10-Q 1 nx-20230430.htm 10-Q nx-20230430
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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:


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

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.

2

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.

3

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.
4

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 
5

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.

6

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.
7

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.
8

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.
9

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.
10

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.
11

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 
12

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 
13

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 

14

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 $