Quanex Building Products CORP [NX] Filings

10-Q 1 nx-20240731.htm 10-Q nx-20240731

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 July 31, 2024


☐			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)

________________________________________________


Delaware						26-1561397
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

945 Bunker Hill Road, Suite 900, Houston, Texas 77024

(Address of principal executive offices and zip code)

Registrant’s telephone number, including area code: (713) 961-4600

________________________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

New 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 filer

☒

Accelerated 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 ☒

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

The number of shares outstanding of the registrant's Common Stock as of August 31, 2024 was 47,252,070.

QUANEX BUILDING PRODUCTS CORPORATION

INDEX


PART I.	FINANCIAL INFORMATION	1

Item 1:	Financial Statements (Unaudited)	1

	Condensed Consolidated Balance Sheets – July 31, 2024 and October 31, 2023	1

	Condensed Consolidated Statements of Income – Three and Nine Months Ended July 31 , 2024 and 2023	2

	Condensed Consolidated Statements of Comprehensive Income – Three and Nine Months Ended July 31 , 2024 and 2023	3

	Condensed Consolidated Statements of Cash Flows – Nine Months Ended July 31, 2024 and 2023	4

	Condensed Consolidated Statement of Stockholders’ Equity – Nine Months Ended July 31, 2024 and 2023	5

	Notes to Unaudited Condensed Consolidated Financial Statements	7

Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28

Item 3:	Quantitative and Qualitative Disclosures About Market Risk	38

Item 4:	Controls and Procedures	39

PART II.	OTHER INFORMATION	40

Item 1A:	Risk Factors	40



Item 5:	Other Information	40

Item 6:	Exhibits	40

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

QUANEX BUILDING PRODUCTS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


	July 31, 2024		October 31, 2023
	(In thousands, except share amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	93,966	$	58,474
Accounts receivable, net of allowance for credit losses of $183 and $843	87,554		97,311
Inventories	99,127		97,959
Income taxes receivable	1,447		8,298
Prepaid and other current assets	19,305		11,558

Total current assets	301,399		273,600
Property, plant and equipment, net of accumulated depreciation of $384,809 and $368,763	251,890		250,664
Operating lease right-of-use assets	63,642		46,620
Goodwill	186,195		182,956
Intangible assets, net	66,606		74,115
Other assets	2,718		3,188

Total assets	$	872,450	$	831,143
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	63,948	$	74,371
Accrued liabilities	54,796		50,319
Income taxes payable	—		384
Current maturities of long-term debt	2,690		2,365
Current operating lease liabilities	6,435		7,224
Total current liabilities	127,869		134,663
Long-term debt	51,406		66,435
Noncurrent operating lease liabilities	59,099		40,361

Deferred income taxes	27,438		29,133

Other liabilities	12,502		14,997

Total liabilities	278,314		285,589
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 37,127,024 and 37,176,958, respectively; outstanding 33,112,593 and 33,011,119, respectively	371		372
Additional paid-in-capital	250,297		251,576
Retained earnings	448,351		409,318
Accumulated other comprehensive loss	(30,131)		(38,141)
Less: Treasury stock at cost, 4,014,431 and 4,165,839 shares, respectively	(74,752)		(77,571)
Total stockholders’ equity	594,136		545,554
Total liabilities and stockholders' equity	$	872,450	$	831,143

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

Table of Contents

QUANEX BUILDING PRODUCTS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	Three Months Ended				Nine Months Ended
	July 31,				July 31,
	2024		2023		2024		2023
	(In thousands, except per share amounts)
Net sales	$	280,345	$	299,640	$	785,701	$	835,091
Cost and expenses:
Cost of sales (excluding depreciation and amortization)	209,441		221,065		597,127		637,586
Selling, general and administrative	36,509		30,516		103,579		94,631

Depreciation and amortization	10,953		10,596		32,999		31,672

Operating income	23,442		37,463		51,996		71,202
Non-operating (expense) income:
Interest expense	(878)		(2,068)		(2,896)		(6,571)
Other, net	9,474		402		10,520		591
Income before income taxes	32,038		35,797		59,620		65,222
Income tax expense	(6,688)		(4,099)		(12,644)		(10,103)


Net income	$	25,350	$	31,698	$	46,976	$	55,119

Basic earnings per common share	$	0.77	$	0.97	$	1.43	$	1.68

Diluted earnings per common share	$	0.77	$	0.96	$	1.42	$	1.67

Weighted-average common shares outstanding:
Basic	32,876		32,716		32,857		32,841
Diluted	33,106		32,919		33,087		33,031

Cash dividends per share	$	0.08	$	0.08	$	0.24	$	0.24

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 Ended				Nine Months Ended
	July 31,				July 31,
	2024		2023		2024		2023
	(In thousands)
Net income	25,350		31,698		$	46,976	$	55,119
Other comprehensive income:
Foreign currency translation gain, net of tax	4,500		3,078		8,010		17,532


Other comprehensive income, net of tax	4,500		3,078		8,010		17,532
Comprehensive income	$	29,850	$	34,776	$	54,986	$	72,651

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)


	Nine Months Ended
	July 31,
	2024		2023
	(In thousands)
Operating activities:
Net income	$	46,976	$	55,119
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	32,999		31,672
Stock-based compensation	2,159		1,828
Deferred income tax	(2,321)		177

Gain on deal contingent foreign exchange forward currency contract	(9,200)		—

Other, net	886		2,423
Changes in assets and liabilities:
Decrease in accounts receivable	11,114		9,918
(Increase) decrease in inventory	(183)		23,864
Decrease (increase) in other current assets	1,646		(439)
Decrease in accounts payable	(9,634)		(15,471)
Increase (decrease) in accrued liabilities	948		(5,152)
Decrease (increase) in income taxes receivable	6,659		(3,534)
Increase in deferred pension benefits	—		22
Increase in other long-term liabilities	707		609
Other, net	577		1,523
Cash provided by operating activities	83,333		102,559
Investing activities:

Business acquisition	—		(91,302)
Capital expenditures	(23,435)		(22,450)

Proceeds from disposition of capital assets	115		183
Cash used for investing activities	(23,320)		(113,569)
Financing activities:
Borrowings under credit facilities	—		102,000
Repayments of credit facility borrowings	(15,000)		(60,000)

Repayments of other long-term debt	(1,893)		(1,954)
Common stock dividends paid	(7,943)		(7,952)
Issuance of common stock	573		753

Payroll tax paid to settle shares forfeited upon vesting of stock	(1,193)		(567)
Purchase of treasury stock	—		(5,593)
Cash (used for) provided by financing activities	(25,456)		26,687
Effect of exchange rate changes on cash and cash equivalents	935		2,482
Increase in cash and cash equivalents	35,492		18,159
Cash and cash equivalents at beginning of period	58,474		55,093
Cash and cash equivalents at end of period	$	93,966	$	73,252

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)


Nine Months Ended July 31, 2024	Common 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, 2023	$	372	$	251,576	$	409,318	$	(38,141)	$	(77,571)	$	545,554
Net income	—		—		6,249		—		—		6,249
Foreign currency translation adjustment	—		—		—		6,081		—		6,081
Common dividends ($0.08 per share)	—		—		(2,645)		—		—		(2,645)


Stock-based compensation activity:
Expense related to stock-based compensation	—		583				—		—		583
Stock options exercised	—		22		—		—		378		400
Restricted stock awards granted	—		(1,357)		—		—		1,357		—
Performance restricted stock units vested	—		(917)		—		—		917		—
Other	(1)		(1,192)		—		—		—		(1,193)
Balance at January 31, 2024	$	371	$	248,715	$	412,922	$	(32,060)	$	(74,919)	$	555,029
Net income	—		—		15,377		—		—		15,377
Foreign currency translation adjustment	—		—		—		(2,571)		—		(2,571)
Common dividends ($0.08 per share)	—		—		(2,649)		—		—		(2,649)

Stock-based compensation activity:
Expense related to stock-based compensation	—		782		—		—		—		782
Stock options exercised	—		5		—		—		149		154



Balance at April 30, 2024	$	371	$	249,502	$	425,650	$	(34,631)	$	(74,770)	$	566,122
Net income	—		—		25,350		—		—		25,350
Foreign currency translation adjustment	—		—		—		4,500		—		4,500
Common dividends ($0.08 per share)	—		—		(2,649)		—		—		(2,649)

Stock-based compensation activity:
Expense related to stock-based compensation	—		794		—		—		—		794
Stock options exercised	—		1		—		—		18		19



Balance at July 31, 2024	$	371	$	250,297	$	448,351	$	(30,131)	$	(74,752)	$	594,136

Table of Contents


Nine Months Ended July 31, 2023	Common 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
Net income	—		—		31,698		—		—		31,698
Foreign currency translation adjustment	—		—		—		3,078		—		3,078
Common dividends ($0.08 per share)	—		—		(2,632)		—		—		(2,632)

Stock-based compensation activity:
Expense related to stock-based compensation	—		430		—		—		—		430
Stock options exercised	—		25		—		—		629		654



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

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 custom mixing, 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 13, “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, 2023 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, 2023. 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 nine months ended July 31, 2024 and 2023 into groupings by segment which we believe depicts how the nature, amount, timing and uncertainty of our revenues and cash flows are affected by economic factors. For further details regarding our results by segment, refer to Note 13, “Segment Information.”


	Three Months Ended				Nine Months Ended
	July 31,				July 31,
	2024		2023		2024		2023
	(In thousands)
North American Fenestration:
United States - fenestration	$	131,394	$	138,090	$	362,674	$	379,613
International - fenestration	6,950		8,542		20,559		22,019
United States - non-fenestration	27,873		26,423		81,196		73,823
International - non-fenestration	4,041		4,026		13,598		11,581
	$	170,258	$	177,081	$	478,027	$	487,036
European Fenestration:

International - fenestration	$	50,551	$	51,752	$	139,270	$	142,009
International - non-fenestration	9,066		16,137		26,367		44,595
	$	59,617	$	67,889	$	165,637	$	186,604
North American Cabinet Components:
United States - fenestration	$	3,791	$	4,486	$	11,203	$	12,613
United States - non-fenestration	47,287		50,199		133,456		148,774
International - non-fenestration	370		700		1,004		2,190
	$	51,448	$	55,385	$	145,663	$	163,577
Unallocated Corporate & Other
Eliminations	$	(978)	$	(715)	$	(3,626)	$	(2,126)
	$	(978)	$	(715)	$	(3,626)	$	(2,126)
Net sales	$	280,345	$	299,640	$	785,701	$	835,091

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 three and nine months ended July 31, 2024 of was $0.3 million and $0.8 million, respectively, and $0.3 million and $0.9 million for the comparable prior year periods. 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 “LMI 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 LMI 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.

3. Inventories

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


	July 31, 2024		October 31, 2023
Raw materials	$	59,865	$	53,585
Finished goods and work in process	37,343		42,195
Supplies and other	1,919		2,179


Total	$	99,127	$	97,959

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 years and twenty years. Original terms for equipment-related leases, primarily manufacturing equipment and vehicles, are generally between one year and ten years. Some of our leases also include rental escalation clauses. Renewal options are included in the determination of lease payments when management determines the options are reasonably certain of exercise, considering financial performance, strategic importance and/or invested capital.

If readily determinable, the rate implicit in the lease is used to discount lease payments to present value; however, substantially all of our leases do not provide a readily determinable implicit rate. When the implicit rate is not determinable, our estimated incremental borrowing rate is utilized, determined on a collateralized basis, to discount lease payments based on information available at lease commencement.

Total lease costs recorded include fixed operating lease costs and variable lease costs. Most of our real estate leases require we pay certain expenses, such as common area maintenance costs, of which the fixed portion is included in operating lease costs. We recognize operating lease costs on a straight-line basis over the lease term. In addition to the above costs, variable lease costs are recognized when probable and are not included in determining the present value of our lease liability.

The ROU asset is measured at the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date and initial direct costs. For operating leases, ROU assets are reduced over the lease term by the 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.

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The table below presents the lease-related assets and liabilities recorded on the balance sheet at July 31, 2024 and October 31, 2023 (in thousands):


Leases	Classification	July 31, 2024		October 31, 2023
Assets
Operating lease assets	Operating lease right-of-use assets	$	63,642	$	46,620
Finance lease assets	Property, plant and equipment (less accumulated depreciation of $9,594 and $6,691)	60,760		58,496
Total lease assets		$	124,402	$	105,116

Liabilities
Current
Operating	Current operating lease liabilities	$	6,435	$	7,224
Finance	Current maturities of long-term debt	3,000		2,676
Noncurrent
Operating	Noncurrent operating lease liabilities	59,099		40,361
Finance	Long-term debt	52,007		52,309
Total lease liabilities		$	120,541	$	102,570

The table below presents the components of lease costs for the three and nine months ended July 31, 2024 and 2023 (in thousands):


	Three Months Ended				Nine Months Ended
	July 31,				July 31,
	2024		2023		2024		2023
Operating lease cost	$	3,722	$	2,322	$	7,720	$	6,731
Finance lease cost
Amortization of leased assets	1,237		824		2,706		2,439
Interest on lease liabilities	839		612		1,863		1,815
Variable lease costs	523		420		1,461		1,210
Total lease cost	$	6,321	$	4,178	$	13,750	$	12,195

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The table below presents supplemental cash flow information related to leases for the nine months ended July 31, 2024 and 2023 (in thousands):


	Nine Months Ended
	July 31,
	2024		2023
Cash paid for amounts included in the measurement of lease liabilities:
Finance leases - financing cash flows	$	2,112	$	1,762
Finance leases - operating cash flows	$	1,863	$	1,815
Operating leases - operating cash flows	$	6,826	$	6,848

Right-of-use assets obtained in exchange for lease liabilities:
Operating leases	$	22,025	$	3,714
Finance leases	$	1,308	$	25,723

The table below presents the weighted-average remaining lease terms and weighted-average discount rates for the Company's leases as of July 31, 2024 and October 31, 2023:


	July 31, 2024		October 31, 2023
Weighted-average remaining lease term (in years)
Operating leases	10.8		10.7
Financing leases	17.7		18.7

Weighted-average discount rate
Operating leases	4.66	%	4.09	%
Financing leases	4.69	%	4.52	%

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


	Operating Leases		Finance Leases
2024 (remaining three months)	$	2,341	$	1,379
2025	9,299		5,436
2026	9,150		5,276
2027	8,148		5,109
2028	7,316		4,931
Thereafter	49,112		59,006
Total lease payments	85,366		81,137
Less: present value discount	19,832		26,130
Total lease liabilities	$	65,534	$	55,007

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5. Goodwill and Intangible Assets

Goodwill

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


	Nine Months Ended
	July 31, 2024
Beginning balance as of November 1, 2023	$	182,956


Foreign currency translation adjustment	3,239
Balance as of the end of the period	$	186,195

At our last annual test date, August 31, 2023, we evaluated the recoverability of goodwill at each of our five reporting units with goodwill balances and determined that our goodwill was not impaired. We evaluated for indicators of impairment for all reporting units during the three and nine months ended July 31, 2024 and determined that there were no triggering events. For additional discussion of change in reporting units and a summary of the change in the carrying amount of goodwill by segment, see Note 13, “Segment Information.”

Identifiable Intangible Assets

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


	July 31, 2024				October 31, 2023
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Customer relationships	$	159,707	$	107,116	$	157,629	$	99,230
Trademarks and trade names	56,166		44,989		55,519		42,879
Patents and other technology	25,162		22,324		25,127		22,051

Total	$	241,035	$	174,429	$	238,275	$	164,160

We had aggregate amortization expense related to intangible assets for the three and nine months ended July 31, 2024 of $2.8 million and $9.0 million, respectively, and $3.0 million and $9.1 million for the comparable prior year periods.

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


	Estimated Amortization Expense
2024 (remaining three months)	$	2,797
2025	10,393
2026	10,151
2027	10,152
2028	4,918
Thereafter	28,195
Total	$	66,606

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6. Debt and Finance Lease Obligations

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


	July 31, 2024		October 31, 2023
Revolving Credit Facility	$	—	$	15,000


Finance lease obligations and other	55,007		55,000
Unamortized deferred financing fees	(911)		(1,200)
Total debt	$	54,096	$	68,800
Less: Current maturities of long-term debt	2,690		2,365
Long-term debt	$	51,406	$	66,435

Credit Agreement

On August 1, 2024, we completed our previously announced acquisition (the “Tyman Acquisition”) of Tyman plc, a company incorporated in England and Wales (“Tyman”). On June 12, 2024, in connection with the Tyman Acquisition, the Company, Wells Fargo Bank, National Association (“Wells Fargo Bank”, acting as agent, swingline lender and issuing lender, the “Agent”), the other entities therein specified in the capacities therein specified, and the lenders parties thereto, entered into an amendment to the Second Amended and Restated Credit Agreement, dated as of July 6, 2022 (the “Existing Credit Agreement”, and the Existing Credit Agreement as so amended, the “Amended Credit Agreement”). The Amended Credit Agreement did not become effective until August 1, 2024 upon the completion the Tyman Acquisition. For further information regarding the Tyman Acquisition and the Amended Credit Agreement, refer to Note 16, “Subsequent Events.”

On July 6, 2022, we entered into our Existing Credit Agreement 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.

Interest payments for the Existing Credit Agreement are calculated, at our election and depending upon the Consolidated Net Leverage Ratio, at a Base Rate (as defined within the Existing Credit Agreement) 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 Existing Credit Agreement.

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


Pricing Level	Consolidated Net Leverage Ratio	Commitment Fee	Eurocurrency Rate Loans and RFR Loans	Base Rate Loans
I	Less than or equal to 1.50 to 1.00	0.150%	1.25%	0.25%
II	Greater than 1.50 to 1.00, but less than or equal to 2.25 to 1.00	0.175%	1.50%	0.50%
III	Greater than 2.25 to 1.00, but less than or equal to 3.00 to 1.00	0.200%	1.75%	0.75%
IV	Greater than 3.00 to 1.00	0.250%	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 Existing Credit Agreement 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 Existing Credit Agreement.

The Existing Credit Agreement 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 Existing Credit Agreement 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

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restricted payments, pay dividends (limited to $25.0 million per year) and other transactions as further defined in the Existing Credit Agreement. 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 Existing Credit Agreement.

As of July 31, 2024, we had no borrowings outstanding under the Existing Credit Agreement, unamortized debt issuance costs of $0.9 million, $3.7 million of outstanding letters of credit and $55.0 million outstanding primarily under finance leases and other debt. We had $321.3 million available for use under the Existing Credit Agreement at July 31, 2024. Our weighted-average borrowing rate for borrowings outstanding during the nine months ended July 31, 2024 and 2023 was 6.69% and 5.91%, respectively. We were in compliance with our debt covenants as of July 31, 2024.

7. Retirement Plans

Pension Plan

Our non-contributory, single employer defined benefit pension plan covered certain of our employees in the U.S. During the year ended October 31, 2023, we terminated our defined contribution plan and settled the obligation during the three months ended October 31, 2023. The net periodic pension (benefit) cost for this plan for the three and nine months ended July 31, 2024 and 2023 was as follows (in thousands):


	Three Months Ended				Nine Months Ended
	July 31,				July 31,
	2024		2023		2024		2023
Service cost	$	—	$	95	$	—	$	287
Interest cost	—		390		—		1,169
Expected return on plan assets	—		(366)		—		(1,099)
Amortization of net loss	—		11		—		32
Settlement reimbursement	—		—		(903)		—
Net periodic pension (benefit) cost	$	—	$	130	$	(903)	$	389

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 July 31, 2024 and October 31, 2023, our liability under the supplemental benefit plan was approximately zero and $2.0 million, respectively. During the year ended October 31, 2023, the supplemental benefit plan was terminated. Benefits associated with this plan were distributed in June 2024 in accordance with Internal Revenue Service regulations. As of July 31, 2024 and October 31, 2023, the liability associated with the deferred compensation plan was approximately $4.9 million and $3.9 million, respectively. We record the current portion of liabilities associated with these plans under the caption “Accrued liabilities,” and the long-term portion under the caption “Other liabilities” in the accompanying condensed consolidated balance sheets.

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 increases or decreases in valuation allowances on deferred tax assets. Our estimated annual effective tax rates from continuing operations for the nine months ended July 31, 2024 and 2023 were 21.2% and 18.2%, respectively. The difference between our estimated annual effective income tax rate and the U.S. federal statutory rate of 21% principally results from discrete tax items, U.S. state taxes, a non-U.S. tax rate differential and other permanent differences. The primary discrete items affecting the 2024 effective rate were the benefit of $0.4 million related to the vesting or exercise of equity-based compensation awards and a charge of $0.7 million related to the true up of the deferred tax rate. The primary discrete item affecting the 2023 effective rate was a benefit of $1.7 million related to a true-up of tax provision accrual to tax return filings.

As of July 31, 2024, our liability for uncertain tax positions (UTP) of $0.3 million relates to certain U.S. federal and state tax items regarding the interpretation of tax laws and regulations, including a minimal amount of interest and penalties. We include all interest and penalties related to uncertain tax benefits within our income tax provision account. To the extent interest

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and penalties are not assessed with respect to uncertain tax positions or the uncertainty of deductions in the future, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision.

We evaluate the likelihood of realization of our deferred tax assets by considering both positive and negative evidence. We maintain a valuation allowance for certain state net operating losses which totaled $0.6 million as of July 31, 2024 and October 31, 2023, respectively.

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 2024. 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.

•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

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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 July 31, 2024, and October 31, 2023 (Level 2 measurement).

On May 2, 2024, we entered into a deal contingent foreign exchange forward currency contract to manage our exposure to foreign currency exchange rate fluctuations against the USD and GBP for approximately $605 million, as part of the $1.1 billion purchase consideration for the Tyman Acquisition. Our deal contingent forward contract is adjusted to fair value by recording gains and losses to “Other, net,” and we record the related asset to “Other Current Assets” in the accompanying condensed consolidated statement of income and condensed consolidated balance sheets, respectively. During the three months ended July 31, 2024, we recognized a gain of $9.2 million related to this foreign exchange forward currency contract and the contract was concluded in August 2024 as a result of the completion of the Tyman Acquisition. The value of our foreign exchange forward currency contract fluctuated based on exchange rate fluctuations against the USD and GBP (Level 2 measurement). For further information regarding the Tyman Acquisition, refer to Note 16, “Subsequent Events.”

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.”

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.

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


	Restricted Stock Awards	Weighted-Average Grant Date Fair Value per Share
Non-vested at October 31, 2023	242,300	$	22.36
Granted	72,900	32.15
Forfeited	(11,800)	22.30
Vested	(66,600)	20.68
Non-vested at July 31, 2024	236,800	$	25.85

The total weighted-average grant-date fair value of restricted stock awards that vested during each of the nine months ended July 31, 2024 and 2023 was $1.4 million and $1.0 million, respectively. As of July 31, 2024, total unrecognized compensation cost related to unamortized restricted stock awards was $3.0 million. We expect to recognize this expense over the remaining weighted-average vesting period of 1.9 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, 2023.

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


	Stock Options	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (000s)
Outstanding at October 31, 2023	107,530	$	19.48

Exercised	(29,280)	19.58

Outstanding at July 31, 2024	78,250	$	19.45	1.7	$	1,092
Vested at July 31, 2024	78,250	$	19.45	1.7	$	1,092
Exercisable at July 31, 2024	78,250	$	19.45	1.7	$	1,092

Intrinsic value is the amount by which the market price of the common stock on the date of exercise exceeds the exercise price of the stock option. The total intrinsic value of stock options exercised during the nine months ended July 31, 2024 and 2023 was $0.4 million and $0.3 million, respectively.

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.

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During the nine months ended July 31, 2024 and 2023, non-employee directors received 26,215 and 38,704 restricted stock units, respectively, at a weighted-average grant date fair value of $26.70 per share and $20.67 per share, respectively, which vested immediately. During the nine months ended July 31, 2023, 21,774 restricted stock units, which were awarded to key employees, vested. During the nine months ended July 31, 2024, we paid $0.6 million and $0.4 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.

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 Date	Shares Awarded	Grant Date Fair Value		Shares Forfeited


December 9, 2021	80,900	$	22.54	4,600
December 7, 2022	89,300	$	23.49	4,600
December 7, 2023	72,200	$	32.15	—

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

Vesting Criteria

Percentage of Award Vested

Level 1

A-TSR greater than or equal to 50%

150%

Level 2

A-TSR less than 50% and greater than or equal to 20%

100%

Level 3

A-TSR less than 20% and greater than or equal to -20%

50%

Level 4

A-TSR less than -20%

—%

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The following table summarizes our performance restricted stock unit grants and the grant date fair value for the A-TSR performance metric:


Grant Date	Shares Awarded	Grant Date Fair Value		Shares Forfeited


December 9, 2021	50,900	$	21.06	3,400
December 7, 2022	51,500	$	23.22	3,100
December 7, 2023	40,700	$	30.35	—

During the nine months ended July 31, 2024, 49,228 performance restricted stock units vested.

The performance restricted stock units are not considered outstanding shares, do not have voting rights, and are 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 July 31, 2024, we have deemed 67,626 shares related to the December 2021 grant of performance restricted stock units as probable to vest.

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


	Three Months Ended				Nine Months Ended
	July 31,				July 31,
	2024		2023		2024		2023
Restricted stock awards	$	514	$	356	$	1,333	$	1,258

Restricted stock units	39		1,444		1,815		1,873
Performance share awards	444		592		1,372		3,934
Performance restricted stock units	280		74		826		570
Total compensation expense	$	1,277	$	2,466	$	5,346	$	7,635

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 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 nine months ended July 31, 2024.

The following table summarizes the treasury stock activity during the nine months ended July 31, 2024:


			Nine Months Ended
			July 31, 2024
Beginning Balance as of November 1, 2023			4,165,839
Restricted stock awards granted			(72,900)
Performance restricted stock units vested			(49,228)
Stock options exercised			(29,280)

Balance at July 31, 2024			4,014,431

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QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

12. Other, net

Other, net on the condensed consolidated statements of income consisted of the following for the three and nine months ended July 31, 2024 and 2023 (in thousands):


	Three Months Ended				Nine Months Ended
	July 31,				July 31,
	2024		2023		2024		2023
Foreign currency transaction (losses) gains	$	(38)	$	126	$	(94)	$	36
Foreign currency derivative gains	9,200		16		9,200		1
Pension service benefit	—		309		903		494
Interest income	300		81		772		114
Other	12		(130)		(261)		(54)
Other, net	$	9,474	$	402	$	10,520	$	591

13. Segment Information

We present three reportable business segments (1) NA Fenestration, comprising four operating segments primarily focused on the fenestration market in North America including vinyl profiles, insulating glass spacers, screens, custom compound mixing, and other fenestration components; (2) EU Fenestration, comprising our U.K.-based vinyl extrusion business, manufacturing vinyl profiles & conservatories, and the European insulating glass business manufacturing insulating glass spacers; and (3) NA Cabinet Components, comprising our cabinet door and components operations. 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 nine month period ended July 31, 2024 was $6.6 million and $20.8 million, respectively, and $6.3 million and $17.1 million for the comparable prior year periods.

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.

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QUANEX BUILDING PRODUCTS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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


	NA Fenestration		EU Fenestration		NA Cabinet Components		Unallocated Corp. & Other		Total
Three Months Ended July 31, 2024
Net sales	$	170,258	$	59,617	$	51,448	$	(978)	$	280,345
Depreciation and amortization	5,194		2,609		3,093		57		10,953
Operating income (loss)	17,845		12,688		282		(7,373)		23,442
Capital expenditures	4,339		847		1,024		42		6,252
Three Months Ended July 31, 2023
Net sales	$	177,081	$	67,889	$	55,385	$	(715)	$	299,640
Depreciation and amortization	5,033		2,434		3,084		45		10,596
Operating income (loss)	22,668		16,150		2,271		(3,626)		37,463
Capital expenditures	3,201		2,244		1,744		187		7,376
Nine Months Ended July 31, 2024
Net sales	$	478,027	$	165,637	$	145,663	$	(3,626)	$	785,701
Depreciation and amortization	15,887		7,705		9,240		167		32,999
Operating income (loss)	44,652		30,597		(3,209)		(20,044)		51,996
Capital expenditures	15,799		3,253		3,959		424		23,435
Nine Months Ended July 31, 2023
Net sales	$	487,036	$	186,604	$	163,577	$	(2,126)	$	835,091
Depreciation and amortization	15,328		7,135		8,988		221		31,672
Operating income (loss)	47,686		36,052		1,928		(14,464)		71,202
Capital expenditures	11,673		5,300		5,085		392		22,450
As of July 31, 2024
Total assets	$