nx-20230430000142322110/312023Q2falseP5YP1YP5Y00014232212022-11-012023-04-3000014232212023-05-25xbrli:shares00014232212023-04-30iso4217:USD00014232212022-10-31iso4217:USDxbrli:shares00014232212023-02-012023-04-3000014232212022-02-012022-04-3000014232212021-11-012022-04-3000014232212021-10-3100014232212022-04-300001423221us-gaap:CommonStockMember2022-10-310001423221us-gaap:AdditionalPaidInCapitalMember2022-10-310001423221us-gaap:RetainedEarningsMember2022-10-310001423221us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-10-310001423221us-gaap:TreasuryStockMember2022-10-310001423221us-gaap:RetainedEarningsMember2022-11-012023-01-3100014232212022-11-012023-01-310001423221us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-11-012023-01-310001423221us-gaap:AdditionalPaidInCapitalMember2022-11-012023-01-310001423221us-gaap:TreasuryStockMember2022-11-012023-01-310001423221us-gaap:CommonStockMember2023-01-310001423221us-gaap:AdditionalPaidInCapitalMember2023-01-310001423221us-gaap:RetainedEarningsMember2023-01-310001423221us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-01-310001423221us-gaap:TreasuryStockMember2023-01-3100014232212023-01-310001423221us-gaap:RetainedEarningsMember2023-02-012023-04-300001423221us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-02-012023-04-300001423221us-gaap:TreasuryStockMember2023-02-012023-04-300001423221us-gaap:AdditionalPaidInCapitalMember2023-02-012023-04-300001423221us-gaap:CommonStockMember2023-04-300001423221us-gaap:AdditionalPaidInCapitalMember2023-04-300001423221us-gaap:RetainedEarningsMember2023-04-300001423221us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-04-300001423221us-gaap:TreasuryStockMember2023-04-300001423221us-gaap:CommonStockMember2021-10-310001423221us-gaap:AdditionalPaidInCapitalMember2021-10-310001423221us-gaap:RetainedEarningsMember2021-10-310001423221us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-10-310001423221us-gaap:TreasuryStockMember2021-10-310001423221us-gaap:RetainedEarningsMember2021-11-012022-01-3100014232212021-11-012022-01-310001423221us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-11-012022-01-310001423221us-gaap:AdditionalPaidInCapitalMember2021-11-012022-01-310001423221us-gaap:TreasuryStockMember2021-11-012022-01-310001423221us-gaap:CommonStockMember2022-01-310001423221us-gaap:AdditionalPaidInCapitalMember2022-01-310001423221us-gaap:RetainedEarningsMember2022-01-310001423221us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-01-310001423221us-gaap:TreasuryStockMember2022-01-3100014232212022-01-310001423221us-gaap:RetainedEarningsMember2022-02-012022-04-300001423221us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-02-012022-04-300001423221us-gaap:TreasuryStockMember2022-02-012022-04-300001423221us-gaap:AdditionalPaidInCapitalMember2022-02-012022-04-300001423221us-gaap:CommonStockMember2022-04-300001423221us-gaap:AdditionalPaidInCapitalMember2022-04-300001423221us-gaap:RetainedEarningsMember2022-04-300001423221us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-04-300001423221us-gaap:TreasuryStockMember2022-04-30nx:segment0001423221country:USnx:NAFenestrationMembernx:FenestrationMemberus-gaap:OperatingSegmentsMember2023-02-012023-04-300001423221country:USnx:NAFenestrationMembernx:FenestrationMemberus-gaap:OperatingSegmentsMember2022-02-012022-04-300001423221country:USnx:NAFenestrationMembernx:FenestrationMemberus-gaap:OperatingSegmentsMember2022-11-012023-04-300001423221country:USnx:NAFenestrationMembernx:FenestrationMemberus-gaap:OperatingSegmentsMember2021-11-012022-04-300001423221nx:NAFenestrationMembernx:FenestrationMemberus-gaap:OperatingSegmentsMembernx:InternationalMember2023-02-012023-04-300001423221nx:NAFenestrationMembernx:FenestrationMemberus-gaap:OperatingSegmentsMembernx:InternationalMember2022-02-012022-04-300001423221nx:NAFenestrationMembernx:FenestrationMemberus-gaap:OperatingSegmentsMembernx:InternationalMember2022-11-012023-04-300001423221nx:NAFenestrationMembernx:FenestrationMemberus-gaap:OperatingSegmentsMembernx:InternationalMember2021-11-012022-04-300001423221country:USnx:NonfenestrationMembernx:NAFenestrationMemberus-gaap:OperatingSegmentsMember2023-02-012023-04-300001423221country:USnx:NonfenestrationMembernx:NAFenestrationMemberus-gaap:OperatingSegmentsMember2022-02-012022-04-300001423221country:USnx:NonfenestrationMembernx:NAFenestrationMemberus-gaap:OperatingSegmentsMember2022-11-012023-04-300001423221country:USnx:NonfenestrationMembernx:NAFenestrationMemberus-gaap:OperatingSegmentsMember2021-11-012022-04-300001423221nx:NonfenestrationMembernx:NAFenestrationMemberus-gaap:OperatingSegmentsMembernx:InternationalMember2023-02-012023-04-300001423221nx:NonfenestrationMembernx:NAFenestrationMemberus-gaap:OperatingSegmentsMembernx:InternationalMember2022-02-012022-04-300001423221nx:NonfenestrationMembernx:NAFenestrationMemberus-gaap:OperatingSegmentsMembernx:InternationalMember2022-11-012023-04-300001423221nx:NonfenestrationMembernx:NAFenestrationMemberus-gaap:OperatingSegmentsMembernx:InternationalMember2021-11-012022-04-300001423221nx:NAFenestrationMemberus-gaap:OperatingSegmentsMember2023-02-012023-04-300001423221nx:NAFenestrationMemberus-gaap:OperatingSegmentsMember2022-02-012022-04-300001423221nx:NAFenestrationMemberus-gaap:OperatingSegmentsMember2022-11-012023-04-300001423221nx:NAFenestrationMemberus-gaap:OperatingSegmentsMember2021-11-012022-04-300001423221nx:EUFenestrationMembernx:FenestrationMemberus-gaap:OperatingSegmentsMembernx:InternationalMember2023-02-012023-04-300001423221nx:EUFenestrationMembernx:FenestrationMemberus-gaap:OperatingSegmentsMembernx:InternationalMember2022-02-012022-04-300001423221nx:EUFenestrationMembernx:FenestrationMemberus-gaap:OperatingSegmentsMembernx:InternationalMember2022-11-012023-04-300001423221nx:EUFenestrationMembernx:FenestrationMemberus-gaap:OperatingSegmentsMembernx:InternationalMember2021-11-012022-04-300001423221nx:NonfenestrationMembernx:EUFenestrationMemberus-gaap:OperatingSegmentsMembernx:InternationalMember2023-02-012023-04-300001423221nx:NonfenestrationMembernx:EUFenestrationMemberus-gaap:OperatingSegmentsMembernx:InternationalMember2022-02-012022-04-300001423221nx:NonfenestrationMembernx:EUFenestrationMemberus-gaap:OperatingSegmentsMembernx:InternationalMember2022-11-012023-04-300001423221nx:NonfenestrationMembernx:EUFenestrationMemberus-gaap:OperatingSegmentsMembernx:InternationalMember2021-11-012022-04-300001423221nx:EUFenestrationMemberus-gaap:OperatingSegmentsMember2023-02-012023-04-300001423221nx:EUFenestrationMemberus-gaap:OperatingSegmentsMember2022-02-012022-04-300001423221nx:EUFenestrationMemberus-gaap:OperatingSegmentsMember2022-11-012023-04-300001423221nx:EUFenestrationMemberus-gaap:OperatingSegmentsMember2021-11-012022-04-300001423221country:USnx:NACabinetComponentsMembernx:FenestrationMemberus-gaap:OperatingSegmentsMember2023-02-012023-04-300001423221country:USnx:NACabinetComponentsMembernx:FenestrationMemberus-gaap:OperatingSegmentsMember2022-02-012022-04-300001423221country:USnx:NACabinetComponentsMembernx:FenestrationMemberus-gaap:OperatingSegmentsMember2022-11-012023-04-300001423221country:USnx:NACabinetComponentsMembernx:FenestrationMemberus-gaap:OperatingSegmentsMember2021-11-012022-04-300001423221country:USnx:NonfenestrationMembernx:NACabinetComponentsMemberus-gaap:OperatingSegmentsMember2023-02-012023-04-300001423221country:USnx:NonfenestrationMembernx:NACabinetComponentsMemberus-gaap:OperatingSegmentsMember2022-02-012022-04-300001423221country:USnx:NonfenestrationMembernx:NACabinetComponentsMemberus-gaap:OperatingSegmentsMember2022-11-012023-04-300001423221country:USnx:NonfenestrationMembernx:NACabinetComponentsMemberus-gaap:OperatingSegmentsMember2021-11-012022-04-300001423221nx:NonfenestrationMembernx:NACabinetComponentsMemberus-gaap:OperatingSegmentsMembernx:InternationalMember2023-02-012023-04-300001423221nx:NonfenestrationMembernx:NACabinetComponentsMemberus-gaap:OperatingSegmentsMembernx:InternationalMember2022-02-012022-04-300001423221nx:NonfenestrationMembernx:NACabinetComponentsMemberus-gaap:OperatingSegmentsMembernx:InternationalMember2022-11-012023-04-300001423221nx:NonfenestrationMembernx:NACabinetComponentsMemberus-gaap:OperatingSegmentsMembernx:InternationalMember2021-11-012022-04-300001423221nx:NACabinetComponentsMemberus-gaap:OperatingSegmentsMember2023-02-012023-04-300001423221nx:NACabinetComponentsMemberus-gaap:OperatingSegmentsMember2022-02-012022-04-300001423221nx:NACabinetComponentsMemberus-gaap:OperatingSegmentsMember2022-11-012023-04-300001423221nx:NACabinetComponentsMemberus-gaap:OperatingSegmentsMember2021-11-012022-04-300001423221us-gaap:CorporateNonSegmentMember2023-02-012023-04-300001423221us-gaap:CorporateNonSegmentMember2022-02-012022-04-300001423221us-gaap:CorporateNonSegmentMember2022-11-012023-04-300001423221us-gaap:CorporateNonSegmentMember2021-11-012022-04-300001423221nx:NoSingleTransactionOrSeriesOfRelatedTransactionsExceeded120000Member2022-11-012023-04-3000014232212022-11-010001423221nx:LMICustomMixingLLCMember2023-02-012023-04-300001423221nx:LMICustomMixingLLCMember2022-11-012023-04-300001423221stpr:OH2022-11-01utr:sqft0001423221nx:LMICustomMixingLLCMember2022-11-010001423221nx:LMICustomMixingLLCMember2022-02-012022-04-300001423221nx:LMICustomMixingLLCMember2021-11-012022-04-30xbrli:pure0001423221us-gaap:BuildingMembersrt:MinimumMember2023-04-300001423221us-gaap:BuildingMembersrt:MaximumMember2023-04-300001423221srt:MinimumMemberus-gaap:EquipmentMember2023-04-300001423221srt:MaximumMemberus-gaap:EquipmentMember2023-04-3000014232212022-08-312022-08-31nx:reporting_unit0001423221us-gaap:CustomerRelationshipsMember2023-04-300001423221us-gaap:CustomerRelationshipsMember2022-10-310001423221nx:TradenamesAndTrademarksMember2023-04-300001423221nx:TradenamesAndTrademarksMember2022-10-310001423221nx:PatentsAndOtherTechnologyMember2023-04-300001423221nx:PatentsAndOtherTechnologyMember2022-10-310001423221us-gaap:CustomerRelationshipsMembernx:LMICustomMixingLLCMember2023-04-300001423221nx:PatentsAndOtherTechnologyMembernx:LMICustomMixingLLCMember2023-04-300001423221nx:TradenamesAndTrademarksMembernx:LMICustomMixingLLCMember2023-04-300001423221us-gaap:RevolvingCreditFacilityMember2023-04-300001423221us-gaap:RevolvingCreditFacilityMember2022-10-310001423221nx:CapitalLeaseObligationsAndOtherMember2023-04-300001423221nx:CapitalLeaseObligationsAndOtherMember2022-10-310001423221nx:CreditFacilityMember2021-11-012022-10-310001423221us-gaap:LineOfCreditMemberus-gaap:RevolvingCreditFacilityMember2022-07-060001423221us-gaap:LineOfCreditMembernx:LessThanOneandOneHalfLeverageRatioMembernx:CreditFacilityMember2022-11-012023-04-300001423221us-gaap:LineOfCreditMembernx:EurocurrencyRateLoansMembernx:LessThanOneandOneHalfLeverageRatioMembernx:CreditFacilityMember2022-11-012023-04-300001423221nx:TransitionedRFRLoansMemberus-gaap:LineOfCreditMembernx:LessThanOneandOneHalfLeverageRatioMembernx:CreditFacilityMember2022-11-012023-04-300001423221us-gaap:LineOfCreditMemberus-gaap:BaseRateMembernx:LessThanOneandOneHalfLeverageRatioMembernx:CreditFacilityMember2022-11-012023-04-300001423221nx:BetweenOneandOneHalfandTwoandOneQuarterLeverageRatioMemberus-gaap:LineOfCreditMembernx:CreditFacilityMember2022-11-012023-04-300001423221nx:TransitionedRFRLoansMembernx:BetweenOneandOneHalfandTwoandOneQuarterLeverageRatioMemberus-gaap:LineOfCreditMembernx:CreditFacilityMember2022-11-012023-04-300001423221nx:BetweenOneandOneHalfandTwoandOneQuarterLeverageRatioMemberus-gaap:LineOfCreditMembernx:EurocurrencyRateLoansMembernx:CreditFacilityMember2022-11-012023-04-300001423221nx:BetweenOneandOneHalfandTwoandOneQuarterLeverageRatioMemberus-gaap:LineOfCreditMemberus-gaap:BaseRateMembernx:CreditFacilityMember2022-11-012023-04-300001423221us-gaap:LineOfCreditMembernx:BetweenTwoandOneQuarterandThreeLeverageRatioMembernx:CreditFacilityMember2022-11-012023-04-300001423221nx:TransitionedRFRLoansMemberus-gaap:LineOfCreditMembernx:BetweenTwoandOneQuarterandThreeLeverageRatioMembernx:CreditFacilityMember2022-11-012023-04-300001423221us-gaap:LineOfCreditMembernx:EurocurrencyRateLoansMembernx:BetweenTwoandOneQuarterandThreeLeverageRatioMembernx:CreditFacilityMember2022-11-012023-04-300001423221us-gaap:LineOfCreditMemberus-gaap:BaseRateMembernx:BetweenTwoandOneQuarterandThreeLeverageRatioMembernx:CreditFacilityMember2022-11-012023-04-300001423221us-gaap:LineOfCreditMembernx:GreaterThanThreeLeverageRatioMembernx:CreditFacilityMember2022-11-012023-04-300001423221nx:TransitionedRFRLoansMemberus-gaap:LineOfCreditMembernx:GreaterThanThreeLeverageRatioMembernx:CreditFacilityMember2022-11-012023-04-300001423221us-gaap:LineOfCreditMembernx:EurocurrencyRateLoansMembernx:GreaterThanThreeLeverageRatioMembernx:CreditFacilityMember2022-11-012023-04-300001423221us-gaap:LineOfCreditMemberus-gaap:BaseRateMembernx:GreaterThanThreeLeverageRatioMembernx:CreditFacilityMember2022-11-012023-04-300001423221us-gaap:LineOfCreditMembernx:CreditFacilityMember2022-11-012023-04-300001423221us-gaap:LineOfCreditMembernx:CreditFacilityMember2023-04-300001423221us-gaap:LineOfCreditMembernx:SwingLineMember2023-04-300001423221nx:CreditFacilityMember2023-04-300001423221us-gaap:RestrictedStockMember2022-11-012023-04-300001423221us-gaap:RestrictedStockMember2022-10-310001423221us-gaap:RestrictedStockMember2023-04-300001423221us-gaap:RestrictedStockMember2021-11-012022-04-300001423221us-gaap:EmployeeStockOptionMember2022-11-012023-04-300001423221us-gaap:RestrictedStockUnitsRSUMember2022-11-012023-04-300001423221us-gaap:RestrictedStockUnitsRSUMember2021-11-012022-04-300001423221us-gaap:RestrictedStockUnitsRSUMember2023-04-300001423221us-gaap:PerformanceSharesMember2022-11-012023-04-300001423221us-gaap:PerformanceSharesMembersrt:MinimumMember2022-11-012023-04-300001423221us-gaap:PerformanceSharesMembersrt:MaximumMember2022-11-012023-04-300001423221us-gaap:PerformanceSharesMember2020-12-022020-12-020001423221us-gaap:PerformanceSharesMember2021-12-092021-12-090001423221us-gaap:PerformanceSharesMember2022-12-072022-12-070001423221nx:PerformanceRestrictedStockUnitsMember2022-11-012023-04-300001423221srt:MinimumMembernx:PerformanceRestrictedStockUnitsMember2022-11-012023-04-300001423221srt:MaximumMembernx:PerformanceRestrictedStockUnitsMember2022-11-012023-04-300001423221nx:ShareBasedCompensationAwardPerformanceCriteriaAbsoluteTotalShareholderReturnMilestonesGreaterThanOrEqualTo50PercentMembernx:PerformanceRestrictedStockUnitsMemberus-gaap:ShareBasedCompensationAwardTrancheOneMember2022-11-012023-04-300001423221us-gaap:ShareBasedCompensationAwardTrancheTwoMembernx:ShareBasedCompensationAwardPerformanceCriteriaAbsoluteTotalShareholderReturnMilestonesLessThan50PercentAndGreaterThanOrEqualTo20PercentMembernx:PerformanceRestrictedStockUnitsMember2022-11-012023-04-300001423221us-gaap:ShareBasedCompensationAwardTrancheThreeMembernx:ShareBasedCompensationAwardPerformanceCriteriaAbsoluteTotalShareholderReturnMilestonesLessThan20PercentAndGreaterThanOrEqualToNegative20PercentMembernx:PerformanceRestrictedStockUnitsMember2022-11-012023-04-300001423221nx:ShareBasedCompensationAwardTrancheFourMembernx:ShareBasedCompensationAwardPerformanceCriteriaAbsoluteTotalShareholderReturnMilestonesLessThanNegative20PercentMembernx:PerformanceRestrictedStockUnitsMember2022-11-012023-04-300001423221nx:PerformanceRestrictedStockUnitsMember2020-12-022020-12-020001423221nx:PerformanceRestrictedStockUnitsMember2021-12-092021-12-090001423221nx:PerformanceRestrictedStockUnitsMember2022-12-072022-12-070001423221nx:PerformanceRestrictedStockUnitsMember2023-04-300001423221us-gaap:RestrictedStockMember2023-02-012023-04-300001423221us-gaap:RestrictedStockMember2022-02-012022-04-300001423221us-gaap:RestrictedStockUnitsRSUMember2023-02-012023-04-300001423221us-gaap:RestrictedStockUnitsRSUMember2022-02-012022-04-300001423221us-gaap:PerformanceSharesMember2023-02-012023-04-300001423221us-gaap:PerformanceSharesMember2022-02-012022-04-300001423221us-gaap:PerformanceSharesMember2021-11-012022-04-300001423221nx:PerformanceRestrictedStockUnitsMember2023-02-012023-04-300001423221nx:PerformanceRestrictedStockUnitsMember2022-02-012022-04-300001423221nx:PerformanceRestrictedStockUnitsMember2021-11-012022-04-300001423221nx:NAEngineeredComponentsMemberus-gaap:OperatingSegmentsMember2022-11-012023-04-300001423221nx:NAEngineeredComponentsMemberus-gaap:OperatingSegmentsMember2021-11-012022-04-300001423221nx:NAFenestrationMemberus-gaap:OperatingSegmentsMember2023-04-300001423221nx:EUFenestrationMemberus-gaap:OperatingSegmentsMember2023-04-300001423221nx:NACabinetComponentsMemberus-gaap:OperatingSegmentsMember2023-04-300001423221us-gaap:CorporateNonSegmentMember2023-04-300001423221nx:NAFenestrationMemberus-gaap:OperatingSegmentsMember2022-10-310001423221nx:EUFenestrationMemberus-gaap:OperatingSegmentsMember2022-10-310001423221nx:NACabinetComponentsMemberus-gaap:OperatingSegmentsMember2022-10-310001423221us-gaap:CorporateNonSegmentMember2022-10-310001423221us-gaap:EmployeeStockOptionMember2023-02-012023-04-300001423221us-gaap:EmployeeStockOptionMember2022-02-012022-04-300001423221us-gaap:EmployeeStockOptionMember2021-11-012022-04-30
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)
________________________________________________
| | | | | | | | |
Delaware | | 26-1561397 |
(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: (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 | | NX | | 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 ☒
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: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
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, net | 114,015 | | | 120,890 | |
| | | |
Prepaid and other current assets | 12,210 | | | 8,664 | |
| | | |
Total current assets | 263,759 | | | 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 assets | 45,725 | | | 56,000 | |
Goodwill | 185,224 | | | 137,855 | |
Intangible assets, net | 80,981 | | | 65,035 | |
Other assets | 3,902 | | | 4,662 | |
| | | |
Total assets | $ | 822,112 | | | $ | 724,617 | |
LIABILITIES AND STOCKHOLDERS' EQUITY | | | |
Current liabilities: | | | |
Accounts payable | $ | 64,477 | | | $ | 77,907 | |
Accrued liabilities | 44,655 | | | 52,114 | |
Income taxes payable | — | | | 1,049 | |
Current maturities of long-term debt | 2,113 | | | 1,046 | |
Current operating lease liabilities | 7,403 | | | 7,727 | |
Total current liabilities | 118,648 | | | 139,843 | |
Long-term debt | 132,150 | | | 29,628 | |
Noncurrent operating lease liabilities | 39,215 | | | 49,286 | |
Deferred pension benefits | — | | | 3,917 | |
Deferred income taxes | 23,396 | | | 22,277 | |
| | | |
Other liabilities | 15,976 | | | 14,831 | |
| | | |
Total liabilities | 329,385 | | | 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-capital | 250,427 | | | 251,947 | |
Retained earnings | 355,557 | | | 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’ equity | 492,727 | | | 464,835 | |
Total liabilities and stockholders' equity | $ | 822,112 | | | $ | 724,617 | |
The accompanying notes are an integral part of the financial statements.
QUANEX BUILDING PRODUCTS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| April 30, | | April 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| (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 administrative | 27,371 | | | 28,129 | | | 64,115 | | | 58,952 | |
| | | | | | | |
Depreciation and amortization | 10,456 | | | 10,563 | | | 21,076 | | | 20,820 | |
| | | | | | | |
Operating income | 29,336 | | | 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 taxes | 27,063 | | | 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: | | | | | | | |
Basic | 32,858 | | | 33,157 | | | 32,905 | | | 33,140 | |
Diluted | 33,017 | | | 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.
QUANEX BUILDING PRODUCTS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| April 30, | | April 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| (In thousands) |
Net income | 21,512 | | | 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.
QUANEX BUILDING PRODUCTS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| | | | | | | | | | | |
| Six Months Ended |
| April 30, |
| 2023 | | 2022 |
| (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 amortization | 21,076 | | | 20,820 | |
Stock-based compensation | 1,398 | | | 1,124 | |
Deferred income tax | 97 | | | 583 | |
| | | |
| | | |
| | | |
Other, net | 982 | | | 1,534 | |
Changes in assets and liabilities: | | | |
Decrease (increase) in accounts receivable | 11,564 | | | (13,008) | |
Decrease (increase) in inventory | 14,799 | | | (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 benefits | 17 | | | (159) | |
Increase in other long-term liabilities | 1,808 | | | 443 | |
Other, net | 1,030 | | | (743) | |
Cash provided by (used for) operating activities | 38,460 | | | (1,881) | |
Investing activities: | | | |
| | | |
Business acquisition | (91,302) | | | — | |
Capital expenditures | (15,074) | | | (13,785) | |
| | | |
Proceeds from disposition of capital assets | 101 | | | 36 | |
Cash used for investing activities | (106,275) | | | (13,749) | |
Financing activities: | | | |
Borrowings under credit facilities | 102,000 | | | 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 stock | 99 | | | 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 activities | 54,313 | | | 16,502 | |
Effect of exchange rate changes on cash and cash equivalents | 1,905 | | | (2,033) | |
Decrease in cash and cash equivalents | (11,597) | | | (1,161) | |
Cash and cash equivalents at beginning of period | 55,093 | | | 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.
QUANEX BUILDING PRODUCTS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Six Months Ended April 30, 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 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Six Months Ended April 30, 2022 | 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, 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.
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.
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.
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 Ended | | Six Months Ended |
| April 30, | | April 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| (In thousands) |
North American Fenestration: | | | | | | | |
United States - fenestration | $ | 120,756 | | | $ | 156,843 | | | $ | 241,523 | | | $ | 285,210 | |
International - fenestration | 8,350 | | | 11,094 | | | 13,477 | | | 20,230 | |
United States - non-fenestration | 24,334 | | | 7,077 | | | 47,400 | | | 13,793 | |
International - non-fenestration | 3,535 | | | 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-fenestration | 15,860 | | | 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-fenestration | 48,526 | | | 67,383 | | | 98,575 | | | 125,150 | |
International - non-fenestration | 773 | | | 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.
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, net | 5,684 | |
Other assets | 790 | |
Property, plant and equipment, net | 35,887 | |
Goodwill | 41,393 | |
Intangible assets, net | 19,500 | |
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.
QUANEX BUILDING PRODUCTS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
| | | | | | | | | | | |
| Pro Forma Results |
| For the Three Months Ended | | For the Six Months Ended |
| April 30, 2022 | | April 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 process | 51,401 | | | 54,013 | |
Supplies and other | 1,727 | | | 1,551 | |
Total | 116,809 | | | 124,019 | |
Less: Inventory reserves | 2,794 | | | 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.
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):
| | | | | | | | | | | | | | | | | | | | |
Leases | | Classification | | April 30, 2023 | | October 31, 2022 |
Assets | | | | | | |
Operating lease assets | | Operating 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 | | | | | | |
Operating | | Current operating lease liabilities | | $ | 7,403 | | | $ | 7,727 | |
Finance | | Current maturities of long-term debt | | 2,409 | | | 1,336 | |
Noncurrent | | | | | | |
Operating | | Noncurrent operating lease liabilities | | 39,215 | | | 49,286 | |
Finance | | Long-term debt | | 53,187 | | | 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 Ended | | Six Months Ended |
| April 30, | | April 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Operating lease cost | $ | 2,239 | | | $ | 2,537 | | | $ | 4,408 | | | $ | 5,074 | |
Finance lease cost | | | | | | | |
Amortization of leased assets | 815 | | | 294 | | | 1,614 | | | 592 | |
Interest on lease liabilities | 602 | | | 128 | | | 1,202 | | | 261 | |
Variable lease costs | 467 | | | 257 | | | 790 | | | 480 | |
Total lease cost | $ | 4,123 | | | $ | 3,216 | | | $ | 8,014 | | | $ | 6,407 | |
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, |
| 2023 | | 2022 |
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, 2023 | | October 31, 2022 |
Weighted-average remaining lease term (in years) | | | | |
Operating leases | | 11.0 | | 10.8 |
Financing leases | | 19.3 | | 13.7 |
| | | | |
Weighted-average discount rate | | | | |
Operating leases | | 3.92 | % | | 3.84 | % |
Financing leases | | 4.48 | % | | 3.78 | % |
The table below presents the maturity of the lease liabilities as of April 30, 2023 (in thousands):
| | | | | | | | | | | | | | |
| | Operating Leases | | Finance Leases |
2023 (remaining six months) | | $ | 4,626 | | | $ | 2,403 | |
2024 | | 8,452 | | | 4,793 | |
2025 | | 6,649 | | | 4,731 | |
2026 | | 5,294 | | | 4,614 | |
2027 | | 4,527 | | | 4,493 | |
Thereafter | | 29,472 | | | 62,787 | |
Total lease payments | | 59,020 | | | 83,821 | |
Less: present value discount | | 12,402 | | | 28,225 | |
Total lease liabilities | | $ | 46,618 | | | $ | 55,596 | |
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 acquisition | 41,393 | |
Foreign currency translation adjustment | 5,976 | |
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, 2023 | | October 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 names | 55,899 | | | 42,099 | | | 54,389 | | | 40,610 | |
Patents and other technology | 25,148 | | | 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 | |
2024 | 11,367 | |
2025 | 10,139 | |
2026 | 10,064 | |
2027 | 10,065 | |
Thereafter | 33,365 | |
Total | $ | 80,981 | |
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 other | 55,626 | | | 19,202 | |
Unamortized deferred financing fees | (1,363) | | | (1,528) | |
Total debt | $ | 134,263 | | | $ | 30,674 | |
Less: Current maturities of long-term debt | 2,113 | | | 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 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 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 $