, assuming a termination on May 31, 2024, but had completed five years of Service, then the lump sum factor will be applied to the single life annuity that would be calculated based on the Plan’s provisions, assuming benefit commencement on the Early Retirement Date, based on the Participant’s age as of June 1, 2024.

2



Exhibit 10.2
3.    Section 10.02 of the Plan is hereby amended by adding the following paragraph to end thereof to read as follows:

As permitted by Treas. Reg. §1.409A-3(j)(4)(ix)(C), the Company has determined to terminate the Plan effective June 1, 2023 subject to, and in connection therewith, (i) to also terminate the Quanex Building Products Corporation Restoration Plan (the “Restoration Plan”) and (ii) to distribute on June 3, 2024 the lump sum value of all accrued benefits under the Plan and the Restoration Plan as each determined as of June 1, 2024.

IN WITNESS WHEREOF, this Amendment has been executed by the duly authorized officer of the Company as of the day and year first written above.

QUANEX BUILDING PRODUCTS CORPORATION


 By:________________________________________
Paul Cornett, Senior Vice President -
 General Counsel & Secretary


3
Document

Exhibit 31.1
CHIEF EXECUTIVE OFFICER CERTIFICATION
I, George L. Wilson, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Quanex Building Products Corporation (the “Registrant”);
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4.The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures [as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)] and internal control over financial reporting [as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)] for the Registrant and have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c.Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
5.The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
 
June 2, 2023
 
/s/ George L. Wilson
George L. Wilson
President and Chief Executive Officer
(Principal Executive Officer)

Document

Exhibit 31.2
CHIEF FINANCIAL OFFICER CERTIFICATION
I, Scott M. Zuehlke, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Quanex Building Products Corporation (the “Registrant”);
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4.The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures [as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)] and internal control over financial reporting [as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)] for the Registrant and have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c.Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
5.The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
 
June 2, 2023
 
/s/ Scott M. Zuehlke
Scott M. Zuehlke
Senior Vice President - Chief Financial Officer and Treasurer
(Principal Financial Officer)

Document

Exhibit 32.1
Certification Pursuant To Section 906 of the Sarbanes-Oxley Act of 2002
We hereby certify that the accompanying Quarterly Report on Form 10-Q of Quanex Building Products Corporation for the quarter ended April 30, 2023 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Report fairly presents, in all material respects, the financial condition and results of operations of Quanex Building Products Corporation.

June 2, 2023
 
/s/ George L. Wilson  /s/ Scott M. Zuehlke
George L. Wilson
President and Chief Executive Officer
(Principal Executive Officer)
  
Scott M. Zuehlke
Senior Vice President—Chief Financial Officer and Treasurer
(Principal Financial Officer)