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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 July 31, 2020
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 and posted 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 September 1, 2020 was 32,805,438.



QUANEX BUILDING PRODUCTS CORPORATION

INDEX
 
PART I.
Item 1:Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets – July 31, 2020 and October 31, 2019
Condensed Consolidated Statements of Income (Loss) – Three and Nine Months Ended July 31, 2020 and 2019
Condensed Consolidated Statements of Cash Flows – Nine Months Ended July 31, 2020 and 2019
Item 2:
Item 3:
Item 4:
PART II.
Item 1A:
Item 6:


Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
QUANEX BUILDING PRODUCTS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) 
July 31,
2020
October 31,
2019
 (In thousands, except share 
amounts)
ASSETS
Current assets:
Cash and cash equivalents$41,073 $30,868 
Accounts receivable, net of allowance for doubtful accounts of $344 and $393
84,479 82,946 
Inventories, net63,939 67,159 
Prepaid and other current assets7,930 9,353 
Total current assets197,421 190,326 
Property, plant and equipment, net of accumulated depreciation of $334,664 and $317,568
186,830 193,600 
Operating lease right-of-use assets49,644  
Goodwill146,932 145,563 
Intangible assets, net96,957 107,297 
Other assets9,007 8,324 
Total assets$686,791 $645,110 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable$58,676 $63,604 
Accrued liabilities33,916 39,221 
Income taxes payable6,350 6,183 
Current maturities of long-term debt690 746 
Current operating lease liabilities7,307  
Total current liabilities106,939 109,754 
Long-term debt152,062 156,414 
Noncurrent operating lease liabilities42,740  
Deferred pension and postretirement benefits11,375 13,322 
Deferred income taxes20,507 19,363 
Other liabilities13,230 16,070 
Total liabilities346,853 314,923 
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 37,304,366 and 37,370,402, respectively; outstanding 32,801,738 and 33,021,789, respectively
373 374 
Additional paid-in-capital253,144 254,673 
Retained earnings193,989 185,703 
Accumulated other comprehensive loss(28,819)(33,817)
Less: Treasury stock at cost, 4,502,628 and 4,348,613 shares, respectively
(78,749)(76,746)
Total stockholders’ equity339,938 330,187 
Total liabilities and stockholders' equity$686,791 $645,110 
The accompanying notes are an integral part of the financial statements.
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QUANEX BUILDING PRODUCTS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Unaudited)
 
Three Months EndedNine Months Ended
 July 31,July 31,
 2020201920202019
 (In thousands, except per share amounts)
Net sales$212,096 $238,461 $596,168 $653,472 
Cost and expenses:
Cost of sales (excluding depreciation and amortization)162,427 181,357 469,586 511,292 
Selling, general and administrative21,973 25,718 62,818 77,466 
Restructuring charges73 94 477 281 
Depreciation and amortization11,060 12,182 35,851 37,158 
Asset impairment charges   29,978 
Operating income (loss)16,563 19,110 27,436 (2,703)
Non-operating (expense) income:
Interest expense(1,165)(2,570)(4,310)(7,614)
Other, net(220)259 116 461 
Income (loss) before income taxes15,178 16,799 23,242 (9,856)
Income tax expense(4,345)(4,958)(6,898)(5,926)
Net income (loss)$10,833 $11,841 $16,344 $(15,782)
Basic earnings (loss) per common share$0.33 $0.36 $0.50 $(0.48)
Diluted earnings (loss) per common share:$0.33 $0.36 $0.50 $(0.48)
Weighted-average common shares outstanding:
Basic32,610 32,899 32,716 32,984 
Diluted32,739 33,162 32,845 32,984 
Cash dividends per share
$0.08 $0.08 $0.24 $0.24 

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

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QUANEX BUILDING PRODUCTS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
Three Months EndedNine Months Ended
 July 31,July 31,
 2020201920202019
 (In thousands)
Net income (loss)$10,833 $11,841 $16,344 $(15,782)
Other comprehensive income:
Foreign currency translation gain (loss)7,344 (10,147)3,088 (7,565)
Change in pension from net unamortized gain (loss) adjustment (pretax)  2,519 (11)
Change in pension from net unamortized gain (loss) adjustment tax (expense) benefit  (609)7 
Other comprehensive income (loss)7,344 (10,147)4,998 (7,569)
Comprehensive income (loss)$18,177 $1,694 $21,342 $(23,351)

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

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QUANEX BUILDING PRODUCTS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Nine Months Ended
 July 31,
 20202019
 (In thousands)
Operating activities:
Net income (loss)$16,344 $(15,782)
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Depreciation and amortization35,851 37,158 
Stock-based compensation513 1,424 
Deferred income tax438 1,930 
Asset impairment charges 29,978 
Other, net762 1,724 
Changes in assets and liabilities:
(Increase) decrease in accounts receivable(1,852)323 
Decrease (increase) in inventory3,553 (14,747)
Decrease (increase) in other current assets1,218 (1,022)
(Decrease) increase in accounts payable(1,878)1,562 
Decrease in accrued liabilities(7,611)(15,366)
Increase in income taxes payable107 396 
Increase in deferred pension and postretirement benefits573 2,351 
Decrease in other long-term liabilities(181)(143)
Other, net(276)250 
Cash provided by operating activities47,561 30,036 
Investing activities:
Capital expenditures(20,673)(16,984)
Proceeds from disposition of capital assets131 315 
Cash used for investing activities(20,542)(16,669)
Financing activities:
Borrowings under credit facilities114,500 66,500 
Repayments of credit facility borrowings(119,000)(84,000)
Repayments of other long-term debt(791)(1,102)
Common stock dividends paid(7,910)(7,990)
Issuance of common stock2,954 2,710 
Payroll tax paid to settle shares forfeited upon vesting of stock(454)(330)
Purchase of treasury stock(6,693)(6,336)
Cash used for financing activities(17,394)(30,548)
Effect of exchange rate changes on cash and cash equivalents580 (1,171)
Increase (decrease) in cash and cash equivalents10,205 (18,352)
Cash and cash equivalents at beginning of period30,868 29,003 
Cash and cash equivalents at end of period$41,073 $10,651 
The accompanying notes are an integral part of the financial statements.
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QUANEX BUILDING PRODUCTS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
 
Nine Months Ended July 31, 2020Common
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, 2019$374 $254,673 $185,703 $(33,817)$(76,746)$330,187 
Net income  10   10 
Foreign currency translation adjustment   2,743  2,743 
Common dividends ($0.08 per share)  (2,659)  (2,659)
Purchase of treasury stock    (4,639)(4,639)
Change in pension from net unamortized gain (net of tax expense of $609)   1,910  1,910 
Stock-based compensation activity:
Stock-based compensation benefit (239)   (239)
Stock options exercised 92 (159) 3,142 3,075 
Restricted stock awards granted (1,082)94  988  
Performance share awards vested (495)  495  
Other(1)(454)   (455)
Balance at January 31, 2020$373 $252,495 $182,989 $(29,164)$(76,760)$329,933 
Net income  5,501   5,501 
Foreign currency translation adjustment   (6,999) (6,999)
Common dividends ($0.08 per share)  (2,628)  (2,628)
Purchase of treasury stock    (2,054)(2,054)
Stock-based compensation activity:
Expense related to stock-based compensation 325    325 
Stock options exercised (38)(83)  (121)
Restricted stock awards granted (65)  65  
Balance at April 30, 2020$373 $252,717 $185,779 $(36,163)$(78,749)$323,957 
Net income  10,833   10,833 
Foreign currency translation adjustment   7,344  7,344 
Common dividends ($0.08 per share)  (2,623)  (2,623)
Stock-based compensation activity:
Expense related to stock-based compensation 427    427 
Balance at July 31, 2020$373 $253,144 $193,989 $(28,819)$(78,749)$339,938 
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Nine Months Ended July 31, 2019Common
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, 2018$374 $254,678 $243,904 $(30,705)$(73,029)$395,222 
Net loss  (3,649)  (3,649)
Foreign currency translation adjustment   4,066  4,066 
Common dividends ($0.08 per share)  (2,675)  (2,675)
Purchase of treasury stock    (2,016)(2,016)
Stock-based compensation activity:
Expense related to stock-based compensation 224    224 
Stock options exercised  (35) 62 27 
Restricted stock awards granted (1,649)(496) 2,145  
Other (322) (4) (326)
Balance at January 31, 2019$374 $252,931 $237,049 $(26,643)$(72,838)$390,873 
Net income  (23,974)  (23,974)
Foreign currency translation adjustment   (1,484) (1,484)
Common dividends ($0.08 per share)  (2,660)  (2,660)
Purchase of treasury stock    (2,686)(2,686)
Stock-based compensation activity:
Expense related to stock-based compensation 819    819 
Restricted stock awards granted (71)(9) 80  
Balance at April 30, 2019$374 $253,679 $210,406 $(28,127)$(75,444)$360,888 
Net income  11,841   11,841 
Foreign currency translation adjustment   (10,147) (10,147)
Common dividends ($0.04 per share)  (2,655)  (2,655)
Purchase of treasury stock    (1,634)(1,634)
Change in pension from net unamortized loss (net of tax expense of $7)
Stock-based compensation activity:
Expense related to stock-based compensation 381    381 
Stock options exercised1  (252) 2,935 2,684 
Other(1)(7)   (8)
Balance at July 31, 2019$374 $254,053 $219,340 $(38,274)$(74,143)$361,350 


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

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QUANEX BUILDING PRODUCTS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Nature of Operations and Basis of Presentation
Quanex Building Products Corporation is a component supplier to original equipment manufacturers (OEMs) in the building products industry. These components can be categorized as window and door (fenestration) components and kitchen and bath cabinet components. Examples of fenestration components include: (1) energy-efficient flexible insulating glass spacers, (2) extruded vinyl profiles, (3) window and door screens, and (4) precision-formed metal and wood products. We also manufacture cabinet doors and other components for OEMs in the kitchen and bathroom cabinet industry. In addition, we provide certain other non-fenestration components and products, which include solar panel sealants, trim moldings, vinyl decking, fencing, 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.
The accompanying interim 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, 2019 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, 2019. 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.
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 actually transferred to our customers, and we expect to be 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 services, 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. 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.
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QUANEX BUILDING PRODUCTS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)


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.
Practical expedients and exemptions
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.
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.
The following table summarizes our product sales for the three and nine months ended July 31, 2020 and 2019 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 12, “Segment Information”.
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QUANEX BUILDING PRODUCTS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Three Months EndedNine Months Ended
July 31,July 31,
 2020201920202019
(In thousands)
North American Fenestration:
United States - fenestration$109,455 $119,481 $302,094 $312,509 
International - fenestration6,696 7,172 19,284 23,474 
United States - non-fenestration4,845 3,982 13,779 12,290 
International - non-fenestration1,390 5,624 6,275 12,381 
$122,386 $136,259 $341,432 $360,654 
European Fenestration:
International - fenestration$31,904 $36,342 $87,732 $102,038 
International - non-fenestration6,361 7,984 16,498 19,165 
$38,265 $44,326 $104,230 $121,203 
North American Cabinet Components:
United States - fenestration$2,666 $3,561 $8,461 $9,909 
United States - non-fenestration48,849 54,512 142,838 163,694 
International - non-fenestration410 616 1,335 1,774 
$51,925 $58,689 $152,634 $175,377 
Unallocated Corporate & Other
Eliminations$(480)$(813)$(2,128)$(3,762)
$(480)$(813)$(2,128)$(3,762)
Net sales$212,096 $238,461 $596,168 $653,472 
Restructuring
We accrue one-time severance costs pursuant to an approved plan of restructuring at the communication date, when affected employees have been notified of the potential severance and sufficient information has been provided for the employee to calculate severance benefits, in the event the employee is involuntarily terminated. In addition, we accrue costs associated with the termination of contractual commitments including operating leases at the time the lease is terminated pursuant to the lease provisions or in accordance with another agreement with the landlord. Otherwise, we continue to recognize operating lease expense through the cease-use date. After the cease-use date, we determine if our operating lease payments are at market. We assume sublet of the facility at the market rate. To the extent our lease obligations exceed the fair value rentals, we discount to arrive at the present value and record a liability. If the facility is not sublet, we expense the amount of the rental in the current period. For other costs directly related to the restructuring effort, such as equipment moving costs, we expense in the period incurred.
During the year ended October 31, 2019, our North American Cabinet Components segment experienced declines in current and forecasted demand as a result of an industry-wide shift from semi-custom cabinets to stock cabinets, and received notice about a change in strategy at one of our large customers that may result in lower sales volumes in the future. As a result, during the first quarter of fiscal 2020, we began to restructure our operations within that segment by announcing the closure of one of our plants. We incurred expenses for severance, equipment moves, and other exit activities of $0.3 million related to this plant closure during the nine months ended July 31, 2020 and we may incur costs related to additional restructuring activities in future periods.
COVID-19 Impact