Quanex Building Products Annual Report 2014

Plain-text annual report

COMPANY DESCRIPTION LEADERSHIP BOARD OF DIRECTORS Corporate Information (NYSE:NX) With 2014 consolidated sales of $595 million and 24 manufacturing facilities (22 in the US, one in Germany and one in the UK), Quanex has approximately William C. Griffiths Chairman, President & Chief Executive Officer Brent L. Korb Senior Vice President – Finance 2,200 employees. We manufacture energy & Chief Financial Officer efficient window components that include flexible insulating glass spacers, extruded Kevin P. Delaney & Secretary Martin P. Ketelaar Vice President – Treasurer & Investor Relations M. Dewayne Williams Vice President – Controller vinyl profiles, window and door screens, solar panel sealants, and precision-formed metal and wood products for original equipment manufacturers (OEMs) in the residential and commercial window and door industries. We use low-cost production processes and engineering expertise to provide our customers with custom products for their specific window and door applications. We serve a primary customer base in North America, and also serve customers in international markets through our operating plants in the United Kingdom and Germany, as well as through sales and marketing efforts in other countries. COMPANY HEADQUARTERS Quanex Building Products Corporation 1800 West Loop South Suite 1500 Houston, Texas 77027 713.961.4600 800.231.8176 inquiry@quanex.com ANNUAL STOCKHOLDER MEETING Thursday, February 26, 2015 8:00 a.m. C.S.T. Quanex Corporate Offices The Quanex Form 10-K for the fiscal year ended October 31, 2014, can be viewed and downloaded from the company website at www.quanex.com/2014AR. Robert R. Buck 2, 4 Executive Chairman, Beacon Roofing Supply, Inc. Susan F. Davis 3*, 4 Executive Vice President and Chief Human Resources Officer, Johnson Controls, Inc. William C. Griffiths 1* Officer, Quanex Building Products Corporation LeRoy D. Nosbaum 2, 3, 4 Retired President & Chief Executive Officer, Itron, Inc. Joseph D. Rupp 1, 3, 4*, 5 Chairman, President & Chief Executive Officer, Olin Corporation Curtis M. Stevens 1, 2*,4 Chief Executive Officer, Louisiana-Pacific Corporation Board Committees 1 Executive Committee 2 Audit Committee 3 Compensation & Management Development Committee 4 Nominating & Corporate Governance Committee 5 Lead Director * Denotes Committee Chair TRANSFER AGENT, SHAREHOLDER RECORDS & DIVIDEND DISBURSING AGENT Wells Fargo Bank N.A. Shareowner Services 1110 Centre Point Curve Mendota Heights, MN 55120-4100 P 800.468.9716 F 651.450.4085 651.450.4064 Outside the United States Senior Vice President – General Counsel Chairman, President and Chief Executive Screens, Grilles & Components Screens, Grilles & Components Window & Door Proﬁ les Window & Door Proﬁ les Insulating Glass Spacers Insulating Glass Spacers 1800 West Loop South Suite 1500 Houston, Texas 77027 www.Quanex.com 2014 Annual Report NYSE: NX 48562_Cvr_.indd 1 1/12/15 7:42 AM Letter from the CEO: Focus on Fenestration Financial Highlights FISCAL 2014 IN REVIEW Ducker Worldwide, window shipments increased 5.3% during this period. Last year, I wrote that we would return Quanex to profitability after two successive years of operating losses, and that we would sharpen our focus and concentrate on our window and door markets. I am pleased to report that we were successful on both accounts. The highlight of the year was the successful divestiture of our Nichols Aluminum business for $110 million. This, together with the October 2013 decision to abandon the Company’s ERP implementation project, enabled us to reduce our overhead “WE ARE OPTIMISTIC ABOUT OUR EARNINGS POWER AS THE MARKET RECOVERS AND OUR NUMBER ONE PRIORITY IS TO REMAIN READY TO CAPITALIZE ON THAT RECOVERY. ” costs, and focus exclusively on improving the window and door business. This renewed focus allowed us to generate EBITDA of $48.1 million, the highest level since the spin-off of Quanex Building Products in 2008. This was a 38.7% increase over 2013, on a 7.3% increase in revenues. In comparison, according to Another highlight of fiscal 2014 was the acquisition, and subsequent expansion, of a customer’s vinyl extrusion facility in Greenville, Texas. This acquisition closed at the end of December 2013, and through the close of this fiscal year we have expanded capacity by over 70%. We are already underway with a further 50% capacity expansion in 2015, all of which is sold out. Acquisitions such as this, directly in our current space, remain a high priority in our capital deployment strategy. Unfortunately, this was the only transaction consummated in 2014, even though we had the opportunity to review many more. We will continue to use a very disciplined approach to our acquisition strategy, whereby the combination of risk, valuation and strategic fit are carefully balanced and evaluated before proceeding. The final highlight of 2014 was the September announcement of a $75 million share repurchase program. Using the same criteria of risk and valuation, together with a slow pipeline of suitable acquisition opportunities, it was clear that a share repurchase program was the best use of our excess cash at that time. This program will likely extend into the first half of fiscal 2015. FISCAL 2015 OUTLOOK While we expect a slow start to 2015, we anticipate that it will be very similar to 2014 in terms of market conditions and overall growth. We are forecasting 5% to 7% revenue growth and a further improvement in profitability, leading to EBITDA levels of $57 to $63 million. mid to high single-digit growth rates over an extended period of four to five years. This would return U.S. window shipments to a mid-cycle level of 63 to 68 million units, through a combination of increased housing starts and a recovery in the remodel and replacement market. At this mid-cycle level, I would expect Quanex revenues, absent any acquisitions, to be $825 to $875 million, nearly a 40%-50% improvement from today’s levels. EBITDA would also grow from $115 million to $130 million at mid-cycle. As we continue to invest in our existing business, look for 2015 capital expenditures to be $35 million for the year, of which $20 million will go into our vinyl profile business. As a second priority, we will continue to pursue targeted business acquisitions. These may include vertically integrated vinyl extrusion businesses or screen manufacturers that allow us to expand our existing fenestration footprint, grow our existing product offerings, acquire complementary technology, enhance our leadership position within the markets we serve, and expand into new markets or service lines. We are always in search of opportunities that can help us better serve our customers. We are optimistic about our earnings power as the market recovers and our number one priority is to remain ready to capitalize on that recovery. In 2015 we expect to build on our momentum and position Quanex for a successful future for our employees, customers and shareholders. William Griffiths We continue to believe the housing recovery will follow a slow, steady path of Chairman, President and Chief Executive Officer The following consolidated financial highlights, for the five years Financial Statements and accompanying notes included in Item 8 ended October 31, 2014, were derived from the Company’s audited of the Company’s 2014 Annual Report on Form 10-K. The historical Financial Statements. Unless otherwise noted, all information in information is not necessarily indicative of the results to be the table reflects only continuing operations. The data set forth expected in the future. should be read in conjunction with the Company’s Consolidated Fiscal Years Ended October 31 2014(4) 2013(1) 2012(3)(4) 2011(2)(4)(5) 2010(5) Net sales Cost of sales Selling, general and administrative Depreciation and amortization Operating income (loss) Income (loss) from continuing operations Net income (loss) Diluted earnings (loss) per share Cash dividends declared per share US dollars in thousands, except per share data $595,384 $554,867 $478,578 $420,258 $361,062 464,584 419,733 355,669 315,765 267,614 82,150 98,969 100,884 75,918 33,869 53,521 29,975 25,390 14,276 (18,821) (8,862) 8,338 (12,384) (6,561) $29,234 (11,703) (16,534) $9,066 $23,098 $0.78 $0.16 (0.32) $0.16 (0.45) $0.16 62,110 19,879 11,459 7,766 $0.61 $0.14 1,386 (411) $0.24 $0.16 (1) In December 2012, we acquired substantially all the assets of Alumco, Inc. and its subsidiaries, expenses totaling $9.0 million ($5.9 million net of tax) related to this consolidation. a manufacturer of window screens, with multiple facilities within the United States. (4) During fiscal 2011, we recognized an expense of $1.9 million ($1.1 million net of tax) to (2) In March 2011, we acquired Edgetech, I.G. Inc. and its German subsidiary. Headquartered increase our warranty reserve associated with a discontinued legacy product and claims. In fiscal in Cambridge, Ohio, Edgetech has three manufacturing facilities, one each in the United States, 2014, we decreased our warranty reserve and reduced expense by $2.9 million ($1.8 million net of United Kingdom and Germany, that produce and market a full line of warm edge insulating glass tax) related to claims associated with this discontinued legacy product. spacer systems for window and door customers in North America and abroad. In March 2011, we also acquired a small vinyl extrusion facility in Yakima, Washington. Accordingly, the estimated fair value of assets acquired in the acquisition and the results of operations were included in our consolidated financial statements as of the effective date of the acquisition. (5) In 2010, we closed a start-up facility in China due to contraction of demand and a decision to serve the international thin film solar panel markets from our North American operations. Accordingly, the assets and liabilities of this start-up facility in China were reported as discontinued operations in the consolidated balance sheets for the applicable periods presented, (3) In November 2011, we announced a consolidation program for two of our insulating glass and the related operating results are reported as discontinued operations in the consolidated manufacturing facilities, whereby we closed a facility in Barbourville, Kentucky. This facility statements of income presented, as applicable. consolidation was completed ahead of schedule in August 2012. In fiscal 2012, we recorded FINANCIAL STATISTICS AS OF OCTOBER 31, 2014 Book value per common share: .................................. $11.18 Return on invested capital: .......................................... 5.5% Total debt to capitalization: ......................................... 0.1% Actual number of common shares outstanding: ... 37,633,932 EBITDA RECONCILIATION Quanex Building Products Corporation - Non-GAAP Financial Measure Disclosure (US Dollars in thousands, unaudited) EBITDA (defined as net income or loss before interest, taxes, Twelve Months Ended October 31, 2014 depreciation and amortization and other, net) is a non-GAAP financial measure that Quanex management uses to measure its operational performance and assist with financial decision-making. EBITDA is a key metric used by management in determining the value of annual incentive awards for its employees. We believe this non-GAAP measure (included under market conditions outlined in our forward-looking guidance) provides a consistent basis for comparison between periods, and will EBITDA assist investors in understanding our financial performance when comparing our results to other investment opportunities. EBITDA may not be the same as that used by other companies. The company does not intend for this information to be considered in isolation or as a substitute for other measures prepared in accordance with GAAP. Income (loss) from continuing operations Income tax expense (benefit) Other, net Interest expense Operating Income (loss) Depreciation and amortization $8,338 5,468 (92) 562 14,276 33,869 $48,145 48562_Cvr_.indd 2 1/12/15 7:42 AM UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549_______________________________ FORM 10-K(Mark One)xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the Fiscal Year Ended October 31, 2014or¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934Commission 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) (Zip code)Registrant’s telephone number, including area code: (713) 961-4600Securities registered pursuant to Section 12(b) of the Act:Title of each class Name of each exchange on which registeredCommon Stock, $0.01 par value New York Stock Exchange, Inc.Securities registered pursuant to Section 12(g) of the Act: NONE_______________________________ Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No xIndicate 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 preceding12 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 x No ¨Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post suchfiles). Yes x No ¨Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “largeaccelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):Large accelerated filerx Accelerated fileroNon-accelerated filero Smaller reporting companyoIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No xThe aggregate market value of the voting and non-voting common equity held by non-affiliates as of April 30, 2014, computed by reference to the closing price for the CommonStock on the New York Stock Exchange, Inc. on that date, was $701,075,652. Such calculation assumes only the registrant’s officers and directors at such date were affiliates of theregistrant.At December 8, 2014 there were outstanding 36,137,647 shares of the registrant’s Common Stock, $0.01 par value. _______________________________DOCUMENTS INCORPORATED BY REFERENCEPortions of the Registrant’s definitive Proxy Statement for its 2015 Annual Meeting of Stockholders to be filed with the Commission within 120 days of October 31, 2014 areincorporated herein by reference in Part III of this Annual Report on Form 10-K. TABLE OF CONTENTS PagePART I Item 1.Business4 Item 1A.Risk Factors9 Item 1B.Unresolved Staff Comments16 Item 2.Properties17 Item 3.Legal Proceedings17 Item 4.Mine Safety Disclosures17 PART II Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities18 Item 6.Selected Financial Data21 Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations23 Item 7A.Quantitative and Qualitative Disclosures about Market Risk37 Item 8.Financial Statements and Supplementary Data39 Item 9.Change in and Disagreements with Accountants on Accounting and Financial Disclosure84 Item 9A.Controls and Procedures84 Item 9B.Other Information84 PART III Item 10.Directors, Executive Officers and Corporate Governance85 Item 11.Executive Compensation85 Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters85 Item 13.Certain Relationships and Related Transactions, and Director Independence85 Item 14.Principal Accountant Fees and Services85 PART IV Item 15.Exhibits and Financial Statement Schedules85Unless the context indicates otherwise, references to "Quanex", the "Company", "we", "us" and "our" refer to the consolidated business operations of QuanexBuilding Products Corporation and its subsidiaries.Cautionary Note Regarding Forward-Looking StatementsCertain of the statements contained in this document and in documents incorporated by reference herein, including those made under the caption“Management’s Discussion and Analysis of Financial Condition and Results of Operations” are “forward-looking” statements as defined under the PrivateSecurities Litigation Reform Act of 1995. Generally, the words “expect,” “believe,” “intend,” “estimate,” “anticipate,” “project,” “will” and similarexpressions identify forward-looking statements, which generally are not historical in nature. Forward looking statements are (1) all statements which addressfuture operating performance, (2)events or developments that we expect or anticipate will occur in the future, including statements relating to volume, sales,operating income and earnings per share, and (3) statements expressing general outlook about future operating results. Forward-looking statements aresubject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our current projections orexpectations. As and when made, we believe that these forward-looking statements are reasonable. However, caution should be taken not to place unduereliance on any such forward-looking statements since such statements speak only as of the date when made and there can be no assurance that such forward-looking statements will occur. We are not obligated to publicly update or revise any forward-looking statements, whether as a result of new information,future events or otherwise.Factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include, but are notlimited to the following:•changes in market conditions, particularly in the new home construction, and residential remodeling and replacement (R&R) activity markets;•changes in prevailing prices of resin and other raw material costs;•changes in domestic and international economic conditions;•changes in purchases by our principal customers;•fluctuations in foreign currency exchange rates;•our ability to maintain an effective system of internal controls;•our ability to successfully implement our internal operating plans and acquisition strategies;•our ability to successfully implement our plans with respect to information technology (IT) systems and processes;•our ability to control costs and increase profitability;•changes in environmental laws and regulations;•changes in warranty obligations;•changes in energy costs;•changes in tax laws, and interpretations thereof;•changes in interest rates;•our ability to maintain a good relationship with our suppliers, subcontractors, and key customers; and•the resolution of litigation and other legal proceedings.Additional factors that could cause actual results to differ materially are discussed under Item 1A, “Risk Factors” included elsewhere in this AnnualReport on Form 10-K.About Third-Party InformationIn this report, we rely on and refer to information regarding industry data obtained from market research, publicly available information, industrypublications, United States government sources and other third parties. Although we believe this information is reliable, we cannot guarantee the accuracy orcompleteness of the information and have not independently verified it.Table of Contents PART IItem 1. Business (Continuing Operations).Our CompanyQuanex was incorporated in Delaware on December 12, 2007 as Quanex Building Products Corporation. We manufacture energy efficient windowcomponents that include (1) flexible insulating glass spacers, (2) extruded vinyl profiles, (3) window and door screens, (4) solar panel sealants and (5)precision-formed metal and wood products for original equipment manufacturers (OEMs) in the residential and commercial window and door industries. Weuse low-cost production processes and engineering expertise to provide our customers with specialized products for their specific window and doorapplications. We believe these capabilities provide us with unique competitive advantages. We serve a primary customer base in North America, and alsoserve customers in international markets through our operating plants in the United Kingdom and Germany, as well as through sales and marketing efforts inother countries.Our HistoryOur predecessor company, Quanex Corporation, was organized in Michigan in 1927 as Michigan Seamless Tube Company, and was laterreincorporated in Delaware in 1968. In 1977, Michigan Seamless Tube Company changed its name to Quanex Corporation. On December 12, 2007, QuanexBuilding Products Corporation was incorporated as a wholly-owned subsidiary in the state of Delaware, in order to facilitate the separation of QuanexCorporation's vehicular products and building products businesses. This separation became effective on April 23, 2008, through a spin-off of the buildingproducts business to Quanex Corporation's then-existing shareholders. Immediately following the spin-off, our former parent company, consisting principallyof the vehicular products business and all non-building products related corporate accounts, merged with a wholly-owned subsidiary of Gerdau S.A.Since the spin-off in 2008, we have expanded our business by making investments in organic growth initiatives and taking a disciplined approach tonew business and strategic acquisition opportunities, while seeking to provide superior value to our customers.Notable developments and transactions which occurred since the spin-off include the following:•in 2010, we evaluated our market and decided to close our start-up facility in China, as we determined that we could serve the international thin-filmsolar panel markets through our operations in the United States. Therefore, the assets and liabilities, results of operations and cash flows associatedwith this start-up facility in China were reported as discontinued operations in 2010, and for the applicable prior periods presented in this AnnualReport on Form 10-K;•in February 2010, we bought the production assets of an engineered-wood flooring business located in Shawano, Wisconsin;•in January 2011, we closed a finished window screen facility in The Dalles, Oregon;•in March 2011, we acquired certain vinyl extrusion assets in Yakima, Washington from a customer of our vinyl extrusion business;•in March 2011, we acquired Edgetech, I.G. Inc. and its German subsidiary, which provided us with three manufacturing facilities, one each in theUnited States, United Kingdom and Germany, that produce and market a full line of flexible insulating glass spacer systems for window and doorcustomers in North America and abroad. This acquisition complemented our insulating glass products business line in the United States and, as aresult, we committed to a plan to consolidate these facilities in November 2011. This consolidation plan, in part, resulted in the closure of a plant inBarbourville, Kentucky, and the relocation of equipment that was used to manufacture the single seal, warm-edge spacer system to our facility inCambridge, Ohio. We sold the facility in Barbourville in May 2014. This consolidation was substantially completed by August 2012, with minorresidual cash payments and program costs incurred during fiscal 2013;•in December 2012, we acquired substantially all of the assets of Alumco Inc. and its subsidiaries (Alumco), an aluminum screen manufacturer, whichwe believe allowed us to expand the scope of our fenestration business to include screens for vinyl window and door manufacturers and to expandour geographic reach throughout the United States; and•in April 2014. we sold our interest in a limited liability company which held the net assets of our Nichols Aluminum business (Nichols), the soleoperating segment included in our Aluminum Sheet Products reportable segment, to Aleris International, Inc. (Aleris), a privately held companywhich provides aluminum rolled products and extrusions, aluminum recycling and specification aluminum alloy production.4Table of Contents Currently, we operate 23 manufacturing facilities located in 13 states in the United States, one facility in the United Kingdom, and another in Germany.These facilities feature efficient plant design and flexible manufacturing processes, enabling us to produce a wide variety of custom engineered products andcomponents primarily focused on the window and door segment of the residential building products markets. We are able to maintain minimal levels offinished goods inventories at most locations because we typically manufacture products upon order to customer specifications. We believe the primarydrivers of our operating results are new home construction and residential remodeling and replacement activity.Our IndustryOur business is largely North American based and dependent upon the spending and growth activity levels of our customers which include national andregional residential window and door manufacturers. We use data related to United States housing starts and window shipments, as published by or derivedfrom third-party sources, to evaluate the market, as we believe these are indicators of activity levels in the home building industry and more specifically thewindow industry.The following table presents calendar-year annual and quarterly housing starts information, as published by the United States Census Bureau based ondata collected from the National Association of Home Builders (NAHB), (units in thousands): Single-family Units Multi-family Units Manufactured Units Period Units % Change Units % Change Units % Change Total UnitsAnnual Data 2008 615 N/A 284 N/A 82 N/A 9812009 444 (28)% 111 (61)% 49 (40)% 6042010 471 6% 116 5% 50 2% 6372011 434 (8)% 178 53% 51 2% 6632012 537 24% 247 39% 55 8% 8392013 621 16% 309 25% 60 9% 990Annual Data - Forecast 2014 641 3% 352 14% 62 3% 1,0552015 804 25% 358 2% 56 (10)% 1,2182016 1,102 37% 361 1% 77 38% 1,540Quarterly Data - Forecast 2014: 1st quarter 134 N/A 72 N/A No Data Available 2062nd quarter 183 37% 92 28% No Data Available 2753rd quarter(1) 178 (3)% 104 13% No Data Available 282(1) Derived from IHS Global Insight's forecast report based on United States Census Data.The following table presents calendar-year annual and quarterly window shipments information, derived from reports published by Ducker WorldwideLLC, a consulting and research firm, (units in thousands): New Construction Remodeling & ReplacementPeriod Wood Aluminum Vinyl Fiberglass Other Total Wood Aluminum Vinyl Fiberglass Other TotalAnnual Data 2009 2,480 1,940 6,343 458 140 11,361 6,139 963 19,146 738 523 27,5092010 2,778 1,746 6,729 526 167 11,946 6,139 1,012 21,079 840 573 29,6432011 2,601 1,820 6,623 514 182 11,740 5,071 717 19,086 730 516 26,1202012 2,736 2,516 8,625 592 237 14,706 4,566 696 18,902 657 594 25,4152013 2,989 3,077 10,585 668 264 17,583 4,739 658 19,588 685 658 26,328Quarterly Data 2014: 1st quarter 669 702 2,457 162 65 4,055 1,067 136 4,411 160 154 5,9282nd quarter 755 791 2,772 183 73 4,574 1,280 164 5,293 192 185 7,114Quarterly Data - Forecast 3rd quarter 879 922 3,229 213 85 5,328 1,370 175 5,663 206 198 7,6124th quarter 804 843 2,953 195 78 4,873 1,261 161 5,210 189 182 7,003We have noted the following trends which we believe affect our industry:5Table of Contents •the number of housing starts and window shipments in the United States has increased in recent years following a dramatic decline from 2007through 2011. The NAHB expects this trend to continue for the next several years, which should result in higher demand for our fenestrationproducts;•the recent growth in the housing market has been predominately in new construction which has outpaced the growth in the residential remodelingand replacement sector; the recent recovery in new home construction in the United States has been led by multi-family homes for which window tounit ratios are lower compared to mid- and higher priced homes; the current growth in single-family homes has seen the share of the large tractbuilders increase and the smaller custom builders decrease; and multi-family and tract homes typically employ lower cost, less energy efficientwindows;•programs in the United States such as Energy Star have improved customer awareness of the technological advances in window and door energy-efficiency, but the government has been reluctant to enforce stricter energy standards;•higher energy efficiency standards in Europe should favorably impact sales of our insulating glass spacer products in the short- to mid-term; and•commodity prices have fluctuated, including resin, which has negatively impacted the margins of our vinyl extrusion products, and butyl which hasfavorably impacted our insulating glass products.StrategyOur vision is to be the preferred supplier to our customers in each market we serve. Our strategy to achieve this vision includes the following:•focus on organic growth with our current customer base and expand our market share with national and regional customers by providing: (1) aquality product; (2) a high level of customer service; (3) product choices at different price points; and (4) new products or enhancements to existingproduct offerings. These enhancements may include higher thermal efficiency, enhanced functionality, improved weatherability, better appearanceand best-in-class quality for our fenestration products;•realize favorable profitability in our manufacturing processes through: (1) ongoing preventive maintenance programs; (2) better utilization of ourcapacity by focusing on operational efficiencies and reducing scrap; (3) marketing our value added products; and (4) focusing on employee safety;•offer logistic solutions that provide our customers with just-in-time service which can reduce their processing costs; and•pursue targeted business acquisitions which may include vertically integrated vinyl extrusion businesses or screen manufacturers, that allow us toexpand our existing fenestration footprint, enhance our existing product offerings, acquire complementary technology, enhance our leadershipposition within the markets we serve, and expand into adjacent markets or service lines.Business SegmentsWe have four operating segments which we aggregate into one reportable business segment. Prior to April 1, 2014, we presented two reportableoperating segments: (1) Engineered Products and (2) Aluminum Sheet Products. In addition, we recorded LIFO inventory adjustments, corporate officecharges and inter-segment eliminations as Corporate & Other. On April 1, 2014, we sold Nichols, the sole operating segment included in our Aluminum SheetProducts reportable segment. To account for Nichols as a discontinued operation, we reclassified certain costs from Corporate & Other to Nichols, including aportion of the LIFO reserve, as well as insurance accruals related to workers compensation claims, to properly reflect these direct expenses as a component ofthe disposal group. The accounting policies of our operating segments are the same as those used to prepare our accompanying consolidated financialstatements.We produce window and door components for original equipment manufacturers that primarily serve the residential new construction, and residentialremodeling and replacement markets. We manufacture insulating glass (IG) spacer systems, window and door profiles, window and patio door screens,aluminum cladding and other roll formed metal window components, door components such as thresholds and astragals, patio screen doors and customwindow grilles, trim and architectural moldings in a variety of woods, thin film solar panel sealants, and engineered wood flooring. We operate three flexibleIG spacer facilities, five polyvinyl chloride (PVC) extrusion facilities, four fabricated metal components operations, nine facilities producing window anddoor screens, two facilities producing wood fenestration (door and window) components, and one facility producing engineered wood flooring. Theinsulating glass products use compound-extrusion and laminating technology to produce highly engineered insulating glass spacer products that areproduced from butyl, ethylene propylene dieneterpolymer (EPDM), composite and silicone-based raw materials. These window spacer products separate twoor three panes of glass in an IG unit to improve its thermal6Table of Contents performance. Our vinyl extrusion facilities use automated production processes to manufacture vinyl and composite profiles which constitute the framingmaterial used in the assembly of vinyl windows and patio doors.We believe our strengths include design expertise, new technology development capability, customer service, just-in-time delivery systems, highquality manufacturing ability to generate unique patented products and industry and governmental advocacy.Raw Materials and SuppliesWe purchase a diverse range of raw materials, which include PVC, epoxy resin, butyl, titanium dioxide (TiO2) desiccant powder, silicone and EPDMrubber compounds, coated and uncoated aluminum sheet and wood (both hardwood and softwood). These raw materials are generally available from severalsuppliers at market prices. We may enter into sole sourcing arrangements with our suppliers from time to time if we believe we can realize beneficial savings,but only after we have determined that the vendor can reliably supply our raw material requirements. Although we utilize certain material sole sourcingarrangements, these agreements have termination clauses, and we believe there are other qualified suppliers from which we could purchase raw materials andsupplies.CompetitionOur products are sold under highly competitive conditions. We compete with a number of companies, some of which have greater financial resourcesthan us. We believe the primary competitive factors in the markets we serve include price, product quality, delivery and the ability to manufacture tocustomer specifications. The volume of engineered building products that we manufacture represents a small percentage of annual domestic consumption.We compete against a range of small and midsize metal, vinyl and wood products suppliers, wood molding companies, and the in-house operations ofcustomers who have vertically integrated fenestration operations. We also compete against IG spacer manufacturing firms. IG systems are used in numerousend markets including residential housing, commercial construction, appliances and transportation vehicles, but we primarily serve the residential housingmarket. Competition is largely based on regional presence, custom engineering, product development, quality, service and price. Primary competitorsinclude, but are not limited to, Axiall, Veka, Deceuninck, Vision Extrusions, GED Integrated Solutions, Technoform, Swiss Spacer, Thermix, Rite Screen,Allmetal and Endura.Sales, Marketing, and DistributionWe sell our products to customers in various countries. Therefore, we have sales representatives whose territories essentially cover the United States,Canada, Europe, and to a lesser extent, the Middle East, Latin and South America, Australia and Asia. Our sales force is tasked with selling and marketing ourcomplete range of components, products and systems to national and regional OEMs through a direct sales force in North America and the United Kingdom,supplemented with the limited use of distributors and independent sales agents. CustomersCertain of our businesses or product lines are largely dependent on a relatively few large customers. See page 56 for related disclosure.Sales BacklogWe have outstanding sales orders of approximately $14.0 million which are considered to be firm, but have not been fulfilled as of 10/31/2014. Thecriteria for revenue recognition has not been met, and therefore, we have not recorded revenue or deferred revenue with regard to these sales orders. If thesesales orders result in a sale, we will record as revenue during Fiscal 2015. Seasonal Nature of BusinessOur business is impacted by seasonality. We have historically experienced lower sales for our products during the first half of our fiscal year as winterweather reduces homebuilding and home improvement activity. Our operating income tends to decline during this period of lower sales because a highpercentage of our operating expenses are fixed overhead. We typically experience more favorable results in the third and fourth quarters of the fiscal year.Expenses for labor and other costs are generally semi-variable throughout the year.Working CapitalWe fund operations through a combination of available cash and cash equivalents, short-term investments, and cash flow generated from ouroperations. In addition, our revolving credit facility is available for working capital needs. We extend credit7Table of Contents to our domestic customers in the ordinary course of business generally for a term of 30 days, while the terms for our international customers vary from cashadvances to 90 days. Inventory of raw materials are carried in quantities deemed necessary to ensure a smooth production process, some of which aregoverned by consignment agreements with suppliers. We strive to maintain minimal finished goods inventories, while ensuring an adequate supply on handto service customer needs.Service Marks, Trademarks, Trade Names, and PatentsOur federally registered trademarks or service marks include QUANEX, QUANEX and design, "Q" design, TRUSEAL TECHNOLOGIES, DURASEAL,DURALITE, SOLARGAIN EDGE TAPE, ENVIROSEALED WINDOWS, EDGETHERM, COLONIAL CRAFT, EDGETECH, ECOBLEND, SUPER SPACER,TSS, TRUE WARM, E & Design, QUIET EDGE, HEALTH SMART WINDOWS, ENERGY WISE WINDOWS, DESI-ROPE, 360 and design, INTELLICLIP,SUSTAINAVIEW, MIKRON, MIKRONWOOD, MIKRONBLEND, MIKRON BLEND and design, ENERGYCORE, FUSION INSULATED SYSTEM,AIRCELL, SUPERCOAT, SUPERCAP, STYLELOCK, STYLELOCK and design, K2 MIKRON and design, HOMESHIELD, HOMESHIELD and design, andSTORM SEAL. We consider the following marks, design marks and associated trade names to be valuable in the conduct of our business: HOMESHIELD,COLONIAL CRAFT, TRUSEAL TECHNOLOGIES, EDGETECH, MIKRON and QUANEX. Generally, our business does not depend on patent protection, butpatents obtained with regard to our vinyl extrusion products and processes, fabricated metal components and IG spacer products business remain a valuablecompetitive advantage over other building products manufacturers. We obtain patent protection for various dies and other tooling created in connection withthe production of customer-specific vinyl profile designs and vinyl extrusions. Our fabricated metal components business obtains patent protection for itsthresholds. Our window sealant business unit relies on patents to protect the design of several of its window spacer products. Although we hold numerouspatents, the proprietary process technology that has been developed is also considered a source of competitive advantage.Research and DevelopmentIn general, we expense research and development costs as incurred. We devote time, effort and expense to: (1) custom- engineer products for specificcustomer applications; (2) develop superior, proprietary process technology; and (3) partner with customers to develop new products. In addition, we mayacquire businesses with patented technology in order to expand our product offerings.Environmental and Employee Safety MattersWe are subject to extensive laws and regulations concerning worker safety, the discharge of materials into the environment and the remediation ofchemical contamination. To satisfy such requirements, we must make capital and other expenditures on an on-going basis. The cost of worker safety andenvironmental matters has not had a material adverse effect on our operations or financial condition in the past, and we are not currently aware of anyexisting conditions that we believe are likely to have a material adverse effect on our operations, financial condition, or cash flows.Safety and Environmental PoliciesFor many years, we have maintained compliance policies that are designed to help protect our workforce, to identify and reduce the potential for job-related accidents, and to minimize liabilities and other financial impacts related to worker safety and environmental issues. These policies include extensiveemployee training and education, as well as internal policies embodied in our Code of Conduct. We have a Director of Environmental, Health and Safety andmaintain a company-wide Safety Council, comprised of leaders from across the organization, which meets regularly to discuss safety issues and drive safetyimprovements. We plan to continue to focus on safety in particular as a core strategy to improve our operational efficiency and financial performance.RemediationUnder applicable state and federal laws, we may be responsible for, among other things, all or part of the costs required to remove or remediate wastes orhazardous substances at locations we, or our predecessors, have owned or operated. From time to time, we also have been alleged to be liable for all or part ofthe costs incurred to clean up third-party sites where there might have been an alleged improper disposal of hazardous substances. At present, we are notinvolved in any such matters.Environmental Compliance CostsWe have incurred expenses to comply with existing environmental regulations which total approximately $0.4 million, $0.3 million and $0.2 millionfor the years ended October 31, 2014, 2013 and 2012, respectively. We have not incurred capital expenditures related to environmental matters during theseyears and we do not expect to incur such costs for fiscal 2015. However, future expenditures relating to environmental matters may result from theidentification of new environmental issues, changes in8Table of Contents regulations or environmental laws, or governmental actions with regards to existing sites. We will continue to have expenditures beyond fiscal 2014 inconnection with environmental matters, including control of air emissions, control of water discharges and plant decommissioning costs. It is not possible atthis time to reasonably estimate the amount of those expenditures, except as discussed above, due to uncertainties about emission levels, controltechnologies, the positions of governmental authorities and the application of requirements to us. Based upon our experience to date, we do not believe thatour compliance with environmental requirements will have a material adverse effect on our operations, financial condition or cash flows.EmployeesAs of October 31, 2014, we had 2,206 employees. Of these employees, 2,075 were domiciled in the United States, 64 in the United Kingdom, and 67 inGermany.Geographic InformationOur manufacturing facilities and all long-lived assets are located in the United States, United Kingdom and Germany. Financial information specific toeach geographic area is located in note 18 of the accompanying financial statements.For InvestorsWe periodically file or furnish documents to the Securities and Exchange Commission (SEC), including our Annual Reports on Form 10-K, QuarterlyReports on Form 10-Q, Current Reports on Form 8-K and other reports as required. These reports are also available free of charge from the Investor RelationsSection of our website at http://www.quanex.com, as soon as reasonably practicable after we file such material, or furnish it to the SEC. As permitted by theSEC rules, we post relevant information on our website. However, the information contained on our website is not incorporated by reference into this AnnualReport on Form 10-K and should not be considered part of this report.Item 1A. Risk Factors.The following risk factors, along with other information contained elsewhere in this Annual Report on Form 10-K and our other public filings with theSEC, should be carefully considered before deciding to invest in our securities. Additional risks and uncertainties that are not currently known to us or thatwe may view as immaterial could impair our business if such risks were to develop into actual events. Therefore, any of these risks could have a materialadverse effect on our financial condition, results of operations and cash flows. This listing of risk factors is not all-inclusive and is not necessarily presentedin order of importance.We are subject to business risks and general economic factors that are largely out of our control, including primary drivers of our business which areresidential remodeling, replacement activities, and housing starts, any of which could have a material adverse effect on our business, financial conditionand results of operations.The primary drivers of our business are residential remodeling and replacement activities and housing starts. The home building and residentialconstruction industry is cyclical and seasonal, and product demand is based on numerous factors such as interest rates, general economic conditions,consumer confidence and other factors beyond our control. Declines in the number of housing starts and remodeling expenditures resulting from such factorscould have a material adverse effect on our business, results of operations and financial condition. The downturn in the housing market which occurred from2007 through 2011 had an adverse effect on our operating results. A prolonged decline in activity levels in the homebuilding industry or in the broadereconomic conditions of the markets where we operate could decrease demand and pricing for our products and have adverse effects on our operations andfinancial results.Our business is subject to a number of general economic factors that may adversely affect our business, financial condition and results of operations,many of which are largely out of our control. These factors include domestic and international recessionary economic cycles, changes in foreign currencyexchange rates and overall volatility in our customers' business cycles which may result in changes to their business practices, particularly in marketsegments and industries where we have a significant concentration of customers. These conditions could affect our business through the insolvency of keysuppliers resulting in product delays, the inability of customers to obtain credit to finance purchases of our products, an inability of customers to payaccounts receivable owed to us, or delays in the payment of such receivables. Additionally, in a period of generally poor economic conditions, our assets maybecome impaired.The price of our common stock has historically been volatile and could continue to fluctuate in the future.The market price of our common stock has fluctuated significantly and is likely to continue to fluctuate in the future. Announcements by us or othersregarding the receipt of customer orders, quarterly variations in operating results, acquisitions or9Table of Contents divestitures, additional equity or debt financings, litigation, product developments, patent or proprietary rights, government regulation and general marketconditions may have a significant impact on the market price of our common stock.If the availability of raw materials critical to our manufacturing processes or sources of energy were to become scarce or if the price of these itemswere to increase significantly, we might not be able to timely produce products for our customers or maintain our profit levels.We require and use significant amounts of raw materials, such as butyl, titanium dioxide, and vinyl resin in our manufacturing facilities. All of thesematerials are purchased from outside sources. We do not have long-term contracts for the supply of most of our raw materials and many of our raw materialsare purchased at market prices that may fluctuate dramatically. The availability and prices of raw materials may be subject to curtailment or change due tonew laws or regulations, suppliers' allocations to other purchasers, or interruptions in production by suppliers. Any change in the supply of, or price for, theseraw materials or energy costs could affect our ability to timely and cost-effectively manufacture products for our customers.Our business depends on supplier relationships, insurance providers, and other vendors, and any disruption in these relationships may cause damage toour customer relationships or delays to our business.There can be no assurance that our suppliers will be able to meet our future requirements for products and components in a timely fashion or ateconomically attractive pricing. In addition, our suppliers require an accurate forecast of our supply needs in order to ensure the availability of many of thecomponents used in our business. If there are delays in deliveries by vendors, we could lose sales and damage our customer relationships. If we selectalternate suppliers for any of our required components, the qualification and pre-production period required to accept product from the new suppliers couldbe lengthy resulting in delays in our ability to provide products to our customers, or may cause an increase in component costs. Any extended interruption inthe supply of the key components that we currently obtain from limited sources could disrupt our operations and have a material adverse effect on ourcustomer relationships and our profitability.We are subject to various environmental requirements. Compliance with, or liabilities under, existing or future environmental laws and regulationscould significantly increase our costs of doing business.We are subject to extensive federal, state and local laws and regulations concerning the discharge of materials into the environment and the remediationof chemical contamination. To satisfy such requirements, we must make capital and other expenditures on an on-going basis. Future expenditures relating toenvironmental matters will necessarily depend upon whether such regulations and future government decisions or interpretations of these regulations applyto us and our facilities. It is likely that we will be subject to increasingly stringent environmental standards, and we will incur additional expenditures tocomply with such standards. Furthermore, if we fail to comply with applicable environmental regulations, we could be subject to substantial fines or penaltiesand to civil and criminal liability. During the fiscal years ended October 31, 2014, 2013 and 2012, we spent approximately $0.4 million, $0.3 million and$0.2 million, respectively, on environmental compliance.We may not be able to successfully identify, manage or integrate future acquisitions, and if we are unable to do so, then our rate of growth andprofitability could be adversely affected.We cannot provide assurance that we will be able to identify appropriate targets for acquisition, successfully negotiate the terms of an acquisition,finance an acquisition, or integrate an acquired business effectively into our existing operations. Integration of future acquired businesses could disrupt ourbusiness by diverting management's attention away from our day-to-day operations. Further, failure to successfully integrate any acquisition may causesignificant operating inefficiencies and could adversely affect our overall profitability. Completing an acquisition could require us to raise additional fundsthrough future equity or debt financing, which might result in an unfavorable capitalization that could negatively impact the market price of our commonstock. If our information technology systems fail, or if we experience an interruption in our operations, then our results of operations and financial conditioncould be materially adversely affected.The efficient operation of our business is dependent on our information technology systems. We use these systems to manage our day-to-day operationsincluding maintaining our customer and vendor records, pricing, inventory, bills of material and other operational, statistical, financial and accountingrecords. The failure of our information technology systems, our inability to successfully maintain, enhance and/or replace our information technologysystems, or a significant compromise of the integrity or security of the data that is generated from information technology systems, could adversely affect ourresults of operations, disrupt business and make us unable, or severely limit our ability, to respond to customer demands. In addition, our informationtechnology systems are vulnerable to damage or interruption from:•earthquake, fire, flood and other natural disasters;•employee or other theft;10Table of Contents •attacks by computer viruses or hackers;•power outages; and•computer systems, Internet, telecommunications or data network failure.A significant interruption of our information technology systems could result in decreased revenue, increased expenses, increased capital expenditures,customer dissatisfaction and potential lawsuits, which could have a material adverse effect on our results of operations or financial condition.We operate in competitive markets, and our business will suffer if we are unable to adequately address potential downward pricing pressures and otherfactors that may reduce operating margins.The principal markets that we serve are highly competitive. Competition is based primarily on the precision and range of achievable tolerances, quality,price and the ability to meet delivery schedules dictated by customers. Some of our competitors may have greater financial and other resources than we have,and some may have more established brand names in the markets that we serve. Moreover, our competitors may more accurately foresee market development,may develop products that are superior to our products, may produce similar products at a lower cost than we can, or may adapt more quickly than we can tonew technologies or evolving customer requirements. Increased competition could force us to lower our prices or to offer additional services at a higher costto us, which could reduce our operating margins and net income.Original equipment manufacturers have significant pricing leverage over suppliers and may be able to achieve price reductions over time, which couldreduce our profits.Our products are sold primarily to OEMs. There is substantial and continuing pressure from OEMs to reduce their costs by applying pricing pressure onsuppliers. We attempt to manage such downward pricing pressure and to preserve our business relationships with our OEM customers. In addition tonegotiating reasonable price concessions with our customers, when needed, we seek to reduce our production costs through various measures, includingmanaging our purchase process to reduce our costs of raw materials and components, and implementing cost-effective process improvements. However, oursuppliers may resist pressure to lower prices and may, instead, seek price increases. If we are ultimately unable to offset the effects of OEM price concessionsthrough such measures, our gross margins and profitability could be adversely affected. In addition, OEMs have substantial leverage in setting purchasingand payment terms, including the terms of accelerated payment programs under which early payment discounts can be taken.Loss of any of our largest customers, or a prolonged decline in the business of these customers, could adversely affect our financial results.Certain of our businesses or product lines are largely dependent on a relatively few large customers. Although we believe we have an extensivecustomer base, if we were to lose one of these large customers or if such customer were to incur a prolonged period of decline in business, our financialcondition and results of operations could be adversely affected. In this circumstance, we cannot be certain that we could regain that lost business or replacethe lost customer.Our revenues could decline or we may lose business if our customers: (1) vertically integrate their operations; (2) transfer their manufacturing capacityout of the United States to lower-cost regions of the world; or (3) diversify their supplier base. In addition, new competitors could enter the market anddiminish our market share.If our customers decide to vertically integrate their businesses or to bring production in-house which had previously been serviced by us, then we couldexperience a decline in revenues.In addition, certain manufacturers in the United States have migrated their production to other regions of the world in order to seek lower labor costs. Inmany instances, these manufacturers may reduce the cost of their products and increase profit margins by manufacturing and assembling their products inother regions of the world and then importing those products into the United States. Historically, some of our customers have shifted production to otherregions of the world and there can be no assurance that this trend will not continue. We may lose customers and revenues if our customers locate in areas thatwe choose not to serve or cannot economically serve.If our competitors introduce new products to the market or if new competitors enter the market we serve, then we may experience a loss of customers andrevenues and lower earnings.If our relationship with our employees were to deteriorate, we could be faced with labor shortages, disruptions or stoppages, which could shut downcertain of our operations or delay deliveries to our customers, and thereby impact our financial condition, results of operations and cash flows.11Table of Contents Our operations rely heavily on our employees, and any labor shortage, disruption or stoppage caused by poor relations with our employees could shutdown certain of our operations. Any failure to maintain favorable relations with our non-union employees might result in a work stoppage that could reduceour operating margins and income. We are not party to any collective bargaining agreements at October 31, 2014.Changes in regulatory requirements or advancements in technology may render our products obsolete or less competitive.Changes in legislative, regulatory or industry requirements or advancements in our competitors' technology may render certain of our products obsoleteor less competitive, preventing us from selling them at profitable prices, or at all. Our ability to anticipate changes in technology and regulatory standardsand to successfully develop and introduce new and enhanced products on a timely and cost-efficient basis will be a significant factor in our ability to remaincompetitive. Our business may, therefore, require significant on-going and recurring additional capital expenditures and investments in research anddevelopment. We may not be able to achieve the technological advances necessary for us to remain competitive or some of our products may becomeobsolete. We are also subject to the risks generally associated with new product introductions and applications, including the lack of market acceptance,certification issues, delays in product development and failure of products to operate properly. Any such delays or cost overruns or the inability to obtainsuch certifications could negatively affect the returns from any proposed or new products.Equipment failures, delays in deliveries or catastrophic loss at any of our manufacturing facilities could lead to production curtailments or shutdownsthat prevent us from manufacturing our products.An interruption in production capabilities at any of our facilities due to equipment failure or other reasons could result in our inability to manufactureproducts, which could result in lower sales and earnings. In addition, we generally manufacture our products on a build to order basis, and seek to keep ourinventory levels low. If there is a stoppage in production at any of our manufacturing facilities, even if only temporarily, or if we experience delays as a resultof events that are beyond our control, delivery times could be severely affected. Any significant delay in deliveries to our customers could lead to increasedreturns or cancellations of orders, which may cause us to lose future sales. We could incur losses as a result of unanticipated catastrophic events such as fires,explosions or violent weather conditions. In the past we have, and in the future we may, experience plant shutdowns or periods of reduced production as aresult of equipment failure, delays in deliveries or catastrophic loss, which could have a material adverse effect on our results of operations or financialcondition. In addition, our insurance coverage may not be adequate to compensate us for all losses that result from any of these events.Product liability claims and product replacements could harm our reputation, sales and financial condition.We design and manufacture most of our products, and we expect to continue to do so. We have, on occasion, found flaws and deficiencies in themanufacturing, design, testing or installation of our products. Some deficiencies may not become apparent until after the products are installed by customers.We may need to replace products, and we may be liable for any costs necessary to retrofit the affected structures. Any such replacement or retrofit couldentail substantial costs and adversely affect our reputation, future sales potential and our financial condition. We do not carry insurance coverage to protectagainst product replacement costs or the adverse business effects of a product replacement, and our product liability insurance may not cover retrofit costs.Our business involves complex manufacturing processes that may result in costly accidents or other disruptions to our operations.Our business involves complex manufacturing processes. Some of these processes involve high pressures, temperatures, and other hazards that presentcertain safety risks to workers employed at our manufacturing facilities. The potential exists for accidents involving death or serious injury. The potentialliability resulting from any such accident, to the extent not covered by insurance, could cause us to incur unexpected cash expenditures, thereby reducing thecash available to operate our business. Such an accident could disrupt operations at any of our facilities, which could adversely affect our ability to deliverproduct to our customers on a timely basis and to retain our current business.Flaws in the design or manufacture of our products could cause future product liability or warranty claims for which we do not have adequateinsurance or may negatively affect our reputation among customers.Our products are essential components used in the homebuilding, commercial construction and solar industries. Problems in the design or manufactureof our products could result in property damage, personal injury or death. While we believe that our liability insurance is adequate to protect us from futureproduct liability and warranty liabilities, our insurance may not cover all liabilities or be available in the future at a cost acceptable to us. In addition, if anyof our products prove to be defective, we may12Table of Contents be required to participate in a recall involving such products. A successful claim brought against us in excess of available insurance coverage, if any, or arequirement to participate in any product recall, could significantly reduce our profits or negatively affect our reputation with customers. In addition, flaws inour products could lead to customer dissatisfaction and complaints, weaken our customer relationships, damage our reputation in the industry and result in aloss of revenue or customers.Our credit facility contains certain financial covenants that limit the aggregate availability of funds and may restrict our ability to acquire businesses.The availability of funds under the credit facility is a function of: (1) amounts borrowed and outstanding under the facility; (2) letters of credit issued;and (3) the minimum interest coverage ratio and maximum consolidated leverage ratio, as defined and permitted under the agreement, which includes acalculation of our trailing twelve month EBITDA, as defined in the agreement. We must not permit, on a quarterly basis, our ratio of consolidated EBITDA toconsolidated interest expense as defined (Minimum Interest Coverage Ratio), to fall below 3.00:1 or our ratio of consolidated funded debt to consolidatedEBITDA, as defined (Maximum Consolidated Leverage Ratio), to exceed 3.25:1. These restrictions on funds availability could:•limit our ability to plan for or react to market conditions or meet capital needs;•restrict activities or business plans; and•adversely affect our ability to fund operations, or engage in other business activities that may be in our best interest.Our credit facility contains certain restrictions on our ability to enter into transactions to acquire businesses, including:•financial covenants as defined in the agreement, including the minimum interest coverage ratio and maximum consolidated leverage ratio, must bemet just prior to the anticipated transaction and just after the transaction on a pro forma basis based on the combined operating results of theacquisition target and our results of operations;•no event of default, as defined in the agreement, can have occurred and be continuing;•if the leverage ratio, as defined, is greater than 2.50 to 1.00 on a pro forma basis after giving effect to the transaction, the amount paid for theacquisition is limited to 15% of our net worth per transaction; and•various other restrictions apply, including limitations on other indebtedness, liens, certain asset sales, certain investments and swap agreements,restricted payments, certain transactions with affiliates, entering into restrictive agreements or factoring arrangements and certain sale and leasebackagreements.These restrictions may impede our ability to successfully execute an active acquisition program, which is an important component of our future growthstrategy. Our failure to comply with the terms and covenants in our credit facility could lead to an event of default, as defined in the agreement, which mayentitle the lenders to accelerate the maturity of our indebtedness and permit the lenders to declare all amounts owed to be currently due and payable.An inability to access capital could adversely affect our business, operating results and financial condition and could ultimately adversely affectliquidity.Our access to external sources of financing, as well as the cost of such financing, is dependent on various factors, including perceptions of our financialstrength. Perceptions of financial strength are often tied to factors such as financial leverage, relative balance sheet positions including cash and workingcapital metrics, capital structure and earnings trends, and each of these factors can be evaluated either in absolute terms or relative to our peer group. If we arenot able to continue to have access to the capital markets on favorable terms or at all, our business and future growth prospects could be adversely affected.Our corporate governance documents or the provisions of Delaware law may delay or preclude a business acquisition that stockholders may considerto be favorable, which might result in a decrease in the value of our common shares.Our certificate of incorporation and bylaws and Delaware law contain provisions that could make it more difficult for a third party to acquire us withoutthe consent of our Board of Directors. These provisions include restrictions on the ability of our stockholders to remove directors and supermajority votingrequirements for stockholders to amend our organizational documents, a classified Board of Directors and limitations on action by our stockholders bywritten consent. In addition, our Board of Directors has the right to issue preferred stock without stockholder approval, which could be used to dilute thestock ownership of a potential hostile acquirer. Delaware law also imposes some restrictions on mergers and other business combinations between any holderof 15% or more of our outstanding common stock. Although we believe these provisions protect our stockholders from coercive or otherwise unfair takeovertactics, and thereby provide for an opportunity for us to receive a higher bid by requiring potential acquirers to negotiate with our Board of Directors, theseprovisions apply even if the offer may be considered beneficial by some stockholders.13Table of Contents Our operations outside the United States require us to comply with a number of United States and international regulations, violations of which couldhave a material adverse effect on our consolidated results of operations and consolidated financial condition.Our operations outside the United States require us to comply with a number of United States and international regulations. For example, our operationsin countries outside the United States are subject to the Foreign Corrupt Practices Act (FCPA), which prohibits United States companies or their agents andemployees from providing anything of value to a foreign official for the purposes of influencing any act or decision of these individuals in their officialcapacity to help obtain or retain business, direct business to any person or corporate entity, or obtain any unfair advantage. Because we operate and sellproduct to customers in various countries, the risk of unauthorized payments or offers of payments by one of our employees or agents that could be inviolation of the FCPA exists, even though certain foreign parties may not be subject to the provisions of FCPA. We have internal control policies andprocedures and compliance programs which we have implemented to train our employees and agents with respect to the FCPA. However, we cannot ensurethat our policies, procedures and programs will always protect us from reckless or criminal acts committed by our employees or agents. Allegations ofviolations of applicable anti-corruption laws, including the FCPA, may result in internal, independent, or government investigations. Violations of the FCPAmay result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could have a material adverse effect on our business,consolidated results of operations and consolidated financial condition. In addition, investigations by governmental authorities as well as legal, social,economic, and political issues in these countries could have a material adverse effect on our business and consolidated results of operations. We are alsosubject to the risk that our employees and agents outside of the United States may fail to comply with other applicable laws.Our plans to expand our business outside the United States may not succeed.Any expansion to markets outside the United States will present different and successive risks, expenses and difficulties with regard to applying ormodifying our business model to different countries and regions of the world. There can be no assurance that any of our efforts to expand outside the UnitedStates will prove successful or that we will not incur operating losses in the future as a result of these efforts, or that such efforts will not have a materialadverse impact on our results of operations or financial condition.We may not have the right infrastructure (people, systems, and processes) in place to achieve our growth initiatives.If we do not effectively develop and implement our organic growth strategies, or if there are delays or difficulties in enhancing business processes, wemay not realize anticipated productivity improvements or cost efficiencies, and may experience operational difficulties, increased costs, manufacturinginterruptions or delays, quality issues, increased product time to market, and/or inefficient allocation of human resources, any or all of which could materiallyand adversely affect our financial condition, results of operations and cash flows.Our success depends upon our ability to develop new products and services, integrate acquired products and services and enhance our existing productsand services through product development initiatives and technological advances.We maintain programs designed to develop new products and to enhance and improve our products. We are expending resources for the development ofnew products in all aspects of our business, including products that can reach a broader customer base. Some of these new products must be developed due tochanges in legislative, regulatory or industry requirements or in competitive technologies that render certain of our products obsolete or less competitive.The successful development of our products and product enhancements is subject to numerous risks, both known and unknown, including unanticipateddelays, access to significant capital, budget overruns, technical problems and other difficulties that could result in the abandonment or substantial change inthe design, development and commercialization of these new products.Given the uncertainties inherent with product development and introduction, including lack of market acceptance, we cannot provide assurance thatany of our product development efforts will be successful on a timely basis or within budget, if at all. Failure to develop new products and productenhancements on a timely basis or within budget could harm our business and prospects. In addition, we may not be able to achieve the technologicaladvances necessary for us to remain competitive.Our goodwill and indefinite-lived intangible assets may become impaired and result in a charge to income.We evaluate our goodwill and indefinite-lived intangible assets at least annually to determine whether we must test for impairment. In making thisassessment, we must use judgment to make estimates of future operating results and appropriate residual values. Actual future operating results and residualvalues associated with our operations could differ significantly from these estimates, which may result in an impairment charge in a future period, resulting ina decrease in net income from operations in the year of the impairment, as well as a decline in our recorded net worth.14Table of Contents We may record a valuation allowance if our deferred tax assets are deemed to be unrealizable or if we incur losses.We record the estimated future tax effects of temporary differences between the tax basis of assets and liabilities and the amounts reported in ourconsolidated balance sheets, as well as net operating losses and tax credit carry forwards. We evaluate the carrying value of the net deferred tax assets anddetermine whether we will be able to generate sufficient future taxable income to realize our deferred tax assets. If our estimates and assumptions about futureresults indicate we will not generate sufficient taxable income to realize our deferred tax assets, we would record a valuation allowance against a portion ofour deferred tax assets. As of October 31, 2014, we have deferred tax assets of $41.7 million, and we have recorded a valuation allowance of $1.4 millionassociated with certain net operating loss carry forwards which we believe may not be realizable for state income tax purposes. Our estimates of future taxableincome must be evaluated, to some extent, based on historical experience. We have recorded net income for the year ended October 31, 2014 and losses foreach of the years ended October 31, 2013 and 2012. If we incur three years of cumulative losses, after adjusting for certain non-recurring events andtransactions, we may be required to increase our valuation reserve on our deferred tax assets. This change would result in an increase in income tax expenseand would likely have a material impact on our financial position, results of operations and cash flows.We may not be able to protect our intellectual property.A significant amount of time, effort and expense is devoted to custom engineering, which qualifies our products for specific customer applications, aswell as developing superior, proprietary process technology. We rely on a combination of copyright, patent, trade secrets, confidentiality procedures andcontractual commitments to protect our proprietary information. Despite our efforts, these measures can only provide limited protection. Unauthorized thirdparties may try to copy or reverse engineer portions of our products or may otherwise obtain and use our intellectual property. Any patents we own may beinvalidated, circumvented or challenged. Any of our pending or future patent applications, whether or not being currently challenged, may not be issued withthe scope sought, if at all. If we cannot protect our proprietary information against unauthorized use, we may not be able to retain a perceived competitiveadvantage, which may have a material adverse effect on our financial condition, results of operations and cash flows.We have the ability to issue additional equity securities, which would lead to dilution of our issued and outstanding common stock.We are authorized to issue, without stockholder approval, 1,000,000 shares of preferred stock, no par value, in one or more series, which may give otherstockholders dividend, conversion, voting, and liquidation rights, among other rights, which may be superior to the rights of holders of our common stock.The issuance of additional equity securities or securities convertible into equity securities would result in dilution of existing stockholders' equity interests.Our Board of Directors has no present intention to issue any such preferred shares, but has the right to do so in the future. In addition, we were authorized, byprior stockholder approval, to issue up to 125,000,000 shares of our common stock, $0.01 par value per share. These authorized shares can be issued, withoutstockholder approval, as securities convertible into either common stock or preferred stock.Our insurance providers may be unable to perform under their obligations.We purchase insurance as part of our risk management strategy. An insurer's insolvency or refusal to make payments under the terms of agreements withus could have an adverse effect on our results of operations or liquidity. If one of our insurance carriers entered into liquidation proceedings, our ability torecover amounts due for outstanding claims or to pursue recoveries from such an insurer for future claims could be affected.We are subject to various existing and contemplated laws, regulations and government initiatives that may materially impact the demand for ourproducts, our profitability or our costs of doing business.Our business may be materially impacted by various governmental laws, regulations and initiatives that may artificially create, deflate, accelerate, ordecelerate consumer demand for our products. For example, when the government issues tax credits designed to encourage increased homebuilding orenergy-efficient window purchases, the credits may create a spike in demand that would not otherwise have occurred and our production capabilities may notbe able to keep pace, which could materially impact our profitability. Likewise, when such laws, regulations or initiatives expire, our business mayexperience a material loss in sales volume or an increase in production costs as a result of the decline in consumer demand that follows such expiration.Change in our executive officers may disrupt or delay our operations and negatively impact the market price of our common stock.We depend on our senior management team and other key employees to run our operations effectively and efficiently. Significant attrition within ourmanagement team could adversely affect our business. Our success depends in part on our ability15Table of Contents to attract, retain and motivate senior management and other key employees. Achieving this objective may be difficult due to many factors, includingfluctuations in global economic and industry conditions, competitors' hiring practices, cost reduction activities, and the effectiveness of our compensationprograms. Competition for qualified personnel can be very intense. We must continue to recruit, retain and motivate senior management and other keyemployees sufficient to maintain our current business and support our future projects. A loss of any such personnel, or the inability to recruit and retainqualified personnel in the future, could have an adverse effect on our financial condition and results of operations.Failure to achieve and maintain effective internal controls could have a material adverse effect on our business and on our stock price.Effective internal controls are necessary for us to provide reliable financial reports. If we cannot provide reliable financial reports, our brand andoperating results could be harmed. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systemsdetermined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. While we continue toevaluate and improve our internal controls, we cannot be certain that these measures will ensure that we implement and maintain adequate controls over ourfinancial processes and reporting in the future. Any failure to implement required new or improved controls, or difficulties encountered in theirimplementation, could harm our operating results or cause us to fail to meet our reporting obligations. If we fail to maintain the adequacy of our internalcontrols, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an on-goingbasis that we have effective internal control over our financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. Failure to achieve andmaintain an effective internal control environment could cause investors to lose confidence in our reported financial information, which could have amaterial adverse effect on our stock price.Item 1B. Unresolved Staff Comments.None.16Item 2.Properties.The following table lists our principal properties by location, general character and use. These properties are owned by us, unless indicated otherwise.Location Character & Use of PropertyHouston, Texas (Lease expires 2023) Executive corporate officeRice Lake, Wisconsin Fenestration productsChatsworth, Illinois Fenestration productsRichmond, Indiana Fenestration productsSolon, Ohio (Lease expires 2017) Flexible spacer, and adhesive research and salesLuck, Wisconsin Fenestration productsRichmond, Kentucky Vinyl and composite extrusionsWinnebago, Illinois Vinyl extrusionsMounds View, Minnesota (Lease expires 2016) Fenestration productsKent, Washington (Lease expires 2020) Vinyl and composite extrusionsYakima, Washington (Lease expires 2016) Vinyl extrusionsDubuque, Iowa (Leased expires 2017) Fenestration productsShawano, Wisconsin (Lease expires 2020) Wood flooringCambridge, Ohio, (Lease expires 2021) Flexible spacer and solar adhesivesCoventry, United Kingdom Flexible spacerHeinsberg, Germany (Lease expires 2025) Flexible spacerSacramento, California (Lease expires 2016) Screens for vinyl windows and doorsDes Moines, Iowa (Lease expires 2019) Screens for vinyl windows and doorsPhoenix, Arizona (Lease expires 2015) Screens for vinyl windows and doorsDenver, Colorado (Lease expires 2015) Screens for vinyl windows and doorsParis, Illinois (Leased month to month) Screens for vinyl windows and doorsParkersburg, West Virginia (Lease expires 2017) Screens for vinyl windows and doorsFontana, California (Lease expires 2019) Screens for vinyl windows and doorsPerrysburg, Ohio (Lease expires 2019) Screens for vinyl windows and doorsChehalis, Washington (Leases expire 2015 & 2019) Screens for vinyl windows and doorsGreenville, Texas (Lease expires 2020) Vinyl extrusionsWe believe our operating properties are in good condition and well maintained, and are generally suitable and adequate to carry on our business. Infiscal 2014, our facilities operated at approximately 46% of capacity.Item 3. Legal Proceedings.From time to time, we, along with our subsidiaries, are party to various legal proceedings arising in the ordinary course of business. We reserve forlitigation loss contingencies that are both probable and reasonably estimable. We do not expect that losses resulting from any current legal proceedings willhave a material adverse effect on our consolidated financial statements if or when such losses are incurred.For discussion of environmental issues, see Item 1, "Business - Environmental and Employee Safety Matters” discussed elsewhere in this Annual Reporton Form 10-K.Item 4. Mine Safety Disclosures.Not Applicable.17Table of Contents PART IIItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.Our common stock, $0.01 par value, has been listed on the New York Stock Exchange under the ticker symbol NX since April 24, 2008. The followingtable sets forth, for the periods indicated, the high and low sales price per share of our common stock as reported, and the quarterly cash dividend declared pershare on our common stock. NX Stock Price Cash DividendsPeriodHigh Low DeclaredQuarter ended October 31, 2014$20.26 $16.96 $0.04Quarter ended July 31, 201419.16 16.50 0.04Quarter ended April 30, 201421.42 17.78 0.04Quarter ended January 31, 201420.54 16.98 0.04Quarter ended October 31, 201321.84 15.66 0.04Quarter ended July 31, 201318.95 15.87 0.04Quarter ended April 30, 201321.22 15.37 0.04Quarter ended January 31, 2013$22.27 $18.03 $0.04The terms of our revolving credit agreement do not specifically limit the total amount of dividends or other distributions to our shareholders. Dividendsand other distributions are permitted so long as after giving effect to such dividend or stock repurchase, there is no event of default.There were approximately 2,561 holders of our common stock (excluding individual participants in securities positions listings) on record as ofDecember 8, 2014.Equity Compensation Plan InformationThe following table summarizes certain information regarding equity compensation to our employees, officers and directors under equity compensationplans as of October 31, 2014: (a) (b) (c)Plan CategoryNumber of securitiesto be issued uponexercise of outstandingoptions, warrants andrights Weighted-averageexercise price ofoutstanding options,warrants and rights Number of securities remainingavailable for future issuanceunder equity compensation plans(excluding securities reflected incolumn (a))Equity compensation plans approved by security holders2,588,389 $16.21 1,278,60618Table of Contents Issuer Purchases of Equity SecuritiesSet forth below is a table summarizing the program and the repurchase of shares during the quarter ended October 31, 2014. Periods Ended (a)Total Number ofShares Purchased (1) Periods Ended (b)Average Price Paidper Share (1) Periods Ended (c) TotalNumber of SharesPurchased as Part ofPublicly AnnouncedPlans or Programs (1) Periods Ended (d)Maximum US DollarsRemaining that May YetBe Used to PurchaseShares Under the Plans orPrograms (1)August 1, 2014 through August 31, 2014 — — — $75,000,000September 1, 2014 through September 30, 2014 316,900 $18.33 316,900 $69,192,195October 1, 2014 through October 31, 2014 999,426 $18.44 999,426 $50,786,877Total 1,316,326 $18.39 1,316,326 (1) Our Board of Directors approved a stock repurchase program that authorized the repurchase of 2,000,000 shares of our common stock (1,000,000 on May27, 2010 and 1,000,000 on August 25, 2011). No shares were purchased under this program in fiscal 2014 and there were 905,663 shares available under theprogram prior to its cancellation in September 2014. Our Board cancelled this existing program on September 5, 2014, and approved a new stock repurchaseprogram authorizing us to use up to $75.0 million to purchase shares of our common stock. Repurchases under the new program will be made in open markettransactions or privately negotiated transactions, subject to market conditions, applicable legal requirements and other relevant factors. The program does nothave an expiration date.For the period from September 5, 2014 through October 31, 2014, we purchased 1,316,326 shares at a cost of $24.2 million under the new program.19Table of Contents Stock Performance GraphThe following chart represents a comparison of the five year total return of our common stock to the Standard & Poor’s 500 Index (S&P 500), theRussell 2000 Index, and a peer group index selected by us, which includes companies offering similar products and services as ours. The companies includedin the peer group are American Woodmark Corp, Apogee Enterprises Inc, Builders FirstSource Inc, Drew Industries Inc, Eagle Materials Inc, GibraltarIndustries Inc, Griffon Corp, Louisiana-Pacific Corp, Simpson Manufacturing Company Inc, Trex Company Inc, NCI Building Systems Inc, Nortek Inc, PlyGem Holding Inc, and Universal Forest Products Inc.INDEXED RETURNS For the Years EndedCompany Name / Index 10/31/2009 10/31/2010 10/31/2011 10/31/2012 10/31/2013 10/31/2014Quanex Building Products Corporation $100 $122.18 $101.04 $136.69 $124.03 $140.83S&P 500 Index 100 116.52 125.94 145.09 184.52 216.39Russell 2000 Index 100 126.58 135.07 150.35 204.90 218.07Peer Group $100 $106.57 $101.15 $172.16 $217.02 $230.4120Table of Contents Item 6. Selected Financial Data.The following table presents selected historical consolidated financial and operating data for the periods shown. The selected consolidated financialdata as of October 31, 2014, 2013, 2012, 2011 and 2010 and for each of the fiscal years then ended was derived from our audited consolidated financialstatements for those dates and periods, adjusted for discontinued operations, as indicated. The following information should be read in conjunction with“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes includedelsewhere in this Annual Report on Form 10-K. Fiscal Years Ended October 31, 2014(1)(6) 2013(1)(2) 2012(1)(3)(5)(6) 2011(1)(4)(6)(7) 2010(1)(7) (Dollars in thousands, except per share data)Consolidated Statements of Income Net sales$595,384 $554,867 $478,578 $420,258 $361,062Cost and expenses: Cost of sales464,584 419,733 355,669 315,765 267,614Selling, general and administrative82,150 98,969 100,884 75,918 62,110Depreciation and amortization33,869 53,521 29,975 25,390 19,879Asset impairment charges505 1,465 912 1,799 —Operating income (loss)14,276 (18,821) (8,862) 1,386 11,459Non-operating income (expense): Interest expense(562) (621) (431) (430) (420)Other, net92 170 225 (510) 2,651Income (loss) from continuing operations before income taxes13,806 (19,272) (9,068) 446 13,690Income tax benefit (expense)(5,468) 6,888 2,507 (857) (5,924)Income (loss) from continuing operations8,338 (12,384) (6,561) (411) 7,766Income (loss) from discontinued operations, net of taxes20,896 681 (9,973) 9,477 15,332Net income (loss)$29,234 $(11,703) $(16,534) $9,066 $23,098Basic earnings per common share: Basic earnings (loss) from continuing operations$0.22 $(0.34) $(0.18) $(0.01) $0.21Basic earnings (loss) from discontinued operations0.57 0.02 (0.27) 0.25 0.41Basic earnings (loss) per share$0.79 $(0.32) $(0.45) $0.24 $0.62Diluted earnings per common share: Diluted earnings (loss) from continuing operations$0.22 $(0.34) $(0.18) $(0.01) $0.21Diluted earnings (loss) from discontinued operations0.56 0.02 (0.27) 0.25 0.40Diluted earnings (loss) per share$0.78 $(0.32) $(0.45) $0.24 $0.61Cash dividends declared per share$0.16 $0.16 $0.16 $0.16 $0.14Other Financial & Operating Data Income (loss) from continuing operations, percent of net sales1.4% (2.2)% (1.4)% —% 2.2%Cash provided by operating activities$20,778 $43,519 $26,478 $52,944 $89,132Cash provided by (used for) investing activities74,124 (59,687) (41,704) (135,367) (15,785)Cash used for financing activities(24,459) (4,869) (3,928) (14,914) (9,370)Acquisitions, net of cash acquired5,161 22,096 — 110,845 1,590Capital expenditures$33,779 $37,931 $42,871 $25,312 $14,720Selected Consolidated Balance Sheet Data at Year End Cash and cash equivalents$120,384 $49,734 $71,252 $89,616 $187,176Total assets517,113 571,815 589,538 584,929 591,250Long-term debt, excluding current portion586 701 789 860 951Total liabilities$96,193 $155,621 $167,711 $147,703 $149,81821Table of Contents (1) In April 2014, we sold Nichols to Aleris. Accordingly, the assets and liabilities of Nichols were reported as discontinued operations in the consolidatedbalance sheets for the applicable periods presented, and the related operating results are reported as discontinued operations in the consolidatedstatements of income (loss) presented, as applicable.(2) In December 2012, we acquired substantially all the assets of Alumco, Inc. and its subsidiaries, a manufacturer of window screens, with multiple facilitieswithin the United States.(3) In fiscal 2012, we experienced a strike at two of our facilities in Davenport, Iowa, (included in discontinued operations) which had a negative impact onoperating income of approximately $11.1 million ($7.3 million net of tax), including a reduction in sales volume and incremental direct costs.(4) In March 2011, we acquired Edgetech, I.G. Inc. and its German subsidiary. Headquartered in Cambridge, Ohio, Edgetech has three manufacturingfacilities, one each in the United States, United Kingdom and Germany, that produced and marketed a full line of warm edge insulating glass spacersystems for window and door customers in North America and abroad. In March 2011, we also acquired a small vinyl extrusion facility in Yakima,Washington. Accordingly, the estimated fair value of assets acquired in the acquisition and the results of operations were included in our consolidatedfinancial statements as of the effective date of the acquisition.(5) In November 2011, we announced a consolidation program for two of our insulating glass manufacturing facilities, whereby we closed a facility inBarbourville, Kentucky. This facility consolidation was completed ahead of schedule in August 2012. In fiscal 2012, we recorded expenses totaling $9.0million ($5.9 million net of tax) related to this consolidation.(6) During fiscal 2011, we recognized an expense of $1.9 million ($1.1 million net of tax) to increase our warranty reserve associated with a discontinuedlegacy product and claims. In fiscal 2014, we decreased our warranty reserve and reduced expense by $2.9 million ($1.8 million net of tax) related toclaims associated with this discontinued legacy product.(7) In 2010, we closed a start-up facility in China due to contraction of demand and a decision to serve the international thin film solar panel markets fromour North American operations. Accordingly, the assets and liabilities of this start-up facility in China were reported as discontinued operations in theconsolidated balance sheets for the applicable periods presented, and the related operating results are reported as discontinued operations in theconsolidated statements of income presented, as applicable.22Table of Contents Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.The following discussion and analysis contains forward-looking statements based on our current assumptions, expectations, estimates and projectionsabout our business and the homebuilding industry, and therefore, it should be read in conjunction with our consolidated financial statements and relatednotes thereto, as well as "Cautionary Note Regarding Forward-Looking Statements" discussed elsewhere within this Annual Report on Form 10-K. For alisting of potential risks and uncertainties which impact our business and industry, see Item 1A, “Risk Factors.” Actual results could differ from ourexpectations due to several factors which include, but are not limited to: market price and demand for our products, economic and competitive conditions,capital expenditures, new technology, regulatory changes and other uncertainties. Unless otherwise required by law, we undertake no obligation to publiclyupdate any forward-looking statements, even if new information becomes available or other events occur in the future.Our BusinessWe manufacture energy efficient window components that include (1) flexible insulating glass spacers, (2) extruded vinyl profiles, (3) window and doorscreens, (4) solar panel sealants and (5) precision-formed metal and wood products for original equipment manufacturers (OEMs) in the residential andcommercial window and door industries. We use low-cost production processes and engineering expertise to provide our customers with specialized productsfor their specific window and door applications. We believe these capabilities provide us with unique competitive advantages. We serve a primary customerbase in North America, and also serve customers in international markets through our operating plants in the United Kingdom and Germany, as well asthrough sales and marketing efforts in other countries.We continue to invest in organic growth initiatives and to pursue targeted business acquisitions, which may include vertically integrated vinylextrusion businesses or screen manufacturers that allow us to expand our existing fenestration footprint, enhance our existing product offerings, acquirecomplementary technology, enhance our leadership position within the markets we serve, and expand into new markets or service lines.We have four operating segments which we aggregate into one reportable business segment. The accounting policies of our operating segments are thesame as those used to prepare our accompanying consolidated financial statements.Recent Transactions and EventsOn April 1, 2014, we sold our interest in a limited liability company which held the net assets of our Nichols Aluminum business (Nichols) to AlerisInternational, Inc. (Aleris), a privately held Delaware corporation which provides aluminum rolled products and extrusions, aluminum recycling andspecification aluminum alloy production. We received net proceeds of $107.4 million, which includes a working capital adjustment of $2.6 million which wepaid in June 2014, resulting in a gain on the transaction of $24.1 million, net of related taxes of $15.1 million. Our purchases of aluminum product fromNichols for the years ended October 31, 2014, 2013 and 2012 were $14.9 million, $12.6 million and $11.9 million, respectively.Prior to the sale, Nichols was the sole operating segment included in our Aluminum Sheet Products reportable segment. Consistent with U.S. GAAP, wehave recorded this business as a discontinued operation for all periods presented, and reclassified the results of operations of Nichols into a single caption onthe accompanying statements of income (loss) as “Income (Loss) from Discontinued Operations, net of Taxes.” Therefore, our operating segment disclosureincludes only one reportable segment for the years ended October 31, 2014, 2013 and 2012.In November 2013, Nichols experienced a fire at its Decatur, Alabama facility, which damaged a cold mill used to press aluminum sheeting to a desiredthickness. The loss was insured, subject to a $0.5 million deductible. We capitalized $6.5 million to rebuild the asset, which was returned to service as ofMarch 31, 2014. We incurred an additional $2.3 million associated with this loss, including an impairment of $0.5 million related to retirement of the asset,moving costs, outside service costs, clean-up and the deductible. To date, we have received insurance proceeds of $4.8 million. We expect to receive totalinsurance proceeds of approximately $8.1 million, resulting in an expected gain on involuntary conversion of $5.7 million. We estimate the remainingunrecognized gain on involuntary conversion at $3.3 million. We expect to recognize this gain during fiscal 2015, when and to the extent that insuranceproceeds are received, which will result in an increase in income from discontinued operations, net of tax.In December 2013, we acquired certain vinyl extrusion assets of Atrium Windows and Doors, Inc. (Atrium) at a facility in Greenville, Texas, for $5.2million in cash (Greenville). We accounted for this transaction as a business combination resulting in an insignificant gain on the purchase. We entered into asupply agreement with Atrium related to the products manufactured at Greenville. We believe this acquisition expanded our vinyl extrusion capacity andpositioned us with a platform from which to better serve our customers in the southern United States.23Table of Contents In August 2013, we ceased all activities associated with our enterprise resource planning (ERP) implementation and migrated several operating unitswhich were utilizing the ERP prior to August 2013 back to legacy systems as of October 31, 2013, although we continue to use certain elements of the ERP atthe corporate office. We recorded a change in accounting estimate during the fourth quarter of 2013 and accelerated depreciation associated with certain ERPassets. We incurred charges related to termination benefits and contract termination costs which were not deemed significant.Our former Chairman, President and Chief Executive Officer, Mr. David Petratis, retired from his position effective July 8, 2013. Mr. Petratis participatedin a number of our stock-based and deferred compensation plans. In January 2014, we paid approximately $3.3 million to Mr. Petratis, which represented hisvested balances under our deferred compensation plan, and, in February 2014, we paid $1.7 million to Mr. Petratis pursuant to our supplemental employeeretirement plan.In December 2012, we acquired substantially all of the assets of Alumco Inc. and its subsidiaries (Alumco) for $22.1 million which included a workingcapital adjustment received of $0.4 million, and subject to an earn-out provision for which the criteria for additional compensation was not met. The purchaseof Alumco allowed us to expand the scope of our fenestration business to include screens for vinyl windows and door manufacturers, and to expand ourgeographic reach throughout the United States. We believe this acquisition allowed us to build upon our national and regional original equipmentmanufacturer (OEM) customer base and to enhance our distribution capabilities. We recorded tax-deductible goodwill of $2.8 million in conjunction withthis transaction.Market Overview and OutlookWe believe the primary drivers of our operating results continue to be North American new home construction and residential remodeling andreplacement (R&R) activity. We believe that housing starts and window shipments are indicators of activity levels in the home building and windowindustries, and we use this data, as published by or derived from third-party sources, to evaluate the market.Housing starts and window shipments in the United States have increased in recent years, although the rate of increase in 2014 has been slower thanforecasted when the housing recovery began in 2010. The National Association of Homebuilders (NAHB) has forecasted calendar-year housing starts toincrease from 1.0 million units in 2013 to 1.1 million units in 2014 and 1.2 million units in 2015, reflecting increasing consumer confidence and a healthiereconomy. Ducker Worldwide, LLC (Ducker), a consulting and research firm, indicated that window shipments in the R&R market are expected to increasefrom 26.3 million units in 2013 to 27.8 million units in 2014 and 29.2 million units in 2015, and new construction window shipments are forecasted toincrease at a higher pace. Derived from reports published by Ducker, the overall growth in window shipments for the trailing twelve-month period endedSeptember 30, 2014 was 5.3%. During this period, growth in new construction increased 7.8%, while growth in R&R activity increased 3.7%. Growth in newconstruction continues to outpace the growth in R&R, with a greater portion of the new construction associated with multi-family housing. According to theJuly 31, 2014 publication, "Multifamily Mid Year Outlook 2014" by the Federal Home Loan Mortgage Corporation, a public government-sponsoredenterprise, the economic recession has resulted in an estimated 3.9 million delayed household formations. With supply of single-family homes tight andrising home prices, we believe this delay in housing formation has contributed to the growth in multi-family housing, particularly with Millennials, 18-to-34-year-olds, who account for 75% of estimated housing demand and are more likely to rent than buy.The United States government has not changed energy standards recently, but higher energy efficiency standards in Europe are positively impactingthe industry. We continue to be optimistic about our growth prospects in Europe, particularly in the United Kingdom, Germany and Scandinavian countries,where the push for higher energy efficiency standards has been the strongest. Older technology cold-edge spacers are still a dominant force in these regionsand garner a larger portion of the total market share in Europe relative to the United States. We operate warm-edge spacer plants in the United Kingdom andin Germany, where we added a third production line during the fourth quarter of 2013. We have experienced some challenges in Europe associated withproduct defects, which have been alleviated with the implementation of a replacement component for our warm-edge spacer products during 2014. Webelieve we can become the provider of choice as demand for more energy-efficient warm edge spacers grows and eventually displaces cold edge spacers.The housing recovery continues to improve in the United States, but there remain challenges to growth prospects in the fenestration market that weserve. We have experienced an increase in demand for our products in Europe, Australia and Scandinavia, but slow recovery in Canada. In the United States,our growth is somewhat dependent upon the growth of our customers, particularly the national OEMs. If these customers lose market share or exert pricingpressure on us, our business may be negatively impacted. Furthermore, our growth can be impeded by the availability and pricing of critical raw materials,and our ability to pass this incremental cost to our customers through surcharges. Finally, our business is subject to seasonality, as window installation levelsgenerally increase during the summer months and decrease during the winter months due to inclement weather.24Table of Contents Comparison of the fiscal years ended October 31, 2014 and 2013This table sets forth our consolidated results of operations for the twelve-month periods ended October 31, 2014 and 2013. For the Years Ended October 31, 2014 2013 2014 vs. 2013 Amounts % of Sales Amounts % of Sales $ Change % Change (Dollars in millions)Net sales$595.4 100% $554.9 100% $40.5 7%Cost of sales464.6 78% 419.7 76% 44.9 11%Selling, general and administrative82.1 14% 99.0 18% (16.9) (17)%Depreciation and amortization33.9 6% 53.5 10% (19.6) (37)%Asset impairment charges0.5 —% 1.5 —% (1.0) (67)%Operating income (loss)14.3 2% (18.8) (3)% 33.1 176%Interest expense(0.6) —% (0.7) —% 0.1 (14)%Other, net0.1 —% 0.2 — (0.1) (50)%Income tax (expense) benefit(5.5) (1)% 6.9 1% (12.4) (180)%Income (loss) from continuing operations$8.3 1% $(12.4) (2)% $20.7 (167)%Income (loss) from discontinued operations$20.9 4% $0.7 —% $20.2 2,886%Net income (loss)$29.2 5% $(11.7) (2)% $40.9 (350)%Net Sales. Net sales increased $40.5 million, or 7%, for fiscal 2014 compared to fiscal 2013. The results for 2014 include incremental sales of $12.7million associated with the Alumco business acquired in December 2012, reflecting a full year of activity in 2014 versus ten months of activity in 2013, aswell as the effect of price increases during the latter half of 2014 and higher volume. We experienced higher sales volume for our insulating glass spacerproducts, including strong core United States sales, increased export sales, better-than-expected results for our solar product line, and favorable salesassociated with the European operations, despite some challenges with customer returns and allowances in Europe. In addition, our window screen accessoryproducts were in higher demand in 2014 resulting in favorable pricing, primarily for our wood products. Our vinyl profile product sales were favorablyimpacted by the volume associated with the Greenville asset acquisition in December 2013, as well as an increase from resin surcharges for a portion of ourvinyl profiles as resin prices increased throughout 2014. Our vinyl profile product sales were unfavorably impacted by price concessions, contractualprovisions in annual contracts that limit the amount of increased vinyl resin cost we can pass to customers, other pricing pressure and an increase in salesreturns and allowances. Overall improvement in the housing market in the United States is trending toward new construction of multi-family homes whichgenerally contain lower-cost, less energy-efficient windows. Window shipments, derived from preliminary data provided by Ducker for the year-over-yeartwelve-month periods ended September 30, 2014 and 2013, reflect an overall growth rate of 5.3% compared to a growth rate of 5.4% for our year-over-yearresults during the same period, as adjusted for certain foreign and other results, including pro forma results for Alumco, to be more comparable to Ducker.Cost of Sales. The increase in cost of sales of $44.9 million, or 11%, for fiscal 2014 compared to fiscal 2013 correlates to a 7% increase in net sales, asdescribed above. The primary reason for the decrease in margin during 2014 was related to a series of resin cost increases, a major raw material used in ourvinyl products. We also experienced labor inefficiencies partially attributable to delays associated with new extrusion lines, higher repair and maintenancecosts, and freight costs. These increases in cost were partially offset by favorable material price variances for butyl, a commodity used for our IG spacerproducts, as well as other material savings. We recorded a decrease in warranty accruals of $3.0 million, of which $2.9 million related to a warranty accrual fora specific customer which was settled in December 2013. Furthermore, we continue to evaluate our cost structure to reduce overhead and align our staffingneeds to maximize efficiency.Selling, General and Administrative. Our selling, general and administrative expenses decreased $16.9 million, or 17%, for fiscal 2014 compared tofiscal 2013. Of this amount, $9.9 million represents the cost incurred in 2013 associated with our ERP implementation project which was ceased in August2013. No such implementation costs were incurred for the comparative period in 2014. In addition, we reduced our headcount associated with theinformation technology structure that was originally built to support the ERP project; we streamlined our sales and marketing group; and we implementedselective headcount reductions. Costs associated with transaction fees totaled $0.5 million in 2014 compared to $1.0 million of such fees in 2013. Althoughour stock-based compensation expense declined year-over-year, this decline was offset by an increase in compensation cost associated25Table of Contents with long-term incentive arrangements tied to the performance of our common stock. In addition, our incentive compensation costs increased in 2014 as aresult of more favorable operating results year-over-year.Depreciation and Amortization. Depreciation and amortization expense decreased $19.6 million, or 37%, for fiscal 2014 compared to fiscal 2013,primarily associated with the cessation of our ERP project in 2013. For the year ended October 31, 2013, we incurred incremental costs of $19.8 million ofdepreciation expense associated with the assets placed in service in conjunction with the ERP implementation. When the project ceased in August 2013, theremaining useful lives for the majority of the assets were accelerated to October 2013. Therefore, a relatively small amount of depreciation expense wasincurred in fiscal 2014 associated with the ERP implementation effort. In addition, we incurred depreciation expense associated with assets placed intoservice during 2014, including the Greenville assets acquired in December 2013, partially offset by the incremental depreciation and amortization associatedwith the Alumco acquisition, which had a larger impact on 2013 since the assets acquired had a relatively short useful life. Also affecting the results was thenormal run-off of fixed assets and intangible assets which became fully depreciated during these periods.Asset Impairment Charges. We recorded an impairment loss of $0.5 million in April 2014 associated with a facility in Barbourville, Kentucky. Thisfacility was subsequently sold in May 2014, resulting in an insignificant realized loss on the sale.Interest Expense. Interest expense decreased slightly during fiscal 2014 compared to fiscal 2013. During 2013, we borrowed $23.5 million to fund theAlumco acquisition and other working capital needs. This debt was retired within several months. No similar borrowings have occurred during 2014.Other, Net. Other, net expense was not significant during fiscal 2014 or fiscal 2013, and related primarily to net gains and losses on foreign currencyexchange transactions and interest income.Income Taxes. We recorded income tax expense associated with continuing operations of $5.5 million during fiscal 2014 compared to a tax benefit of$6.9 million during fiscal 2013. The change in tax expense was driven by the change in pre-tax income which totaled $13.8 million for the year endedOctober 31, 2014 compared to a pre-tax loss of $19.3 million for the year ended October 31, 2013, reflecting an effective tax rate of 39.6% and 35.7% for therespective years. Additional items impacting the effective rate were the foreign tax rate differential, the effect of permanent book-to-tax differences, return toactual results and a discrete item totaling $1.1 million in 2014 associated with the incorporation of our U.K. branch as a subsidiary. In addition, weimplemented certain tax strategies during 2014 which we believe will favorably reduce our effective rate in future periods, but had an unfavorable impact onthe deferred tax rate for fiscal 2014.Income (Loss) from Discontinued Operations. We sold Nichols on April 1, 2014 and recorded a gain on the sale of $24.1 million, net of tax of $15.1million. Excluding this gain, the loss from discontinued operations would have been a loss of $5.1 million for the period from November 1, 2013 (start of thefiscal year) through the date of sale, April 1, 2014, compared to income of $0.7 million for the year ended October 31, 2013. The results for Nichols prior tothe sale in 2014 reflected the unfavorable impact of aluminum commodity prices, which contributed to lower throughput and lower volume, partially offsetby the gain on involuntary conversion associated with the cold mill fire. The results for Nichols in 2013 include a full-year of activity.26Table of Contents Comparison of the fiscal years ended October 31, 2013 and 2012This table sets forth our consolidated results of operations for the twelve-month periods ended October 31, 2013 and 2012. For the Years Ended October 31, 2013 2012 2013 vs. 2012 Amounts % of Sales Amounts % of Sales $ Change % Change (Dollars in millions)Net sales$554.9 100% $478.6 100% $76.3 16%Cost of sales419.7 76% 355.7 74% 64.0 18%Selling, general and administrative99.0 18% 100.9 21% (1.9) (2)%Depreciation and amortization53.5 10% 30.0 6% 23.5 78%Asset impairment charges1.5 —% 0.9 —% 0.6 67%Operating (loss) income(18.8) (3)% (8.9) (2)% (9.9) 111%Interest expense(0.7) —% (0.4) —% (0.3) 75%Other, net0.2 —% 0.2 —% — —%Income tax benefit6.9 1% 2.5 1% 4.4 176%Loss from continuing operations$(12.4) (2)% $(6.6) (1)% $(5.8) 88%Income (loss) from discontinued operations$0.7 —% $(9.9) (2)% $10.6 (107)%Net income (loss)$(11.7) (2)% $(16.5) (3)% $4.8 (29)%Net Sales. The increase in net sales for fiscal 2013 compared to fiscal 2012 was primarily attributable to the following: (1) the acquisition of Alumco onDecember 31, 2012, which contributed net sales of $49.1 million during the period in 2013; (2) an increase in demand for our insulating glass warm-edgespacers in Europe, particularly in Central Europe, Eastern Europe and Scandinavia, and to a lesser extent, in the United States; (3) higher sales of vinylwindow and door profiles, as favorable increases in demand resulted in a higher volume of units shipped, partially offset by the effect of pricing pressure anda decrease in pass-through surcharges for resin; and (4) higher sales for our engineered components products, due largely to higher demand from a nationalcustomer. In connection with our European operations, we expanded our plant in Germany to a third production line which became operational in 2013. Weexpect demand for our warm-edge spacers to remain high in Europe, but to be more challenged in North America, as sales of our higher-end spacer productscontinue to be negatively affected by the housing downturn in Canada and the recent shift in new construction to multi-family dwellings in the UnitedStates.Cost of Sales. Our cost of sales increased by $64.0 million, or 18%, when comparing fiscal 2013 to fiscal 2012. This increase was slightly higher thanthe 16% increase in net sales for the respective period. Of this increase in cost of sales, $43.0 million was related to the Alumco acquisition. In addition, weexperienced pricing pressure, as well as higher material and labor costs. The profitability of our vinyl products continues to be challenged as we haveprovided volume discounts for our fastest growing customers and experienced an increase in the cost of resin, which is the primary raw material used tomanufacture our vinyl profiles. As sales to certain customers increase, we are obligated to provide greater price concessions in the form of volume discounts,which ultimately reduce our profit margins. We were able to pass some of the higher resin costs on to our customers through price adjustments, but we didabsorb a greater proportion of this expense during recent months, as reflected in the decline in overall profit margin year-over-year. As our business grows andthroughput increases, we must retain quality workers by providing higher wages, more overtime pay and supplemental indirect labor. To offset these costincreases, we are focused on improving our operational and production efficiencies to lower overall manufacturing overhead costs, although we remainchallenged in certain areas, including managing our scrap costs. An increase in material costs has adversely affected our current year gross margins. Wecompleted a plan to consolidate our insulating glass spacer facilities in North America in August 2012. Partially offsetting our increase in cost of sales wasconsolidation savings in fiscal 2013 totaling $4.7 million.Selling, General and Administrative. Our selling, general and administrative costs decreased by $1.9 million, or 2%, when comparing fiscal 2013 andfiscal 2012. During fiscal 2012, we incurred $8.0 million of insulating glass consolidation related expenses that did not recur during fiscal 2013. In addition,we estimate annual pre-tax savings as a result of this consolidation of $4.0 million. These decreases in selling, general and administration expense werepartially offset by the expense associated with Alumco, which contributed $3.4 million during fiscal 2013. Moreover, in 2010, we adopted animplementation plan with regards to a new enterprise resource planning software. We began the implementation pursuant to this plan, and we incurred costs,of which a portion was expensed and a portion was capitalized as a fixed asset. In connection with this implementation, the amounts27Table of Contents expensed as selling, general and administrative expense during the years ended October 31, 2013 and 2012 was $ 10.0 million and $5.5 million, respectively.The initial phase of the ERP implementation was effective March 2013, and we capitalized an asset totaling approximately $20.3 million. We continued toincur costs associated with this initial phase during the succeeding months after the asset was capitalized, all of which was expensed as incurred inaccordance with U.S. GAAP. In addition, we began incurring costs pursuant to the next phase of the ERP implementation, a portion of which was expensedand a portion capitalized. Concurrently, we incurred incremental costs related to additional personnel and consultants to support the implementation effort.We also recorded $0.7 million of incremental costs related to our self-insured worker's compensation program; higher costs associated with stock-basedcompensation expense on a year-over-year basis, partially offset by the benefit associated with other forfeited awards under our compensation plans for whichthe value is based on our common stock price; higher employee training costs; and transaction costs of $1.0 million incurred in early 2013 associated withthe Alumco acquisition. These increases were partially offset by lower incentive accruals based on earnings.Depreciation and Amortization. Depreciation and amortization expense increased by $23.5 million, or 78%, when comparing fiscal 2013 to fiscal 2012.Of this amount, $2.8 million was related to certain intangible assets and fixed assets we acquired with the Alumco purchase transaction. In addition, weinvested approximately $17.7 million for capital improvements during the twelve months ended October 31, 2013, which resulted in additional depreciationexpense compared to fiscal 2012. Moreover, an increase of $20.3 million in fiscal 2013 in comparison to fiscal 2012 was primarily related to accelerateddepreciation associated with our ERP system. In August 2013, our Board of Directors approved a plan to cease all activities associated with our ERPimplementation. Effective October 31, 2013, we transitioned our manufacturing operations that were using the ERP system to legacy systems. We expensed$1.2 million of construction in progress in August 2013. In addition, we incurred one-time termination benefits and minimal contract termination costsduring the fourth quarter of 2013. We accelerated depreciation for the first phase of this ERP implementation which resulted in incremental depreciationexpense of $15.3 million. In addition, in April 2013, we capitalized an office build-out associated with the new corporate offices in Houston, Texas.Asset Impairment Charges. We recorded an impairment loss of $1.5 million during fiscal 2013. Of this amount, $0.7 million was related to a write-downof certain land held for sale in Arizona, and $0.8 million was related to a write-down of the facility held for sale in Barbourville, Kentucky, as well as certainother fixed assets. For fiscal 2012, we recorded an impairment loss of $0.9 million associated with our facility in Barbourville, Kentucky.Income (Loss) from Discontinued Operations. We sold Nichols on April 1, 2014. We account for this business as a discontinued operation. For the yearended October 31, 2013, we recorded income of $0.7 million related to discontinued operations, net of tax, compared to a loss of $10.0 million for the yearended October 31, 2012. The loss in 2012 was largely attributable to a decrease in sales and productivity resulting from a union strike. We incurred higherthird-party processing (labor) and material costs as we purchased semi-finished coil from outside parties to fulfill customer orders, and we did not havesufficient labor to run our casting facility at full capacity. The strike was directly related to a decline in volume processed of 12 million pounds. No suchstrike occurred during fiscal 2013.Liquidity and Capital ResourcesOverviewOur principal sources of funds are cash on hand, cash flow from operations, and borrowings under our $150 million Senior Unsecured Revolving CreditFacility (the Credit Facility). As of October 31, 2014 we had $120.4 million of cash and equivalents, $140.7 million available under the Credit Facility andoutstanding debt of $0.8 million, of which no amounts were outstanding under our Credit Facility.Cash and cash equivalents increased by $70.7 million during fiscal 2014 due primarily to the sale of Nichols which provided net proceeds of $107.4million, partially offset by funds used for the Greenville acquisition, capital investments in our manufacturing facilities, dividends paid, treasury sharespurchased and on-going operational activities.Analysis of Cash Flow28Table of Contents The following table summarizes our cash flow results for the years ended October 31, 2014, 2013 and 2012: Year Ended October 31, 2014 2013 2012 (In millions)Cash flows provided by operating activities$20.8 $43.5 $26.5Cash flows provided by (used in) investing activities74.1 (59.7) (41.7)Cash flows used in financing activities$(24.5) $(4.9) $(3.9)Operating ActivitiesCash provided by operating activities decreased by $22.7 million for the year ended October 31, 2014 compared to the year ended October 31, 2013. Aportion of this decrease is attributable to the Nichols business which was sold on April 1, 2014, for which there were five months of activity in 2014compared to a full-year for 2013. We combine the Nichols discontinued operations with our continuing operations for cash flow presentation as permitted byU.S. GAAP. The overall decline in operating cash flow also reflects an incremental investment in inventory, funding of pension commitments, paymentsrelated to long-term incentive arrangements for a retired officer, as well as timing associated with receivable collections and payables. These decreases inoperating cash flow were partially offset by an increase in net income, driven by an increase in revenues which generated more cash receipts.Cash provided by operating activities increased by $17.0 million for the year ended October 31, 2013 compared to the year ended October 31, 2012. Anincrease in sales revenue and the timing of receivable collections contributed to higher gross cash inflows in 2013, which was partially offset by the timing ofthe payments made to fund raw material purchases and other commitments, higher bonus payments, customer rebates, non-capitalized ERP expenditures, andtransaction costs of approximately $1.0 million related to the Alumco acquisition which occurred in December 2012.Working capital was $186.2 million, $114.4 million and $123.1 million as of October 31, 2014, 2013 and 2012, respectively.Investing ActivitiesCash provided by investing activities totaled $74.1 million for 2014 and cash used for investing activities totaled $59.7 million for 2013, a net increaseof $133.8 million. The primary driver of this increase was net proceeds of $107.4 million from the sale of Nichols, an incremental decrease in cash used foracquisitions and capital expenditures of $16.9 million and $4.2 million, respectively, and an increase in cash of $4.8 million for insurance proceeds related tothe cold mill fire at Nichols.Cash used for investing activities increased by $18.0 million for the year ended October 31, 2013 compared to the year ended October 31, 2012. Thesefunds were used to purchase Alumco for $22.1 million, partially offset by a decrease in net capital expenditures of $4.9 million. Excluding the ERPimplementation project, our primary capital project undertaken during 2013 was the installation of a new paint oven at one of our aluminum finishingfacilities. Capital spending for the ERP project for the year ended October 31, 2013 was $5.9 million compared to $15.1 million for fiscal 2012.At October 31, 2014, we had firm purchase commitments of approximately $1.7 million for the purchase or construction of capital assets. We plan tofund these capital expenditures through cash from operations.Financing ActivitiesFor the years ended October 31, 2014, 2013 and 2012, cash used for financing activities included payment of dividends of $6.0 million, $5.9 millionand $5.9 million, respectively; and net repayments of long-term debt of $0.1 million, $0.6 million and $0.3 million, respectively. Cash used for financingactivities for the years ended October 31, 2014 and 2012 included amounts used to purchase treasury stock of $22.3 million and $1.3 million, respectively.There were no purchases of treasury stock for the year ended October 31, 2013. Partially offsetting these uses of cash were cash receipts associated with theissuance of common stock pursuant to stock option exercises which provided $3.2 million, $2.6 million and $3.0 million for the years ended October 31,2014, 2013 and 2012, respectively.Liquidity RequirementsOur strategy for deploying cash is to invest in organic growth opportunities, develop our infrastructure and make strategic acquisitions. Other uses ofcash include paying cash dividends to our shareholders and opportunistically repurchasing our common stock. Any excess cash and cash equivalents areinvested in commercial paper with terms of three months or less. Prior to April29Table of Contents 2014, we invested in overnight money market funds. The funds were diversified by security type across Treasuries, Government Agencies and PrimeCorporate. These funds were all AAA-rated, approved by the National Association of Insurance Commissioners and compliant with Rule 2A-7 of theInvestment Company Act of 1940. Our investments are diversified across multiple institutions that we believe are financially sound. We intend to remain incommercial paper, highly rated money market funds, financial institutions and treasuries following a prudent investment philosophy. From time to time, toprepare for potential disruption in the money markets, we may temporarily move funds into operating bank accounts of highly-rated financial institutions tomeet on-going operational liquidity requirements. We did not experience any material losses on our cash and marketable securities investments during theyears ended October 31, 2014 and 2013. We maintain cash balances in foreign countries which total $3 million as of October 31, 2014. We consider thesefunds to be permanently reinvested in these countries.Senior Credit FacilityPrior to January 28, 2013, we maintained a $270.0 million senior unsecured revolving credit facility (the Retired Facility) which had been executed onApril 23, 2008 and was scheduled to mature on April 23, 2013. The Retired Facility provided for up to $50.0 million of standby letters of credit, limitedbased on availability, as defined. Amounts borrowed under the facility were to bear interest at a spread above the London Interbank Borrowing Rate (LIBOR)based on a combined leverage and ratings grid. In addition, the Retired Facility contained restrictive debt covenants, as defined in the indenture, andcontained certain limits on additional indebtedness, asset or equity sales and acquisitions. During the fiscal year ended October 31, 2012 and for the periodfrom November 1, 2012 through January 28, 2013, we were in compliance with our debt covenants and did not borrow funds pursuant to the Retired Facility.We believe that we have sufficient funds and adequate financial resources available to meet our anticipated liquidity needs. We also believe our cashbalances and cash flow from operations will be sufficient in the next twelve months and foreseeable future to finance our anticipated working capitalrequirements, capital expenditures, debt service requirements, treasury share purchases and dividends.On January 28, 2013, we replaced the Retired Facility by entering into a new $150 million senior unsecured revolving credit facility that has a five-yearterm, maturing on January 28, 2018, and which permits aggregate borrowings at any time of up to $150 million, with a letter of credit sub-facility, a swingline sub-facility and a multi-currency sub-facility. Borrowings denominated in U.S dollars bear interest at a spread above LIBOR or a base rate derived fromthe prime rate. Foreign denominated borrowings bear interest at a spread above the LIBOR applicable to such currencies. Subject to customary conditions, wemay request that the aggregate commitments under the Credit Facility be increased by up to $100 million, with total commitments not to exceed $250million.The Credit Facility requires us to comply with certain financial covenants, the terms of which are defined therein. Specifically, we must not permit, on aquarterly basis, our ratio of consolidated EBITDA to consolidated interest expense as defined (Minimum Interest Coverage Ratio), to fall below 3.00:1 or ourratio of consolidated funded debt to consolidated EBITDA, as defined (Maximum Consolidated Leverage Ratio), to exceed 3.25:1. The MaximumConsolidated Leverage Ratio is the ratio of consolidated EBITDA to consolidated interest expense, in each case for the previous four consecutive fiscalquarters. EBITDA is defined by the indenture to include proforma EBITDA of acquisitions and to exclude certain items such as goodwill and intangible assetimpairments and certain other non-cash charges and non-recurring items. Subject to our compliance with the covenant requirements, the amount availableunder the Credit Facility is a function of: (1) our trailing twelve month EBITDA; (2) the Minimum Interest Coverage Ratio and Maximum ConsolidatedLeverage Ratio allowed under the Credit Facility; and (3) the aggregate amount of our outstanding debt and letters of credit. As of October 31, 2014, we werein compliance with the financial covenants set forth in the Credit Facility, as indicated in the table below: Required ActualMinimum Interest Coverage RatioNo less than3.00:1 77.76:1Maximum Consolidated Leverage RatioNo greater than3.25:1 0.15:1The Credit Facility also contains certain limitations on additional indebtedness, asset or equity sales and acquisitions. The payment of dividends andother distributions is permitted, provided there is no event of default after giving effect to such transactions. If the counterparties to the Credit Facility wereunable to fulfill their commitments, the funds available to us could be reduced. However, we have no reason to believe that such liquidity will be unavailableor reduced.As of October 31, 2014, the amount available to us for use under the Credit Facility was limited to $140.7 million and we had outstanding letters ofcredit of $6.1 million. For the twelve-month period ended October 31, 2014, we did not borrow any amount under the Credit Facility, and thus had nooutstanding borrowings at October 31, 2014. The weighted average interest rate30Table of Contents on outstanding borrowings during the year ended October 31, 2014 was 1.33%. Our borrowing rate under the Credit Facility was 3.25% and 1.20% for theswing line sub facility and the revolver, respectively, at October 31, 2014.Repurchases of Outstanding SecuritiesOur Board of Directors approved a stock repurchase program that authorized the repurchase of 2,000,000 shares of our common stock (1,000,000 onMay 27, 2010 and 1,000,000 on August 25, 2011). No shares were purchased under this program in fiscal 2014 and there were 905,663 shares available forrepurchase under the program prior to its cancellation in September 2014. Our Board cancelled this program on September 5, 2014, and approved a new stockrepurchase program authorizing us to use up to $75.0 million to repurchase shares of our common stock. These purchases will be made in open markettransactions or privately negotiated transactions in compliance with the Securities and Exchange Commission rule 10b5-1, subject to market conditions,applicable legal requirements and other relevant factors. As of October 31, 2014, we have purchased 1,316,326 shares valued at $24.2 million, an averageprice of $18.41 per share, of which $2.0 million had not settled and is recorded as a current liability in the accompanying balance sheet. As of December 8,2014, our cumulative purchases pursuant to this plan were 1,769,742 shares totaling $33.3 million, an average price of $18.84 per share, including $0.7million which had not settled.Contractual Obligations and Commercial CommitmentsThe following table summarizes our known contractual obligations and commitments as of October 31, 2014: Payments Due by Period Total 2015 2016-2017 2018-2019 ThereafterContractual Obligations:(In thousands)Long-term debt, including interest(1)$798 $206 $291 $201 $100Operating leases(2)32,366 6,920 11,233 7,484 6,729Unconditional purchase obligations(3)1,738 1,738 — — —Total contractual cash obligations(4)$34,902 $8,864 $11,524 $7,685 $6,829(1) Interest on our long-term debt was computed using rates in effect at October 31, 2014.(2) Operating leases include facilities, light vehicles, forklifts, office equipment and other operating equipment.(3) The unconditional purchase obligation consists of the purchase of miscellaneous parts.(4) This table excludes tax reserves recorded in accordance with ASC Topic 740 “Income Taxes,” as we are unable to reasonably estimate the timing offuture cash flows related to these reserves.During fiscal 2015, we expect to contribute approximately $1.9 million to our pension plan to meet our 100% funding threshold and maintainminimum contribution requirements. Pension contributions beyond 2015 cannot be determined since the amount of any contribution is heavily dependenton the future economic environment and investment returns on pension plan assets. Obligations are based on current and projected obligations of the plans,performance of the plan assets, if applicable, and any participant contributions. At October 31, 2014, we have recorded a long-term liability for deferredpension and postretirement benefits totaling $4.8 million. We believe the effect of the plans on liquidity is not significant to our overall financial condition.Our supplemental benefit plan and deferred compensation plan liabilities fluctuate based on changes in the market value of certain equity securities,including our common stock. As of October 31, 2014, our liability under the supplemental benefit plan and the deferred compensation plan wasapproximately $1.9 million and $3.4 million, respectively.The following table reflects other commercial commitments or potential cash outflows that may result from a contingent event, such as a need to borrowshort-term funds for liquidity purposes. Amount of Commitment Expiration per Period Total 2015 2016-2017 2018-2019 ThereafterOther Commercial Commitments:(In thousands)Standby letters of credit$6,058 $6,058 $— $— $—Off-Balance Sheet Arrangements31Table of Contents We do not have any off-balance sheet arrangements, as such term is defined in the rules promulgated by the SEC, that we believe would be material toinvestors and for which it is reasonably likely to have a current or future effect on our financial condition, results of operations, liquidity, capitalexpenditures or capital resources.Effects of InflationAlthough inflation does impact the cost of raw materials, labor and overhead, we are generally able to recover this cost through pricing. The effect ofprice inflation in the United States in 2014 as compared to prior years has remained relatively low except with regard to the cost of resin used in our vinylproducts. Therefore, we believe inflation has not had a significant effect on our earnings or financial position except as related to the cost of resin.Critical Accounting Policies and EstimatesThe preparation of our financial statements in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP)requires us to make estimates and assumptions that affect the reported amount of assets, liabilities, revenues and expenses and related disclosures ofcontingent assets and liabilities. Estimates and assumptions about future events and their effects cannot be perceived with certainty. Estimates may change asnew events occur, as more experience is acquired, as additional information becomes available and as our operating environment changes. We base ourestimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, and that we believe provide abasis for making judgments about the carrying value of assets and liabilities that are not readily available through open market quotes. We must use ourjudgment with regards to uncertainties in order to make these estimates. Actual results could differ from these estimates.We believe the following are the most critical accounting policies used in the preparation of our consolidated financial statements as well as thesignificant judgments and uncertainties affecting the application of these policies. We consider an estimate to be critical if it is subjective and if changes inthe estimate using different assumptions would result in a material impact to our financial position or results of operations.Revenue RecognitionWe recognize revenue when products are shipped and title has passed to the customer. Revenue is deemed to be realized or earned when the followingcriteria is met: (a) pervasive evidence that a contractual sales arrangement exists; (b) delivery has occurred; (c) the price to the buyer is fixed or determinable;and (d) collection is reasonably assured. Sales allowances and customer incentives are treated as reductions to revenue and are provided for based onhistorical experience and current estimates.Allowance for Doubtful AccountsWe record trade accounts receivable at billed amounts, less an allowance for doubtful accounts. This allowance is established to estimate the risk of lossassociated with our trade receivables which may arise due to the inability of our customers to pay or due to changes in circumstances. The allowance ismaintained at a level that we consider appropriate based on factors that affect collectability, including: (a) historical trends of write-offs, recoveries and creditlosses; (b) the credit quality of our customers; and (c) projected economic and market conditions. Different assumptions or changes in economiccircumstances could result in changes to the allowance. Our historical bad debt expense for the fiscal year has approximated 0.1% of sales for the years endedOctober 31, 2014, 2013 and 2012. If bad debt expense increased by 1% of net sales, the impact on operating results for these years would have been adecrease in net income of $3.6 million, an increase in net loss of $3.6 million, and a decrease in net income of $3.5 million, respectively.Impairment or Disposal of Long-Lived AssetsProperty, Plant and Equipment and Intangible Assets with Defined LivesWe make judgments and estimates in conjunction with the carrying value of our long-term assets, including property, plant and equipment, andidentifiable intangibles. These judgments may include the basis for capitalization, depreciation and amortization methods and the useful lives of theunderlying assets. In accordance with U.S. GAAP, we review the carrying values of these assets for impairment whenever events or changes in circumstancesindicate that the carrying value may not be recoverable. We determine that the carrying amount is not recoverable if it exceeds the sum of the undiscountedcash flows expected to result from the use and eventual disposition of the asset. If the carrying value exceeds the sum of the undiscounted cash flows and afterconsidering alternate uses for the asset, an impairment charge would be recorded in the period in which such review is performed. We measure the impairmentloss as the amount by which the carrying amount of the long-lived asset exceeds its fair value. Fair value is32Table of Contents determined by reference to quoted market prices in active markets, if available, or by calculating the discounted cash flows associated with the use andeventual disposition of the asset. Therefore, if there are indicators of impairment, we are required to make long-term forecasts of our future revenues and costsrelated to the assets subject to review. Forecasts require assumptions about demand for our products and future market conditions. Although there may be noindicators of impairment in the current period, unanticipated changes to assumptions or circumstances in future periods could result in an impairment chargein the period of the change. For the years ended October 31, 2014, 2013 and 2012, we recorded asset impairment charges related to assets held for sales as partof continuing operations totaling $0.5 million, $1.5 million and $0.9 million.We monitor relevant circumstances, including industry trends, general economic conditions, and the potential impact that such circumstances mighthave on the valuation of our identifiable intangibles. Events and changes in circumstances that may cause a triggering event and necessitate such a reviewinclude, but are not limited to: a decrease in sales for certain customers, improvements or changes in technology, and/or a decision to phase-out a trademarkor trade name. Such events could negatively impact the carrying value of our identifiable intangibles. It is possible that changes in such circumstances or inthe numerous variables associated with the judgments, assumptions, and estimates made by us in assessing the appropriate valuation of our identifiableintangibles could require us to further write down a portion of our identifiable intangibles and record related non-cash impairment charges in the future. Weapply a variety of techniques to establish the carrying value of our intangible assets, including the relief from royalty and excess current year earningsmethods.GoodwillThe acquisition method of accounting for business combinations requires us to make use of estimates and judgments to allocate the purchase price paidfor acquisitions to the fair value of the net tangible and identifiable intangible assets. In accordance with U.S. GAAP, we review various qualitative factors todetermine whether we believe there are indicators of impairment associated with goodwill or other indefinite lived intangible assets. If no impairment isindicated, no additional testing is required. Otherwise, we perform a goodwill impairment test annually as of August 31, or more often if there are indicatorsof impairment due to changes in circumstances or the occurrence of certain events. The test for impairment of goodwill requires a two-step approach asprescribed in ASC Topic 350 “Intangibles - Goodwill and Other” (ASC 350). The first step of the impairment test is to compare the carrying value of eachreportable unit, including goodwill, to the fair value as determined using various valuation methods or a weighting of several such methods. If the fair valueexceeds the carrying value, no further testing is required and there is no impairment charge. If the carrying value exceeds the fair value, a second step of thegoodwill impairment test is required, whereby we compare the implied fair value of goodwill to its carrying value. The implied fair value of goodwill isdetermined by allocating the fair value of a reporting unit to the assets and liabilities of that unit as if the reporting unit had been acquired in a businesscombination under which the consideration paid equals the calculated fair value of the reporting unit. The excess of the fair value of a reporting unit over theamounts assigned to its assets and liabilities is the implied fair value of goodwill. An impairment loss is recorded to the extent that the carrying amount of thegoodwill exceeds the implied fair value of that goodwill for the particular reporting unit. We use the present value of future cash flows, discounted at ourweighted average cost of capital, to determine fair value in combination with the market approach. Future cash flows are projected based upon our long-termforecasts by reportable unit and an estimated residual value. Our judgment is required in the estimation of future operating results and in determining theappropriate residual values of our reportable units. The residual values are determined by reference to an exchange transaction in an existing market forsimilar assets. Future operating results and residual values could reasonably differ from our estimates and a provision for impairment may be required in afuture period depending upon such a change in circumstances or the occurrence of future events. Three of our four reportable units have goodwill and weretested at August 31, 2014. Of the three reportable units tested, the fair value of the net assets for one unit well exceeded the carrying value, a second unit’s fairvalue exceeded the carrying value by 38% and the third unit’s fair value exceeded the carrying value by 66%. This third unit was acquired recently and hastotal goodwill of $2.8 million. Thus, there were no goodwill impairment charges recorded for the years ended October 31, 2014, 2013 and 2012.Income TaxesWe operate in various jurisdictions and therefore our income tax expense relates to income taxes in the United States, United Kingdom, Canada, andGermany, as well as local and state income taxes. We recognize the effect of a change in tax rates in the period of the change. We record the estimated futuretax effects of temporary differences between the tax basis of assets and liabilities and the amounts reported in our consolidated balance sheets, as well as netoperating losses and tax credit carry forward. We evaluate the carrying value of our net deferred tax assets and determine if our business will generatesufficient future taxable income to realize the net deferred tax assets. We perform this review for recoverability on a jurisdictional basis, whereby we considerboth positive and negative evidence related to the likelihood of realization of the deferred tax assets. The weight given to the positive and negative evidenceis commensurate with the extent to which the evidence can be objectively verified. Cumulative losses in recent years is a significant piece of negativeevidence that is difficult to overcome in determining that a valuation allowance is not needed against deferred tax assets. Thus, it is generally difficult forpositive evidence regarding projected future33Table of Contents taxable income exclusive of reversing taxable temporary differences to outweigh negative evidence of recent financial reporting losses. We evaluaterecoverability based on an estimate of future taxable income using the long-term forecasts we use to evaluate long-lived assets, goodwill and intangibleassets for impairment, taking into consideration the future reversal of existing taxable temporary differences and reviewing our current financial operations.In the event that our estimates and assumptions indicate we will not generate sufficient future taxable income to realize our deferred tax assets, we will recorda valuation allowance, to the extent indicated, to reduce our deferred tax assets to their realizable value.Annually, we evaluate our tax positions to determine if there have been any changes in uncertain tax positions or if there has been a lapse in the statuteof limitations with regards to such positions. As of October 31, 2014 and 2013, we recorded a liability for uncertain tax positions of $4.6 million and $5.4million, respectively. This liability stems from an unrecognized tax benefit from our 2008 spin-off from our predecessor parent company as well as certainstate tax items regarding the interpretation of tax laws and regulations. The change in the liability between years is primarily due to the lapse of the statute oflimitations.We have recorded income associated with our operations for the year ended October 31, 2014, following two years of reported losses. In addition, wegenerated income from the sale of Nichols during 2014, and have utilized a portion of our net operating loss carry forward during the year. We believe wewill have taxable income in 2015 and significant taxable income in the future to utilize our deferred tax assets recorded as of October 31, 2014. There is a riskthat our estimates related to the future use of loss carry forwards and our ability to realize our net deferred tax assets may not come to fruition, and that theresults could materially impact our financial position and results of operations. Further changes in tax laws or regulations could also impact our valuationallowance or the recognition of additional tax liabilities. If we incur cumulative losses for three years, we may be required to increase our valuation reserveagainst a portion of our deferred tax assets. We believe that our deferred tax assets will be realized, net of recorded valuation allowance. Our deferred taxassets at October 31, 2014 and 2013 totaled $41.7 million and $41.8 million, respectively, against which we had recorded a valuation allowance of $1.4million and $2.5 million, respectively.InsuranceWe manage our costs of workers’ compensation, group medical, property, casualty and other liability exposures through a combination of self-insuranceretentions and insurance coverage with third-party carriers. Liabilities associated with our portion of this exposure are not discounted. We estimate ourexposure by considering various factors which may include: (1) historical claims experience, (2) severity factors, (3) estimated claims incurred but notreported and (4) loss development factors, which are used to estimate as to how claims will develop over time until settled or closed. While we consider anumber of factors in preparing our estimate of risk exposure, we must use our judgment to determine the amounts to accrue in our financial statements. Actualclaims can differ significantly from estimated liabilities if future claims experience differs from historical experience, and if we determine that ourassumptions used for analysis or our development factors are flawed. We do not recognize insurance recoveries until any contingencies relating to the claimhave been resolved.InventoryWe record inventory at the lower of cost or market value. Inventories are valued using the first-in first-out (FIFO) and last-in first-out (LIFO) methods.We use the dollar-value link chain LIFO method, and the LIFO reserve is calculated on a consolidated basis in a single consolidated pool. We recorded abenefit of approximately $0.1 million associated with the change in the LIFO reserve for each of the years ended October 31, 2014, 2013 and 2012. When weintegrate acquisitions into our business we may value inventory utilizing either the LIFO or FIFO basis. Fixed costs related to excess manufacturing capacityhave been expensed in the period, and therefore, are not capitalized into inventory. Inventory quantities are regularly reviewed and provisions for excess orobsolete inventory are recorded primarily based on our forecast of future demand and market conditions. Significant unanticipated changes to our forecasts orchanges in the net realizable value of our inventory would require a change in the provision for excess or obsolete inventory. For the years ended October 31,2014, 2013 and 2012, our inventory reserves excluding the LIFO reserve, are approximately 7%, 8%, and 9% of gross inventory, respectively. Assuming anincrease in obsolescence equal to 1% of inventory, net income from continuing operations would have been reduced by $0.4 million for the year endedOctober 31, 2014 and net loss from continuing operations would have been increased by $0.3 million for the years ended October 31, 2013 and 2012.Retirement PlansWe sponsor a defined benefit pension plan and an unfunded postretirement plan that provides health care and life insurance benefits for eligible retireesand dependents. The measurement of liabilities related to these plans is based on our assumptions related to future events, including expected return on planassets, rate of compensation increases, and healthcare cost trend rates. The discount rate reflects the rate at which benefits could be effectively settled on themeasurement date. We determine our discount rate based on a pension discount curve, and the rate represents the single rate that, if applied to every year ofprojected benefit34Table of Contents payments, would result in the same discounted value as the array of rates that comprise the pension discount curve. Actual pension plan asset investmentperformance, as well as other economic experience such as discount rate and demographic experience, will either reduce or increase unamortized pensionlosses at the end of any fiscal year, which ultimately affects future pension costs.The effects of the decrease in selected assumptions, assuming no changes in benefit levels and no amortization of gains or losses for the pension plans infiscal 2014, is shown below: Increase in Projected BenefitObligation Increase in Net PeriodicBenefit CostChanges in Assumptions: (Dollar amounts in thousands)1% decrease in discount rate $2,795 $3611% decrease in expected long-term rate of return on plan assets N/A $254As of October 31, 2014, our projected benefit obligation (PBO) and accumulated benefit obligation (ABO) exceeded the fair value of the plan assets by$3.7 million and $2.8 million, respectively. As a comparison, our PBO and ABO exceeded the fair value of plan assets by $2.6 million and $1.6 million,respectively, as of October 31, 2013. During fiscal 2014, we contributed approximately $4.1 million to the pension plan to continue to target a 100% fundingthreshold and to meet minimum contribution requirements. We expect to continue to fund at this level for fiscal 2015. Expected contributions are dependenton many variables, including the variability of the market value of the assets as compared to the obligation and other market or regulatory conditions. Inaddition, we take into consideration our business investment opportunities and the cash requirements. Accordingly, actual funding may differ greatly fromcurrent estimates.Under U.S. GAAP, we are not required to immediately recognize the effects of a deviation between actual and assumed experience under our pensionplan, or to revise our estimate as a result. This approach allows the favorable and unfavorable effects that fall within an acceptable range to be netted anddisclosed as an unrecognized gain or loss. As of October 31, 2014 and 2013, a net actuarial loss of $4.2 million and $1.7 million, respectively, was includedin our accumulated comprehensive income (loss). There were no net prior service costs or transition obligations for the years ended October 31, 2014 and2013. The effect on fiscal years after 2014 will depend on the actual experience of the plans.Mortality assumptions used to determine the obligations for our pension plans are related to the experience of the plans and to our third-party actuary’sbest estimate of expected plan mortality.Stock-Based CompensationWe have issued stock-based compensation in the form of stock options to directors, employees and officers, and non-vested restricted stock awards tocertain key employees and officers. We apply the provisions of ASC Topic 718 “Compensation - Stock Compensation” (ASC 718), to determine the fair valueof stock option awards on the date of grant using the Black-Scholes valuation model. We recognize the fair value as compensation expense on a straight-linebasis over the requisite service period of the award based on awards ultimately expected to vest. Stock options granted to directors vest immediately whilethe stock options granted to our employees and officers typically vest ratably over a three-year period with service and continued employment as the vestingconditions. For new option grants to retirement-eligible employees, we recognize expense and vest immediately upon grant, consistent with the retirementvesting acceleration provisions of these grants. For employees near retirement age, we amortize such grants over the period from the grant date to theretirement date if such period is shorter than the standard vesting schedule. For grants of non-vested restricted stock, we calculate the compensation expenseat the grant date as the number of shares granted multiplied by the closing stock price of our common stock on the date of grant. This expense is recognizedratably over the vesting period. Our non-vested restricted stock grants to officers and employees cliff vest over a three-year period with service and continuedemployment as the only vesting criteria. Our fair value determination of stock-based payment awards on the date of grant using an option-pricing model isaffected by our stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are notlimited to, our expected stock price volatility over the term of the awards, actual and projected employee stock option exercise behavior over the expectedterm, our dividend rate, risk-free rate and expectation with regards to forfeitures. Option-pricing models were developed for use in estimating the value oftraded options that have no vesting or hedging restrictions and are fully transferable. Because our employee stock options have certain characteristics that aresignificantly different from traded options, and because changes in the subjective assumptions can materially affect the estimated value, the valuation modelsmay not provide an accurate measure of the fair value of our employee stock options. Accordingly, that value may not be indicative of the fair value observedin a willing buyer/willing seller market transaction.We have granted other awards which are linked to the performance of our common stock, but will settle in cash rather than the issuance of shares of ourcommon stock. The value of these awards fluctuates with changes in our stock price, with the resulting gains or losses reflected in the period of the change.We have recorded current and non-current liabilities related to these awards35Table of Contents reflected in our consolidated balance sheets at October 31, 2014 and 2013, included elsewhere within this Annual Report on Form 10-K.In addition, we have granted performance units which settle in cash and shares. These awards have vesting criteria based on a market condition (totalshareholder return) and an internal performance condition (earnings per share). We utilize a Monte Carlo simulation model to value the market condition andour stock price on the date of grant to value the internal performance condition. We bifurcate the liability and equity portion of the awards (amountsexpected to settle in cash and shares, respectively) and recognize expense ratably over the vesting period of three years.Warranty ObligationsOur estimated obligations for product warranties are accrued concurrently when revenue is recognized. We record a provision for warranty obligationsbased on our historical experience and costs incurred for such obligations. We adjust our warranty reserve for current conditions and other factors that wedeem appropriate. Our ability to estimate our warranty obligations is subject to uncertainties and limited, to some extent, by our operating history, which maynot be sufficient for new products or changes to existing products. Our warranty reserves at October 31, 2014 and 2013 were $0.7 million and $3.7 million.Assuming a 10% increase in our warranty reserves, our net income would have decreased by $0.1 million for the year ended October 31, 2014, and our netloss would have increased by $0.2 million for the years ended October 31, 2013 and 2012.Recent Accounting PronouncementsIn August 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-15, Presentation of Financial Statements-Going Concern (Subtopic205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which requires management to evaluate whether conditionsexist which raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date of the financial statements (orwithin one year of when the financial statements are available to be issued). If such conditions exist, disclosure is required of: (1) the principal conditions; (2)management’s evaluation of the significance of the conditions on the entity’s ability to meet obligations; and (3) management’s plans to alleviate thissubstantial doubt related to the ability to continue as a going concern. If management’s plans do not alleviate this substantial doubt, management mustspecifically disclose that there is substantial doubt about the entity’s ability to continue as a going concern within one year after the date of the financialstatements (or date the financial statements are available to be issued), in addition to the disclosure noted above. This guidance becomes effective for theannual period ending after December 15, 2016, and for annual periods and interim periods thereafter. We expect to adopt this guidance during fiscal 2017.We do not expect this guidance to have a material impact on our consolidated financial statements.In June 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-12, Compensation - StockCompensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could be Achievedafter the Requisite Service Period. This amendment requires that a performance target that affects vesting and that could be achieved after the requisiteservice period be treated as a performance condition that affects vesting or as a nonvesting condition that affects the grant-date fair value of an award, andprovides explicit guidance for those awards. This guidance becomes effective for fiscal years beginning on or after December 15, 2015. We expect to adoptthis guidance during fiscal 2017, and we are currently evaluating the impact on our consolidated financial statements.In May 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers. This guidance prescribes amethodology to determine when revenue is recognizable and constitutes a principles-based approach to revenue recognition based on the consideration towhich the entity expects to be entitled in exchange for goods or services. In addition, this guidance requires additional disclosure in the notes to thefinancial statements with regard to the methodology applied. This pronouncement becomes effective for annual reporting periods beginning after December15, 2016, and interim periods within that reporting period, and will essentially supersede and replace existing revenue recognition rules in U.S. GAAP,including industry-specific guidance. We expect to adopt this pronouncement in fiscal 2018, and we are currently evaluating the impact on our consolidatedfinancial statements.In April 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-08, Presentation of Financial Statements (Topic 205) and Property,Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. This new guidanceclarifies the definition of a discontinued operation as a disposal of a component of any entity, or a group of such components, which represent a strategic shiftthat has or will have a major effect on an entity’s operations and financial results. This guidance should result in fewer applications of discontinuedoperations accounting treatment. However, if such accounting treatment is required, the guidance requires additional footnote disclosures with regard to themajor classes of line items constituting pretax profit or loss of the discontinued operation, a reconciliation of the major classes of assets and liabilities of thediscontinued operation, and additional disclosure with regard to cash flows of the discontinued operation. 36Table of Contents This guidance becomes effective for fiscal years beginning on or after December 15, 2014. We expect to adopt this guidance during fiscal 2016, and we arecurrently evaluating the impact on our consolidated financial statements.In July 2013, the FASB issued Accounting Standards Update (ASU) No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net OperatingLoss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, which provides guidance related to the presentation of current and deferredincome taxes on the balance sheet. In general, an entity must present an unrecognized tax benefit related to a net operating loss carryforward, similar tax lossor tax credit carryforward, as a reduction of a deferred tax asset, except in prescribed circumstances through which liability presentation would be appropriate.This guidance becomes effective for fiscal years beginning after December 15, 2013. We expect to adopt this guidance during fiscal 2015 with no materialimpact on our consolidated financial statements.In February 2013, the FASB issued ASU No. 2013-2, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, whichrequires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, anentity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out ofaccumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to bereclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in theirentirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about thoseamounts. We adopted ASU 2013-2 as of November 1, 2013, with no material impact on our consolidated financial statements.In December 2011, the FASB issued ASU No. 2011-11, Disclosures about Offsetting Assets and Liabilities, which requires entities to disclose bothgross information and net information about instruments and transactions eligible for offset in the statement of financial position and instruments andtransactions subject to an agreement similar to a master netting arrangement. The scope of this standard, which was subsequently clarified by ASU 2013-1,includes derivatives, sale and repurchase agreements, reverse sale and repurchase agreements, and securities borrowing and securities lending arrangements.These disclosures assist users of financial statements in evaluating the effect or potential effect of netting arrangements on an entity's financial position. Weadopted ASU 2011-11 as of November 1, 2013, with no material impact on our consolidated financial statements.Item 7A. Quantitative and Qualitative Disclosures About Market Risk.The following discussion of our exposure to various market risks contains “forward looking statements” regarding our estimates, assumptions andbeliefs concerning our exposure. Although we believe these estimates and assumptions are reasonable in light of information currently available to us, wecannot provide assurance that these estimates will not materially differ from actual results due to the inherent unpredictability of interest rates, foreigncurrency rates and metal commodity prices as well as other factors. We do not use derivative financial instruments for speculative or trading purposes.Interest Rate RiskOur outstanding debt bears interest at variable rates and accordingly is sensitive to changes in interest rates. Based upon the balances of the variablerate debt at October 31, 2014, a hypothetical 1.0% increase or decrease in interest rates would result in a $0.01 million additional pre-tax charge or credit toour operating results.Foreign Currency Rate RiskOur international operations have exposure to foreign currency rate risks, primarily due to fluctuations in the Euro, the British Pound and the Canadiandollar. From time to time, we enter into foreign exchange contracts associated with our operations to manage a portion of the foreign currency rate risk.37Table of Contents The notional and fair market values of these positions at October 31, 2014 and 2013, were as follows: Notional as indicated Fair Value in $ October 31, 2014 October 31, 2013 October 31, 2014 October 31, 2013Foreign currency exchange derivatives: (In thousands)Sell EUR, buy USDEUR4,907 7,258 $68 $150Buy GBP, sell USDGBP— 2,435 $— $(25)Buy EUR, sell GBPEUR— 967 $— $(12)Sell EUR buy GBPEUR— 880 $— $14Sell CAD, buy USDCAD331 615 $1 $(2)At October 31, 2014 and 2013, we held foreign currency derivative contracts hedging cross-border intercompany and commercial activity for ourinsulating glass spacer business. Although these derivatives hedge our exposure to fluctuations in foreign currency rates, we do not apply hedge accountingand therefore, the change in the fair value of these foreign currency derivatives is recorded directly to other income and expense in the accompanyingconsolidated statements of income (loss). To the extent the gain or loss on the derivative instrument offsets the gain or loss from the remeasurement of theunderlying foreign currency balance, changes in exchange rates should have no effect. See Note 13, "Derivative Instruments", contained elsewhere herein.Commodity Price RiskHistorically, we have entered into swap contracts to minimize our exposure to aluminum commodity prices to protect ourselves from the effects ofchanging prices of aluminum on our cost of sales. To the extent that the raw material costs factored into the firm price sales commitments are matched withfirm price raw material purchase commitments, changes in aluminum prices should have no effect.The following table indicates the notional volume as well as the fair value of the open swap contracts as October 31, 2014 and 2013. Notional in LBS Fair Value in $ October 31, 2014 October 31, 2013 October 31, 2014 October 31, 2013Aluminum derivatives: (In thousands)Aluminum swap contractsLBS— 187 $— $(64)While we consider derivative contracts to provide an economic hedge against changes in aluminum prices, the derivatives were not designated ashedges in accordance with ASC 815 for accounting purposes. As such, any mark-to-market net gain or loss was recorded in cost of sales, with the offsettingasset or liability reflected on the balance sheet. See Note 13, "Derivative Instruments", contained elsewhere herein.We purchase polyvinyl resin (PVC) as the significant raw material consumed in the manufacture of vinyl extrusions. We have a monthly resin adjusterin place with a majority of our customers and our resin supplier that is adjusted based upon published industry indices for resin prices for the prior month.This adjuster effectively shares the base pass-through price changes of PVC with our customers commensurate with the market at large. Our long-termexposure to changes in PVC prices is somewhat mitigated due to the contractual component of the resin adjuster program; although we did not have such aresin adjuster in place during fiscal 2014 for 48% of our volume. There is also a level of exposure to short-term volatility due to a one month lag and not allof our customer contracts currently include such cost adjusters. From time to time, we may lock in customer pricing for less than one year or make othercustomer concessions which result in us becoming exposed to fluctuations in resin pricing.We maintain an oil-based materials surcharge on one of our major IG spacer product lines. The surcharge is intended to offset the rising cost of productswhich are highly correlated to the price of oil, including butyl and other oil-based raw materials. The surcharge is in place with the majority of our customerswho purchase these products and is adjusted monthly based upon the 90 day average published price for Brent crude. The oil-based raw materials purchasedby us are subject to similar pricing schemes. Therefore, our long-term exposure to changes in oil-based raw material prices is significantly reduced under thissurcharge program.38Table of Contents Item 8. Financial Statements and Supplementary Data.INDEX TO FINANCIAL STATEMENTSQuanex Building Products Corporation PageReports of Independent Registered Public Accounting Firm41Management's Annual Report on Internal Control over Financial Reporting43Consolidated Financial Statements Consolidated Balance Sheets44Consolidated Statements of Income (Loss)45Consolidated Statements of Comprehensive Income (Loss)46Consolidated Statements of Cash Flow49Consolidated Statement of Stockholders’ Equity47Notes to Consolidated Financial Statements5039Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders ofQuanex Building Products CorporationWe have audited the accompanying consolidated balance sheet of Quanex Building Products Corporation (a Delaware corporation) and subsidiaries (the“Company”) as of October 31, 2014, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for theyear ended October 31, 2014. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion onthese financial statements based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our auditprovides a reasonable basis for our opinion.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Quanex BuildingProducts Corporation and subsidiaries as of October 31, 2014, and the results of their operations and their cash flows for the year ended October 31, 2014, inconformity with accounting principles generally accepted in the United States of America.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal controlover financial reporting as of October 31, 2014, based on the criteria established in the 1992 Internal Control—Integrated Framework issued by theCommittee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated December 12, 2014 expressed an unqualified opinion onthe Company’s internal control over financial reporting. /s/ GRANT THORNTON LLP Houston, Texas December 12, 2014 40Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders ofQuanex Building Products CorporationWe have audited the internal control over financial reporting of Quanex Building Products Corporation (a Delaware corporation) and subsidiaries (the“Company”) as of October 31, 2014, based on criteria established in the 1992 Internal Control—Integrated Framework issued by the Committee ofSponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for maintaining effective internal control overfinancial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’sAnnual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financialreporting based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all materialrespects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testingand evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considerednecessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofthe effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of October 31, 2014, based on thecriteria established in the 1992 Internal Control—Integrated Framework issued by COSO.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financialstatements of the Company as of and for the year ended October 31, 2014 and our report dated December 12, 2014 expressed an unqualified opinion on thosefinancial statements. /s/ GRANT THORNTON LLP Houston, TexasDecember 12, 201441Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders ofQuanex Building Products CorporationHouston, TexasWe have audited the accompanying consolidated balance sheet of Quanex Building Products Corporation and subsidiaries (the “Company”) as ofOctober 31, 2013, and the related consolidated statements of income (loss), comprehensive income (loss), stockholders’ equity, and cash flows for the yearsended October 31, 2013 and 2012. These financial statements are the responsibility of the Company’s management. Our responsibility is to express anopinion on these financial statements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion.In our opinion, such 2013 and 2012 consolidated financial statements present fairly, in all material respects, the financial position of Quanex BuildingProducts Corporation and subsidiaries as of October 31, 2013, and the results of their operations and their cash flows for each of the two years in the periodended October 31, 2013, in conformity with accounting principles generally accepted in the United States of America. /s/ DELOITTE & TOUCHE LLP Houston, Texas December 18, 2013 (December 12, 2014 as to the retrospective adjustmentsfor discontinued operations discussed in Note 1) 42Table of Contents MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTINGManagement of the Company, including the Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintainingadequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended. The Company’sinternal control system was designed to provide reasonable assurance to management and the Company’s Board of Directors regarding the reliability offinancial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.All internal control systems, no matter how well designed, have inherent limitations. A system of internal control may become inadequate over timebecause of changes in conditions, or deterioration in the degree of compliance with the policies or procedures. Therefore, even those systems determined tobe effective can provide only reasonable assurance with respect to financial statement preparation and presentation.Management assessed the effectiveness of the Company’s internal control over financial reporting as of October 31, 2014 using the criteria set forth bythe Committee of Sponsoring Organizations of the Treadway Commission in Internal Control — Integrated Framework (1992). Based on this assessment,management has concluded that, as of October 31, 2014, the Company’s internal control over financial reporting was effective to provide reasonableassurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generallyaccepted accounting principles based on such criteria.Grant Thornton LLP, the Company’s independent registered public accounting firm, has issued an audit report on the effectiveness of the Company’sinternal control over financial reporting. This report appears on page 41.43Table of Contents QUANEX BUILDING PRODUCTS CORPORATIONCONSOLIDATED BALANCE SHEETSAs of October 31, 2014 and 2013 October 31, 2014 2013 (In thousands, except share amounts)ASSETS Current assets: Cash and cash equivalents$120,384 $49,734Accounts receivable, net of allowance for doubtful accounts of $698 and $481 (Note 3)55,193 59,460Inventories, net (Note 4)57,358 41,679Deferred income taxes21,442 16,348Prepaid and other current assets6,052 4,911Current assets of discontinued operations (Note 1)— 64,151Total current assets260,429 236,283Property, plant and equipment, net of accumulated depreciation of $200,414 and $185,269 (Note 5)109,487 106,821Deferred income taxes1,545 7,030Goodwill (Note 6)70,546 71,866Intangible assets, net (Note 6)70,150 78,962Other assets4,956 5,570Non-current assets of discontinued operations (Note 1)— 65,283Total assets$517,113 $571,815LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable$41,488 $37,532Accrued liabilities (Note 7)32,482 34,810Income taxes payable107 —Current maturities of long-term debt (Note 8)199 162Current liabilities of discontinued operations (Note 1)— 49,364Total current liabilities74,276 121,868Long-term debt (Note 8)586 701Deferred pension and postretirement benefits (Note 9)4,818 3,479Liability for uncertain tax positions (Note 11)4,626 5,396Other liabilities11,887 14,638Non-current liabilities of discontinued operations (Note 1)— 9,539Total liabilities96,193 155,621Commitments and contingencies (Note 12) 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 37,632,032 and 37,653,639, respectively; outstanding36,214,332 and 37,165,254, respectively376 377Additional paid-in-capital249,600 247,642Retained earnings202,319 177,456Accumulated other comprehensive loss(5,708) (2,400)Less: Treasury stock at cost, 1,417,700 and 488,385 shares, respectively(25,667) (6,881)Total stockholders’ equity420,920 416,194Total liabilities and stockholders' equity$517,113 $571,815See notes to consolidated financial statements.44Table of Contents QUANEX BUILDING PRODUCTS CORPORATIONCONSOLIDATED STATEMENTS OF INCOME (LOSS)For the Years Ended October 31, 2014, 2013 and 2012 Year Ended October 31, 2014 2013 2012 (In thousands, except per share amounts)Net sales$595,384 $554,867 $478,578Cost and expenses: Cost of sales (excluding depreciation and amortization)464,584 419,733 355,669Selling, general and administrative82,150 98,969 100,884Depreciation and amortization33,869 53,521 29,975Asset impairment charges505 1,465 912Operating income (loss)14,276 (18,821) (8,862)Non-operating income (expense): Interest expense(562) (621) (431)Other, net92 170 225Income (loss) from continuing operations before income taxes13,806 (19,272) (9,068)Income tax (expense) benefit(5,468) 6,888 2,507Income (loss) from continuing operations8,338 $(12,384) $(6,561)Income (loss) from discontinued operations, net of tax of $13,115, $390, and $(6,144), respectively20,896 681 (9,973)Net income (loss)$29,234 $(11,703) $(16,534) Basic earnings (loss) per common share: Earnings (loss) from continuing operations$0.22 $(0.34) $(0.18)Earnings (loss) from discontinued operations0.57 0.02 (0.27)Basic earnings (loss) per share$0.79 $(0.32) $(0.45) Diluted earnings (loss) per common share: Earnings (loss) from continuing operations$0.22 $(0.34) $(0.18)Earnings (loss) from discontinued operations0.56 0.02 (0.27)Diluted earnings (loss) per share$0.78 $(0.32) $(0.45) Weighted-average common shares outstanding: Basic37,128 36,864 36,622Diluted37,679 36,864 36,622 Cash dividends per share$0.16 $0.16 $0.16See notes to consolidated financial statements.45Table of Contents QUANEX BUILDING PRODUCTS CORPORATIONCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMEFor the Years Ended October 31, 2014, 2013 and 2012 Year Ended October 31, 2014 2013 2012 (In thousands)Net income (loss)$29,234 $(11,703) $(16,534)Other comprehensive income (loss): Foreign currency translation adjustments (loss) gain (pretax)(1,840) 1,068 (1,832)Foreign currency translation adjustments tax benefit14 27 26Change in pension from net unamortized (loss) gain (pretax)(2,474) 2,997 220Change in pension from net unamortized (loss) gain tax benefit (expense)992 (1,193) (70)Total other comprehensive (loss) income, net of tax(3,308) 2,899 (1,656)Comprehensive income (loss)$25,926 $(8,804) $(18,190)See notes to consolidated financial statements.46Table of Contents QUANEX BUILDING PRODUCTS CORPORATIONCONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITYFor the Years Ended October 31, 2014, 2013 and 2012 Common Stock Accumulated Treasury Stock Total SharesAmount AdditionalPaid-inCapital RetainedEarnings OtherComprehensive Loss SharesAmount Stockholders’Equity (In thousands, except share amounts)Balance at October 31, 201137,843,134$378 $241,983 $213,143 $(3,642) (1,035,288)$(14,636) $437,226Net loss—— — (16,534) — —— (16,534)Foreign currency translation adjustment (net oftaxes of $26)—— — — (1,806) —— (1,806)Change in pension from net unamortized gain(netof taxes of $70)—— — — 150 —— 150Common dividends ($0.16 per share)—— — (5,891) — —— (5,891)Expense related to stock-based compensation—— 4,403 — — —— 4,403Stock options exercised—— (66) (151) — 229,4233,233 3,016Tax benefit from share-based compensation—— 341 — — —— 341Restricted stock awards granted—— (1,186) — — 83,9001,186 —Purchase of treasury stock, at cost—— — — — (94,337)(1,284) (1,284)Recognition of unrecognized tax benefit—— — 2,851 — —— 2,851Other(54,330)— (331) (313) (1) —— (645)Balance at October 31, 201237,788,804$378 $245,144 $193,105 $(5,299) (816,302)$(11,501) $421,827Net loss—— — (11,703) — —— (11,703)Foreign currency translation adjustment (net oftaxes of $27)—— — — 1,095 —— 1,095Change in pension from net unamortized gain (netof taxes of $1,193)—— — — 1,804 —— 1,804Common dividends ($0.16 per share)—— — (5,931) — —— (5,931)Expense related to stock-based compensation—— 4,910 — — —— 4,910Stock options exercised—— 54 — — 179,5172,529 2,583Tax benefit from share-based compensation—— 25 — — —— 25Restricted stock awards granted—— (2,091) — — 148,4002,091 —Recognition of unrecognized tax benefit—— — 2,102 — —— 2,102Other(135,165)(1) (400) (117) — —— (518)Balance at October 31, 201337,653,639$377 $247,642 $177,456 $(2,400) (488,385)$(6,881) $416,194Net income—— — 29,234 — —— 29,234Foreign currency translation adjustment (net of taxbenefit of $14)—— — — (1,826) —— (1,826)Change in pension from net unamortized loss (netof taxes of $992)—— — — (1,482) —— (1,482)Common dividends ($0.16 per share)—— — (5,992) — —— (5,992)Treasury shares purchased, at cost—— — — — (1,316,326)(24,239) (24,239)Expense related to stock-based compensation—— 3,925 — — —— 3,925Stock options exercised—— (1,071) — — 306,6114,320 3,249Tax benefit from share-based compensation—— 400 — — —— 400Restricted stock awards granted3,000— (1,133) — — 80,4001,133 —Recognition of unrecognized tax benefit—— — 1,629 — —— 1,629Other(24,607)(1) (163) (8) — —— (172)Balance at October 31, 201437,632,032$376 $249,600 $202,319 $(5,708) (1,417,700)$(25,667) $420,920See notes to consolidated financial statements.47Table of Contents QUANEX BUILDING PRODUCTS CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWFor the Years Ended October 31, 2014, 2013 and 2012 Year Ended October 31, 2014 2013 2012 (In thousands)Operating activities: Net income (loss)$29,234 $(11,703) $(16,534)Adjustments to reconcile net income (loss) to cash provided by operating activities: Depreciation and amortization36,910 60,504 37,596Loss (gain) on disposition of capital assets586 449 (989)Stock-based compensation3,925 4,910 4,403Deferred income tax expense (benefit)14,246 (8,288) (9,843)Excess tax benefit from share-based compensation(654) (236) (496)Asset impairment charges1,007 1,465 912Gain on sale of discontinued operations(39,122) — —Restructuring charges— — (122)Other, net(303) 781 2,638Changes in assets and liabilities, net of effects from acquisitions: Decrease (increase) in accounts receivable484 (9,204) (4,250)(Increase) decrease in inventory(25,650) 12,791 (10,288)(Increase) decrease in other current assets(1,098) 1,622 (50)Increase (decrease) in accounts payable12,842 (5,903) 14,920(Decrease) increase in accrued liabilities(6,871) (7,473) 8,539Increase (decrease) in income taxes866 1,708 (547)Decrease in deferred pension and postretirement benefits(347) (164) (693)(Decrease) increase in other long-term liabilities(2,172) 1,574 678Other, net(3,105) 686 604Cash provided by operating activities20,778 43,519 26,478Investing activities: Net proceeds from sale of discontinued operations107,431 — —Acquisitions, net of cash acquired(5,161) (22,096) —Capital expenditures(33,779) (37,931) (42,871)Proceeds from disposition of capital assets832 340 44Proceeds from property insurance claim4,801 — 1,123Cash provided by (used for) investing activities74,124 (59,687) (41,704)Financing activities: Borrowings under credit facility— 23,500 —Repayments of credit facility borrowings— (23,500) —Repayments of other long-term debt(175) (557) (264)Common stock dividends paid(5,992) (5,931) (5,891)Issuance of common stock3,249 2,583 3,015Excess tax benefit from share-based compensation654 236 496Debt issuance costs— (1,200) —Purchase of treasury stock(22,281) — (1,284)Other, net86 — —Cash used for financing activities(24,459) (4,869) (3,928)Effect of exchange rate changes on cash and cash equivalents207 (484) 790Increase (decrease) in cash and cash equivalents70,650 (21,521) (18,364)Cash and cash equivalents at beginning of period49,734 71,255 89,619Cash and cash equivalents at end of period$120,384 $49,734 $71,255See notes to consolidated financial statements.48Table of ContentsQUANEX BUILDING PRODUCTS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS1. Nature of Operations, Basis of Presentation and Significant Accounting PoliciesNature of OperationsQuanex Building Products Corporation is a leading component supplier of engineered products such as (1) energy efficient window components thatinclude flexible insulating glass spacers, (2) extruded vinyl profiles, (3) window and door screens, (4) solar panel sealants and (5) precision-formed metal andwood products for original equipment manufacturers (OEMs). Quanex Building Products Corporation serves a primary customer base in North America andalso serves customers in international markets through operating plants in the United Kingdom and Germany, as well as through sales and marketing effortsin other countries.Unless the context indicates otherwise, references to "Quanex", the "Company", "we", "us" and "our" refer to the consolidated business operations ofQuanex Building Products Corporation and its subsidiaries.Basis of Presentation and Principles of ConsolidationOur consolidated financial statements have been prepared by us, 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 generallyaccepted in the United States of America (U.S. GAAP) have been condensed or omitted pursuant to such rules and regulations. In our opinion, these auditedfinancial statements contain all adjustments (which consist of normal recurring adjustments, except as disclosed herein) necessary to fairly present ourfinancial position, results of operations and cash flows for the periods presented.Use of EstimatesIn preparing financial statements, we make informed judgments and estimates that affect the reported amounts of assets and liabilities as of the date ofthe financial statements and affect the reported amounts of revenues and expenses during the reporting period. We review our estimates on an ongoing basis,including those related to impairment of long lived assets and goodwill, contingencies and income taxes. Changes in facts and circumstances may result inrevised estimates and actual results may differ from these estimates.A summary of our significant accounting policies consistently applied in the preparation of the accompanying consolidated financial statementsfollows:Revenue RecognitionWe recognize revenue when products are shipped and when title has passed to the customer. Revenue is deemed to be realized or earned when thefollowing criteria are met: (a) pervasive evidence that a contractual sales arrangement exists; (b) delivery has occurred; (c) the price to the buyer is fixed ordeterminable; and (d) collection is reasonably assured. Sales allowances and customer incentives are treated as reductions to revenue and are provided forbased on historical experience and current estimates.Cash and Cash EquivalentsCash equivalents include all highly liquid investments with an original maturity of three months or less. Such securities with an original maturity whichexceeds three months are deemed to be short-term investments. We maintain cash and cash equivalents at several financial institutions, which at times maynot be federally insured or may exceed federally insured limits. We have not experienced any losses in such accounts and believe we are not exposed to anysignificant credit risks on such accounts.Concentration of Credit Risk and Allowance for Doubtful AccountsCertain of our businesses or product lines are largely dependent on a relatively few large customers. Although we believe we have an extensivecustomer base, the loss of one of these large customers or if such customers were to incur a prolonged period of decline in business, our financial conditionand results of operations could be adversely affected. For the year ended October 31, 2014, each of two customers provided more than 10% of ourconsolidated net sales (11% and 15%). Each of two customers provided more than 10% of our consolidated net sales for the year ended October 31, 2013(11% and 18%) and each of two customers provided more than 10% of our consolidated net sales for the year ended October 31, 2012 (12% and 17%).We have established an allowance for doubtful accounts to estimate the risk of loss associated with our accounts receivable balances. Our policy fordetermining the allowance is based on factors that affect collectability, including: (a) historical trends of write-offs, recoveries and credit losses; (b) the creditquality of our customers; and (c) projected economic and market conditions. We believe our allowance is adequate to absorb any known or probable losses asof October 31, 2014.49Table of ContentsQUANEX BUILDING PRODUCTS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) InventoryWe record inventory at the lower of cost or market value. Inventories are valued using the first-in first-out (FIFO) and last-in first-out (LIFO) methods,although LIFO is only used at two of our plant locations currently. We use the dollar-value link chain LIFO method, and the LIFO reserve is calculated on aconsolidated basis in a single consolidated pool. The businesses that we acquire and integrate into our operations may value inventories using either theLIFO or FIFO method. Fixed costs related to excess manufacturing capacity have been expensed in the period, and therefore, are not capitalized intoinventory. Inventory quantities are regularly reviewed and provisions for excess or obsolete inventory are recorded primarily based on our forecast of futuredemand and our estimates regarding current and future market conditions. Significant unanticipated variances to our forecasts could require a change in theprovision for excess or obsolete inventory, resulting in a charge to net income during the period of the change.Long-Lived AssetsProperty, Plant and Equipment and Intangible Assets with Defined LivesWe make judgments and estimates related to the carrying value of property, plant and equipment, intangible assets with defined lives, and long-livedassets, which include determining when to capitalize costs, the depreciation and amortization methods to use and the useful lives of these assets. We evaluatethese assets for impairment when there are indicators that the carrying values of these assets might not be recoverable. Such indicators of impairment mayinclude changes in technology, significant market fluctuations, historical losses or loss of a significant customer, or other changes in circumstances thatcould affect the assets’ ability to generate future cash flows. When we evaluate these assets for impairment, we compare the sum of the undiscounted cashflows expected to result from the use and eventual disposition of the asset to its carrying value. If the carrying value exceeds the sum of the undiscountedcash flows, and there is no alternative use for the asset, we determine that the asset is impaired. To measure the impairment charge, we compare the carryingamount of the long-lived asset to its fair value, as determined by quoted market prices in active markets, if available, or by discounting the projected futurecash flows using our incremental borrowing rate.This calculation of fair value requires us to make long-term forecasts of future operating results related tothese assets. These forecasts are based on assumptions about demand for our products and future market conditions. Future events and unanticipated changesto these assumptions could require a provision for impairment, resulting in a charge to net income during the period of the change.We monitor relevant circumstances, including industry trends, general economic conditions, and the potential impact that such circumstances mighthave on the valuation of our identifiable intangible assets with finite lives. Events and changes in circumstances that may cause a triggering event andnecessitate such a review include, but are not limited to: a decrease in sales for certain customers, improvements or changes in technology, and/or a decisionto discontinue the use of a trademark or trade name, or allow a patent to lapse. Such events could negatively impact the fair value of our identifiableintangible assets. In such circumstances, we may evaluate the underlying assumptions and estimates made by us in order to assess the appropriate valuationof these identifiable intangible assets and compare to the carrying value of the assets. We may be required to write down these identifiable intangible assetsand record a non-cash impairment charge. When we originally value our intangible assets, we use a variety of techniques to establish the carrying value ofour intangible assets, including the relief from royalty method, excess current year earnings method and income method.Software development costs, including costs incurred to purchase third-party software, are capitalized when we have determined that the technology iscapable of meeting our performance requirements, and we have authorized funding for the project. We cease capitalization of software costs when thesoftware is substantially complete and is ready for its intended use. The software is then amortized over its estimated useful life. When events orcircumstances indicate the carrying value of internal use software might not be recoverable, we assess the recoverability of these assets by comparing thecarrying value of the asset to the undiscounted future cash flows expected to be generated from the asset’s use, consistent with the methodology to test otherproperty, plant and equipment for impairment.Property, plant and equipment is stated at cost and is depreciated using the straight-line method over the estimated useful lives of the assets. Wecapitalize betterments which extend the useful lives or significantly improve the operational efficiency of assets. We expense repair and maintenance costs asincurred.50Table of ContentsQUANEX BUILDING PRODUCTS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The estimated useful lives of our primary asset categories at October 31, 2014 were as follows: Useful Life (in Years)Land improvements7 to 25Buildings25 to 40Building improvements5 to 20Machinery and equipment2 to 15Leasehold improvements are depreciated over the shorter of their estimated useful lives or the term of the lease.GoodwillWe use the acquisition method to account for business combinations, whereby we allocate the purchase price paid for the business to the net tangibleassets and identifiable intangible assets at fair value. To the extent that the purchase price exceeds the fair value of the net assets acquired, we recordgoodwill. In accordance with U.S. GAAP, we are required to evaluate our goodwill on a qualitative basis to determine if there are indicators of impairment. Ifthere are no indicators, no further analysis is deemed necessary. However, if there are indicators of impairment or if events or circumstances indicate there maybe a potential impairment, we perform an annual goodwill impairment test as of August 31, or more frequently if indicators of impairment exist. Thisimpairment test requires a two-step approach as prescribed in ASC Topic 350 “Intangibles - Goodwill and Other” (ASC 350). The first step of the impairmenttest requires us to compare the fair value of each reporting unit to its carrying value including goodwill. To determine fair value of our reporting units, we usemultiple valuation techniques including a discounted cash flow analysis, using the applicable weighted average cost of capital, in combination with a marketapproach. This test requires us to make assumptions about the future growth of our business and the market in general, as well as other variables such as thelevel of investment in capital expenditure, growth in working capital requirements and the terminal or residual value of our reporting units beyond theperiods of estimated annual cash flows. We use a third-party valuation firm to assist us with this analysis. If the fair value of each reporting unit exceeds itscarrying value, no further testing is required. Otherwise, we perform the second step of the impairment test whereby we compare the implied fair value ofgoodwill to its carrying value. The implied fair value of goodwill is determined by applying the acquisition method of accounting for a businesscombination to the reporting unit as if it were acquired. Under this method, the fair value of the reporting unit is deemed to be the purchase price. The assetsand liabilities are recorded at their fair value and the remaining excess of fair value is the implied value of goodwill. An impairment loss is recorded to theextent that the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill. Our estimates of future cash flows and theresidual values could differ from actual cash flows which may require a provision for impairment in a future period.InsuranceWe manage our exposure to losses for workers’ compensation, group medical, property, casualty and other insurance claims through a combination ofself-insurance retentions and insurance coverage with third-party carriers. We record undiscounted liabilities associated with our portion of these exposures,which we estimate by considering various factors such as our historical claims experience, severity factors and estimated claims incurred but not reported, forwhich we have developed loss development factors, which are estimates as to how claims will develop over time until closed. While we consider a number offactors in preparing the estimates, sensitive assumptions using significant judgment are made in determining the amounts that are accrued in the financialstatements. Actual claims could differ significantly from these estimated liabilities, depending on future claims experience. We do not record insurancerecoveries until any contingencies relating to the claim have been resolved.Retirement PlansWe sponsor a defined benefit pension plan and an unfunded postretirement plan that provides health care and life insurance benefits for eligible retireesand dependents. To measure our liabilities associated with these plans, we make assumptions related to future events, including expected return on planassets, rate of compensation increases, and healthcare cost trend rates. The discount rate reflects the rate at which benefits could be effectively settled on themeasurement date. We determine our discount rate based on a pension discount curve, and the rate represents the single rate that, if applied to every year ofprojected benefit payments, would result in the same discounted value as the array of rates that comprise the pension discount curve. Actual pension planasset investment performance, as well as other economic experience such as discount rate and demographic experience, will either reduce or increaseunamortized pension losses at the end of any fiscal year, which ultimately affects future pension costs.Warranty Obligations51Table of ContentsQUANEX BUILDING PRODUCTS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) We accrue warranty obligations when we recognize revenue for certain products. Our provision for warranty obligations is based on historical costsincurred for such obligations and is adjusted, where appropriate, based on current conditions and factors. Our ability to estimate our warranty obligations issubject to significant uncertainties, including changes in product design and our overall product sales mix.Income TaxesWe record the estimated future tax effects of temporary differences between the tax basis of assets and liabilities and the amounts reported in ourconsolidated balance sheets, as well as net operating losses and tax credit carry forwards. We evaluate the carrying value of the net deferred tax assets anddetermine whether we will be able to generate sufficient future taxable income to realize our deferred tax assets. We perform this review for recoverability ona jurisdictional basis, whereby we consider both positive and negative evidence related to the likelihood of realization of the deferred tax assets. The weightgiven to the positive and negative evidence is commensurate with the extent to which the evidence can be objectively verified. Cumulative losses in recentyears is a significant piece of negative evidence that is difficult to overcome in determining that a valuation allowance is not needed against deferred taxassets. Thus, it is generally difficult for positive evidence regarding projected future taxable income exclusive of reversing taxable temporary differences tooutweigh objective negative evidence of recent financial reporting losses. We recorded net income for the year ended October 31, 2014 and we believe wewill fully realize our deferred tax assets, net of recorded valuation allowance. We project future taxable income using the same forecasts used to test long-lived assets and intangibles for impairment, scheduling out the future reversal of existing taxable temporary differences and reviewing our most recentfinancial operations. In the event the estimates and assumptions indicate we will not generate sufficient future taxable income to realize our deferred taxassets, we record a valuation allowance against a portion of our deferred tax assets.We evaluate our on-going tax positions to determine if it is more-likely-than-not we will be successful in defending such positions if challenged bytaxing authorities. To the extent that our tax positions do not meet the more-likely-than-not criteria, we record a liability for uncertain tax positions.Historically, we have recorded a liability for uncertain tax positions which stem from an unrecognized tax benefit from our 2008 spin-off from ourpredecessor parent company, as well as certain state tax items regarding the interpretation of tax laws and regulations. We continue to evaluate thesepositions at each reporting date, until the applicable statute of limitations lapse.Environmental ContingenciesWe are subject to extensive laws and regulations concerning the discharge of materials into the environment and the remediation of chemicalcontamination. To satisfy such requirements, we incur expenditures and make capital investments on an ongoing basis. We accrue our best estimates of ourremediation obligations and adjust these accruals when further information becomes available or circumstances change. Those estimates may changesubstantially depending on information about the nature and extent of contamination, appropriate remediation technologies, and regulatory approvals. Inaccruing for environmental remediation liabilities, costs of future expenditures are not discounted to their present value, unless the amount and timing of theexpenditures are fixed or reliably determinable. Legal costs are expensed as incurred except incremental direct costs of the remediation effort which areaccrued as part of the measurement of the environmental remediation liability. When environmental laws are deemed to impose joint and several liability forthe costs of responding to contamination, we accrue our allocable share of the liability taking into account the number of parties participating, their ability topay their shares, the volumes and nature of the wastes involved, the nature of anticipated response actions, and the nature of our alleged connections.Recoveries of environmental remediation costs from other parties are recorded as assets, current and non-current portions, when receipt is deemed probable.Unanticipated changes in circumstances and/or legal requirements could extend the length of time over which we pay our remediation costs or could increaseactual cash expenditures for remediation in any period.Derivative InstrumentsWe have historically used financial and commodity-based derivative contracts to manage our exposure to fluctuations in foreign currency exchangerates and aluminum prices. All derivatives are measured at fair value on a recurring basis and the methodology and classifications are discussed further inNote 13. We have not designated the derivative instruments we use as cash flow hedges under ASC Topic 815 "Derivatives and Hedging” (ASC 815).Therefore, all gains and losses, both realized and unrealized, are recognized in the consolidated statements of income (loss) in the period of the change as theunderlying assets and liabilities are marked-to-market. We do not enter into derivative instruments for speculative or trading purposes. As such, theseinstruments are considered economic hedges, and are reflected in the operating activities section of the consolidated statements of cash flow.52Table of ContentsQUANEX BUILDING PRODUCTS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Foreign Currency TranslationOur consolidated financial statements are presented in our reporting currency, the United States dollar. Our German and United Kingdom operations aremeasured using the local currency as the functional currency. The assets and liabilities of our foreign operations which are denominated in other currenciesare translated to United States dollars using the exchange rates as of the balance sheet date. Revenues and expenses are translated at the average exchangerates for the applicable period. The resulting translation adjustments are recorded as a component of accumulated other comprehensive income (loss) on theconsolidated balance sheets.Occasionally, we enter into transactions that are denominated in currencies other than our functional currency. At each balance sheet date, we translatethese asset or liability accounts to our functional currency and record unrealized transaction gains or losses. When these assets or liabilities settle, we recordrealized transaction gains or losses. These realized and unrealized gains or losses are included in the accompanying consolidated statements of income (loss)under the caption, “Other, net.”Stock–Based CompensationWe have issued stock-based compensation in the form of stock options to directors, employees and officers, and non-vested restricted stock awards tocertain key employees and officers. We apply the provisions of ASC Topic 718 “Compensation - Stock Compensation” (ASC 718), to determine the fair valueof stock option awards on the date of grant using the Black-Scholes valuation model. We recognize the fair value as compensation expense on a straight-linebasis over the requisite service period of the award based on awards ultimately expected to vest. Stock options granted to directors vest immediately whilethe stock options granted to our employees and officers typically vest ratably over a three-year period with service and continued employment as the vestingconditions. For new option grants to retirement-eligible employees, we recognize expense and vest immediately upon grant, consistent with the retirementvesting acceleration provisions of these grants. For employees near retirement age, we amortize such grants over the period from the grant date to theretirement date if such period is shorter than the standard vesting schedule. For grants of non-vested restricted stock, we calculate the compensation expenseat the grant date as the number of shares granted multiplied by the closing stock price of our common stock on the date of grant. This expense is recognizedratably over the vesting period. Our non-vested restricted stock grants to officers and employees cliff vest over a three-year period with service and continuedemployment as the only vesting criteria. Our fair value determination of stock-based payment awards on the date of grant using an option-pricing model isaffected by our stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are notlimited to, our expected stock price volatility over the term of the awards, actual and projected employee stock option exercise behavior over the expectedterm, our dividend rate, risk-free rate and expectation with regards to forfeitures. Option-pricing models were developed for use in estimating the value oftraded options that have no vesting or hedging restrictions and are fully transferable. Because our employee stock options have certain characteristics that aresignificantly different from traded options, and because changes in the subjective assumptions can materially affect the estimated value, the valuation modelsmay not provide an accurate measure of the fair value of our employee stock options. Accordingly, that value may not be indicative of the fair value observedin a willing buyer/willing seller market transaction.We have granted other awards which are linked to the performance of our common stock, but will settle in cash rather than the issuance of shares of ourcommon stock. The value of these awards fluctuates with changes in our stock price, with the resulting gains or losses reflected in the period of the change.We have recorded current and non-current liabilities related to these awards reflected in the accompanying consolidated balance sheets at October 31, 2014and 2013. See Note 15, “Stock-based Compensation.”In addition, we have granted performance units which settle in cash and shares. These awards have vesting criteria based on a market condition (totalshareholder return) and an internal performance condition (earnings per share). We utilize a Monte Carlo simulation model to value the market condition andour stock price on the date of grant to value the internal performance condition. We bifurcate the liability and equity portion of the awards (amountsexpected to settle in cash and shares, respectively) and recognize expense ratably over the vesting period of three years.Treasury StockWe use the cost method to record treasury stock purchases whereby the entire cost of the acquired shares of our common stock is recorded as treasurystock (at cost). When we subsequently reissue these shares, proceeds in excess of cost upon the issuance of treasury shares are credited to additional paid incapital, while any deficiency is charged to retained earnings.Earnings per Share DataWe calculate basic earnings per share based on the weighted average number of our common shares outstanding for the53Table of ContentsQUANEX BUILDING PRODUCTS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) applicable period. We calculate diluted earnings per share based on the weighted average number of our common shares outstanding for the period plus allpotentially dilutive securities using the treasury stock method, whereby we assume that all such shares are converted into common shares at the beginning ofthe period, if deemed to be dilutive. If we incur a loss from continuing operations, the effect of potentially dilutive common stock equivalents (stock optionsand unvested restricted stock awards) are excluded from the calculation of diluted earnings per share because the effect would be anti-dilutive. Performanceshares are excluded from contingent shares for purposes of calculating diluted weighted average shares until the performance measure criteria is probable andshares are likely to be issued.Supplemental Cash Flow InformationThe following table summarizes our supplemental cash flow information for the years ended October 31, 2014, 2013 and 2012: Year Ended October 31, 2014 2013 2012 (In thousands)Cash paid for interest$361 $431 $381Cash paid for income taxes3,046 1,273 1,265Cash received for income tax refunds66 1,465 19Noncash investing and financing activities: Share value cancelled to satisfy tax withholdings155 518 645Recognition of unrecognized tax benefit1,977 3,032 3,571Asset retirement obligation— 1,267 —Debt assumed in acquisition— 91 —Change in capitalized expenditures in accounts payable and accrued liabilities$1,398 $1,249 $395Discontinued OperationsIn accordance with ASC Topic 205-20 “Presentation of Financial Statements-Discontinued Operations” (ASC 205), we present the results ofoperations of businesses which have been sold or meet the criteria to be classified as held for sale on a consolidated basis as a separate caption below netincome (loss) from continuing operations, net of tax. We also aggregate the assets and liabilities associated with discontinued operations and presentseparately as a component of current assets, long-term assets, current liabilities and long-term liabilities, as applicable, in the accompanying balance sheets. Ifan impairment loss is indicated and the fair value of the net assets exceeds the carrying value at the balance sheet date, we record an impairment loss in theperiod the net assets are classified as held for sale. We cease depreciation of assets which are classified as held for sale. We use our judgment to ascertain whena business meets the criteria to be accounted for as held for sale. Changes in circumstances or our level of future involvement with a business that has beensold may impact how we account for discontinued operations.Prior to April 1, 2014, we had two reportable business segments: (1) Engineered Products and (2) Aluminum Sheet Products. On April 1, 2014, we soldour interest in a limited liability company which held the assets of the Nichols Aluminum business (Nichols), the sole operating segment included in ourAluminum Sheet Products reportable segment, to Aleris International, Inc. (Aleris), a privately held Delaware corporation which provides aluminum rolledproducts and extrusions, aluminum recycling and specification aluminum alloy production. We received net proceeds of $107.4 million, which includes aworking capital adjustment of $2.6 million which we paid in June 2014, resulting in a gain on the transaction of $24.1 million, net of related taxes of $15million. We were required to reimburse Aleris for certain severance costs related to Nichols employee terminations in accordance with the purchaseagreement, and as of October 31, 2014, we have paid $0.4 million of such costs which reduced the pre-tax gain on the sale. We entered into a transitionservices agreement whereby we provided certain administrative services to Nichols through May 31, 2014, including information technology support,benefit administration and payroll services.Nichols represented a significant portion of our assets and operations. We accounted for this sale as a discontinued operation. We revised our financialstatements and reclassified the assets and liabilities of Nichols as discontinued operations as of October 31, 2013, and removed the results of operations ofNichols from net income (loss) from continuing operations, and presented separately as income (loss) from discontinued operations, net of taxes, for each ofthe accompanying consolidated statements of income (loss). Unless noted otherwise, the notes to the consolidated financial statements pertain to ourcontinuing operations.We have included cash held by Nichols as a component of current assets of discontinued operations for the accompanying consolidated balance sheetat October 31, 2013, rather than including this amount as cash and cash equivalents of the consolidated entity at October 31, 2013. For cash flow statementpresentation, the sources and uses of cash for Nichols are presented as operating,54Table of ContentsQUANEX BUILDING PRODUCTS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) investing and financing cash flows, as applicable, combined with such cash flows for continuing operations, as permitted by U.S. GAAP.We have historically purchased rolled aluminum product from Nichols. We expect to continue to purchase aluminum from Nichols in the normal courseof business. We considered whether these aluminum purchases and the services anticipated under the transition services agreement constituted significantcontinuing involvement with Nichols. Since these purchases are in the normal course of business and the services provided were for a relatively short periodand are customary for similar transactions, we determined that this involvement was not deemed significant and does not preclude accounting for thetransaction as a discontinued operation. Our purchases of aluminum product from Nichols for the years ended October 31, 2014, 2013 and 2012 were $14.9million, $12.6 million and $11.9 million, respectively.As of October 31, 2014, we recorded a receivable from Aleris less than $0.1 million, which represented reimbursable costs, primarily associated withworkers compensation and health insurance claims. We expect to continue to incur costs associated with these claims which will be reimbursable from Aleris.In November 2013, Nichols experienced a fire at its Decatur, Alabama facility, which damaged a cold mill used to roll aluminum sheet to a desiredthickness. The loss was insured, subject to a $0.5 million deductible. We capitalized $6.5 million to rebuild the asset, which was returned to service as ofMarch 31, 2014. We incurred cost of $2.3 million associated with this loss, including an impairment of $0.5 million related to retirement of the asset, movingcosts, outside service costs, clean-up and the deductible. To date, we have received insurance proceeds of $4.8 million. We expect to receive total insuranceproceeds of approximately $8.1 million, resulting in an expected gain on involuntary conversion of $5.7 million. We estimate the remaining gain oninvoluntary conversion at $3.3 million. We expect to recognize this gain during fiscal 2015, when and to the extent that insurance proceeds are received,which will result in an increase in income from discontinued operations, net of tax.55Table of ContentsQUANEX BUILDING PRODUCTS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The following table presents the assets and liabilities of Nichols as of October 31, 2013 (in thousands): October 31, 2013 Current assets: Cash and cash equivalents $2Accounts receivable, net 39,374Inventories, net 16,637Income taxes receivable 2,314Deferred income taxes 4,123Prepaid and other current assets 1,701Current assets of discontinued operations $64,151Non-current assets: Property, plant and equipment, net $50,398Deferred income taxes 6,413Other assets 8,472Non-current assets of discontinued operations $65,283Current liabilities: Accounts payable $39,367Accrued liabilities 9,975Current maturities of long-term debt 22Current liabilities of discontinued operations $49,364Non-current liabilities: Long-term debt $51Deferred pension and postretirement benefits 233Non-current environmental reserves 9,255Non-current liabilities of discontinued operations $9,539The following table summarizes the operating results for Nichols for the years ended October 31, 2014, 2013 and 2012: Year Ended October 31, 2014 2013 2012 (In thousands, except per share amounts)Net sales$142,797 $410,381 $362,315Operating (loss) income(5,094) 1,091 (16,090)(Loss) income before income taxes, before gain on sale(5,111) 1,071 (16,117)Income tax benefit (expense), before gain on sale1,947 (390) 6,144Gain on sale, net of tax of $15,06224,060 — —Net income (loss)$20,896 $681 $(9,973)Basic earnings (loss) per common share$0.57 $0.02 $(0.27)Diluted earnings (loss) per common share$0.56 $0.02 $(0.27)56Table of ContentsQUANEX BUILDING PRODUCTS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 2. AcquisitionsGreenvilleOn December 31, 2013, we acquired certain vinyl extrusion assets of Atrium Windows and Doors, Inc. (Atrium) at a facility in Greenville, Texas, for $5.2million in cash (Greenville). We accounted for this transaction as a business combination resulting in an insignificant gain on the purchase. We entered into asupply agreement with Atrium related to the products manufactured at Greenville. We believe this acquisition expanded our vinyl extrusion capacity andpositioned us with a platform from which to better serve our customers in the southern United States.The purchase price has been allocated to the fair value of the assets acquired and liabilities assumed, as indicated in the table below. As of Date ofOpening Balance Sheet (In thousands)Net assets acquired: Inventories$161Prepaid and other current assets145Property, plant and equipment4,695Intangible assets290Deferred income tax liability(50)Net assets acquired$5,241Consideration: Cash, net of cash and cash equivalents acquired$5,161 Gain recognized on bargain purchase$80We used recognized valuation techniques to determine the fair value of the assets and liabilities, including the income approach for customerrelationships, with a discount rate that reflects the risk of the expected future cash flows. The gain on bargain purchase of approximately $0.1 million isincluded in "Other, net" on our consolidated statement of income (loss) for the year ended October 31, 2014.Pro forma results of operations were not presented because this acquisition was not deemed to be material to our results of operations for the year endedOctober 31, 2014.AlumcoOn December 31, 2012, we acquired substantially all of the assets of Alumco, Inc. and its subsidiaries (Alumco), including its aluminum screenbusiness, for $22.4 million in cash. The purchase agreement contains (1) a working capital clause that provides for an adjustment to the purchase price basedon the working capital balance as of the acquisition date and (2) an earn-out clause that provides for the payment of an additional $0.5 million to Alumcocontingent upon the achievement of certain financial targets. We received $0.4 million from the prior owner of Alumco pursuant to the working capitalclause. We recorded contingent consideration of $0.3 million as the fair value of the earn-out included in the purchase price. As of October 31, 2013, wedetermined that the earn-out provision criteria was not met and decreased expense by $0.3 million.The purchase price has been allocated to the fair value of the assets acquired and liabilities assumed, as indicated in the table below. This allocation isbased on estimates and assumptions that are subject to change within the purchase price allocation period (generally one year from the acquisition date).During the period from the acquisition date to October 31, 2013, we recorded an adjustment to goodwill of $0.1 million to recognize a derivative liabilityand $0.2 million for obsolete inventory reserve write-off, related to conditions that existed as of the opening balance sheet date.57Table of ContentsQUANEX BUILDING PRODUCTS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) As of Date ofOpening Balance Sheet (In thousands)Net assets acquired: Accounts receivable$3,638Inventories5,062Prepaid and other current assets140Property, plant and equipment4,682Intangible assets8,939Accounts payable(2,066)Accrued liabilities(993)Current maturities of long-term debt(14)Long-term debt(77)Goodwill2,785Net assets acquired$22,096Consideration: Cash, net of cash and cash equivalents acquired$22,096We used recognized valuation techniques to determine the fair value of the assets and liabilities, including the income approach for customerrelationships, with a discount rate that reflects the risk of the expected future cash flows. The goodwill balance is deductible for tax purposes. We believe thatthis acquisition expanded our product portfolio and geographic distribution capabilities particularly in the vinyl window segment in the screen market.The Alumco acquisition was not deemed material to our results of operations for the year ended October 31, 2013. Therefore, we have not presented proforma results of operations.3. Accounts Receivable and Allowance for Doubtful AccountsAccounts receivable consisted of the following as of October 31, 2014 and 2013: October 31, 2014 2013 (In thousands)Trade receivables$55,274 $59,651Receivables from employees1 12Other616 278Total$55,891 $59,941Less: Allowance for doubtful accounts698 481Accounts receivable, net$55,193 $59,460The changes in our allowance for doubtful accounts were as follows: Year Ended October 31, 2014 2013 2012 (In thousands)Beginning balance as of November 1, 2013, 2012 and 2011, respectively$481 $977 $950Bad debt expense (benefit)359 (70) 640Amounts written off(192) (533) (679)Recoveries50 107 66Balance as of October 31,$698 $481 $97758Table of ContentsQUANEX BUILDING PRODUCTS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 4. InventoriesInventories consisted of the following at October 31, 2014 and 2013: October 31, 2014 2013 (In thousands)Raw materials36,751 $26,201Finished goods and work in process25,558 19,767Supplies and other806 751Total$63,115 $46,719Less: Inventory reserves5,757 5,040Inventories, net$57,358 $41,679The changes in our inventory reserve accounts were are follows for the years ended October 31, 2014, 2013 and 2012: Year Ended October 31, 2014 2013 2012 (In thousands)Beginning balance as of November 1, 2014, 2013 and 2012, respectively$5,040 $5,605 $4,821Charged (credited) to costs & expenses960 (563) 1,319Write-offs(243) (2) (400)Other— — (135)Balance as of October 31,$5,757 $5,040 $5,605Fixed costs related to excess manufacturing capacity, if any, have been expensed in the period they were incurred and, therefore, are not capitalizedinto inventory. Our inventories at October 31, 2014 and 2013 were valued using the following costing methods: October 31, 2014 2013 (In thousands)LIFO$5,122 $2,090FIFO52,236 39,589Total$57,358 $41,679For inventories valued using the LIFO method, replacement cost exceeded the LIFO value by approximately $1.4 million as of October 31, 2014 and2013. We liquidated LIFO layers during the year ended October 31, 2013, which resulted in a reduction of the LIFO reserve and a corresponding decrease tocost of sales of approximately $0.1 million in the year ended October 31, 2013. There were no liquidations of LIFO costing layers during the fiscal yearsended October 31, 2014 and 2012.We record LIFO reserve adjustments as corporate expenses so that our chief operating decision maker can review the operations of our operatingsegments on a consistent FIFO or weighted-average basis. We calculate our LIFO reserve adjustments on a consolidated basis in a single pool using thedollar-value link chain method.For our business acquisitions which have inventory balances, we integrate these operations and allow the use of either the LIFO or FIFO costingmethod. The inventory costing methods selected by these acquired businesses depends upon the facts and circumstances that exist at the time, and mayinclude expected inventory quantities and expected future pricing levels. We perform this evaluation for each business acquired individually.59Table of ContentsQUANEX BUILDING PRODUCTS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 5. Property, Plant and EquipmentProperty, plant and equipment consisted of the following at October 31, 2014 and 2013: October 31, 2014 2013 (In thousands)Land and land improvements$2,121 $2,121Buildings and building improvements47,283 45,828Machinery and equipment251,584 238,426Construction in progress8,913 5,715Property, plant and equipment, gross309,901 292,090Less: Accumulated depreciation200,414 185,269Property, plant and equipment, net$109,487 $106,821Depreciation expense for the years ended October 31, 2014, 2013, and 2012 was $24.8 million, $44.6 million and $21.7 million, respectively.If there are indicators of potential impairment, we evaluate our property, plant and equipment for recoverability over the remaining useful lives of theassets. We recorded asset impairment charges related to specific assets that were held for sale for the years ended October 31, 2014, 2013 and 2012 as follows: Year Ended October 31, 2014 2013 2012 (In thousands)Asset impairment charges505(1) 1,465(2) 912(3) (1) Related to the facility in Barbourville, Kentucky, which was sold in May 2014.(2) Related to the write down of land in Arizona and the facility in Barbourville, Kentucky.(3)Primarily related to the consolidation of the Barbourville facility which was being held for sale. See Note 20 "Restructuring Activities", includedherewith.6. Goodwill and Intangible AssetsGoodwillThe change in the carrying amount of goodwill for the years ended October 31, 2014 and 2013 was as follows: Year Ended October 31, 2014 2013 (In thousands)Beginning balance as of November 1, 2013 and 2012$71,866 $68,331Acquisitions— 2,785Foreign currency translation adjustment(1,320) 750Balance as of October 31,$70,546 $71,866We evaluated our goodwill balances for indicators of impairment and performed an annual goodwill impairment test to determine the recoverability ofthese assets. We determined that our goodwill was not impaired. We did not incur an impairment charge for the years ended October 31, 2014, 2013 and2012.Identifiable Intangible AssetsAmortizable intangible assets consisted of the following as of October 31, 2014 and 2013:60Table of ContentsQUANEX BUILDING PRODUCTS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) October 31, 2014 October 31, 2014 October 31, 2013 Remaining WeightedAverage Useful Life Gross CarryingAmount AccumulatedAmortization Gross CarryingAmount AccumulatedAmortization (In thousands)Customer relationships9 years $53,083 $19,700 $52,793 $15,630Trademarks and trade names12 years 44,722 20,343 44,576 17,498Patents and other technology7 years 25,244 13,228 25,390 11,319Other1 year 1,392 1,020 1,392 742Total $124,441 $54,291 $124,151 $45,189We do not estimate a residual value associated with these intangible assets. Included in intangible assets as of October 31, 2014 were customerrelationships of $0.3 million related to the Greenville acquisition with original estimated useful lives of 5 years. See Note 2, "Acquisitions", includedherewith.The aggregate amortization expense associated with identifiable intangible assets for the years ended October 31, 2014, 2013 and 2012 was $9.1million, $8.9 million and $8.2 million, respectively.Estimated remaining amortization expense, assuming current intangible balances and no new acquisitions, for future fiscal years ending October 31, isas follows (in thousands): EstimatedAmortization Expense2015$8,98420168,71320178,60720188,36020197,571Thereafter27,915Total$70,150We did not incur impairment losses related to our identifiable intangible assets during the years ended October 31, 2014, 2013 and 2012.61Table of ContentsQUANEX BUILDING PRODUCTS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 7. Accrued LiabilitiesAccrued liabilities consisted of the following at October 31, 2014 and 2013: October 31, 2014 2013 (In thousands)Payroll, payroll taxes and employee benefits$15,183 $15,791Accrued insurance and workers compensation2,870 1,267Sales allowances4,764 5,111Deferred compensation330 3,597Deferred revenue610 1,121Warranties385 1,700Audit, legal, and other professional fees799 1,236Accrued taxes439 590Accrued rent316 353Treasury share purchase accrual1,959 —Other4,827 4,044Accrued liabilities$32,482 $34,8108. Debt and Capital Lease ObligationsLong-term debt consisted of the following at October 31, 2014 and 2013: October 31, 2014 2013 (In thousands)Revolving Credit Facility$— $—City of Richmond, Kentucky Industrial Building Revenue Bonds600 700Capital lease obligations185 163Total debt$785 $863Less: Current maturities of long-term debt199 162Long-term debt$586 $701Revolving Credit FacilityPrior to January 28, 2013, we maintained a $270.0 million senior unsecured revolving credit facility (the Retired Facility) which had been executed onApril 23, 2008 and was scheduled to mature on April 23, 2013. The Retired Facility provided for up to $50.0 million of standby letters of credit, limitedbased on availability, as defined. Amounts borrowed under the facility were to bear interest at a spread above the London Interbank Borrowing Rate (LIBOR)based on a combined leverage and ratings grid. In addition, the Retired Facility contained restrictive debt covenants, as defined in the indenture, andcontained certain limits on additional indebtedness, asset or equity sales and acquisitions. During the fiscal year ended October 31, 2012 and for the periodfrom November 1, 2012 through January 28, 2013, we were in compliance with our debt covenants and did not borrow funds pursuant to the Retired Facility.On January 28, 2013, we entered into a Senior Unsecured Revolving Credit Facility (the Credit Facility) that has a five-year term and permits aggregateborrowings at any time of up to $150 million, with a letter of credit sub-facility, a swing line sub-facility and a multi-currency sub-facility. Borrowingsdenominated in United States dollars bear interest at a spread above LIBOR or a base rate derived from the prime rate. Foreign denominated borrowings bearinterest at a spread above the LIBOR applicable to such currencies. Subject to customary conditions, we may request that the aggregate commitments underthe Credit Facility be increased by up to $100 million, with total commitments not to exceed $250 million. The Credit Facility replaces our previous seniorunsecured revolving credit facility (the Retired Facility) that was scheduled to expire on April 23, 2013.62Table of ContentsQUANEX BUILDING PRODUCTS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The Credit Facility requires us to comply with certain financial covenants, the terms of which are defined therein. Specifically, we must not permit, on aquarterly basis, our ratio of consolidated EBITDA to consolidated interest expense as defined (Minimum Interest Coverage Ratio), to fall below 3.00:1 or ourratio of consolidated funded debt to consolidated EBITDA, as defined (Maximum Consolidated Leverage Ratio), to exceed 3.25:1. The MaximumConsolidated Leverage Ratio is the ratio of consolidated EBITDA to consolidated interest expense, in each case for the previous four consecutive fiscalquarters. EBITDA is defined by the indenture to include proforma EBITDA of acquisitions and to exclude certain items such as goodwill and intangible assetimpairments and certain other non-cash charges and non-recurring items. Subject to our compliance with the covenant requirements, the amount availableunder the Credit Facility is a function of: (1) our trailing twelve month EBITDA; (2) the Minimum Interest Coverage Ratio and Maximum ConsolidatedLeverage Ratio allowed under the Credit Facility; and (3) the aggregate amount of our outstanding debt and letters of credit. As of October 31, 2014, we werein compliance with the financial covenants set forth in the Credit Facility.As of October 31, 2014, the amount available to us for use under the Credit Facility was limited to $140.7 million and we had outstanding letters ofcredit of $6.1 million. For the year ended October 31, 2014, we did not borrow any amounts under the Credit Facility, and thus had no outstandingborrowings at October 31, 2014. Our borrowing rate under the Credit Facility was 3.25% and 1.20% for the swing line sub facility and the revolver,respectively, at October 31, 2014. As of October 31, 2013, the amount available to us for use under the Credit Facility was limited to $139.0 million and wehad outstanding letters of credit of $6.2 million. For the period from January 28, 2013 through October 31, 2013, we borrowed and repaid $23.5 millionunder the Credit Facility, and thus had no outstanding borrowings at October 31, 2013. The weighted average interest rate for the period from January 28,2013 through October 31, 2013 was 1.33%. Our borrowing rate under the Credit Facility was 3.25% and 1.20% for the swing line sub facility and therevolver, respectively, at October 31, 2013.Other Debt InstrumentsThe City of Richmond, Kentucky Industrial Building Revenue Bonds are due in annual installments through October 2020. Interest is payable monthlyat a variable rate. Interest rates on these bonds have ranged from 0.2% to 0.3% during the fiscal year ended October 31, 2014. The average interest rate duringthe fiscal years ended October 31, 2014 and 2013, was 0.2% and 0.3%, respectively. We have pledged the land, building and certain equipment used at thefacility located in Richmond, Kentucky as collateral. In addition, we have issued a $0.6 million letter of credit under the Credit Facility which serves as aconduit for making the scheduled payments.We have capital lease obligations related to equipment purchases with annual interest rates that range between 1.5% and 11.0%. These capital leaseobligations extend through 2019.The table below presents the scheduled maturity dates of our long-term debt outstanding at October 31, 2014 (in thousands): Aggregate Maturities20151992016160201712720181002019100Thereafter99Total$7859. Retirement PlansWe have a number of retirement plans covering substantially all employees. We provide both defined benefit and defined contribution plans. Ingeneral, an employee’s coverage for retirement benefits depends on the location of employment.Defined Benefit PlanWe have a non-contributory, single employer defined benefit pension plan that covers substantially all non-union employees. Effective January 1,2007, we amended this defined benefit pension plan to include a cash balance formula for all new salaried employees hired on or after January 1, 2007 andfor any non-union employees who were not participating in a defined benefit plan prior to January 1, 2007. All salaried employees hired after January 1,2007, are eligible to receive credits equivalent to 4% of their annual eligible wages. Some of the employees at the time of the amendment were“grandfathered” and are eligible to receive63Table of ContentsQUANEX BUILDING PRODUCTS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) credits ranging up to 6.5% based upon a percentage of benefits received under our defined benefit plan prior to this amendment of the pension plan.Additionally, every year the participants will receive an interest related credit on their respective balance equivalent to the prevailing 30-year Treasury rate.For employees who were participating in this plan prior to January 1, 2007, the benefit formula is a more traditional formula for retirement benefits, wherebythe plan pays benefits to employees upon retirement, using a formula which considers years of service and pensionable compensation prior to retirement. Ofour pension plan participants, 99% have their benefit determined pursuant to the cash balance formula.The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the "Act") was signed into law on December 8, 2003. This Actintroduces a Medicare prescription-drug benefit beginning in 2006 as well as a federal subsidy to sponsors of retiree health care plans that provide a benefitat least “actuarially equivalent” to the Medicare benefit. We concluded that our plans are at least “actuarially equivalent” to the Medicare benefit. For thosewho are otherwise eligible for the subsidy, we have not included this subsidy per the Act in our benefit calculations. The impact to net periodic benefit costand to benefits paid did not have a material impact on the consolidated financial statements.Funded Status and Net periodic Benefit CostThe changes in benefit obligations and plan assets, and our funded status (reported in deferred pension and postretirement benefits on the consolidatedbalance sheets) were as follows: October 31, 2014 2013 (In thousands)Change in Benefit Obligation: Beginning balance as of November 1, 2013 and 2012, respectively$26,239 $24,407Service cost3,313 3,820Interest cost1,063 786Actuarial loss (gain)2,213 (893)Benefits paid(3,188) (1,540)Administrative expenses(570) (341)Projected benefit obligation at October 31,$29,070 $26,239Change in Plan Assets: Beginning balance as of November 1, 2013 and 2012, respectively$23,607 $18,562Actual return on plan assets1,340 3,256Employer contributions4,140 3,670Benefits paid(3,188) (1,540)Administrative expenses(570) (341)Fair value of plan assets at October 31,$25,329 $23,607Non current liability - Funded Status$(3,741) $(2,632)As of October 31, 2014 and 2013, included in our accumulated comprehensive loss was a net actuarial loss of $4.2 million and $1.7 million,respectively. There were no net prior service costs or transition obligations for the years ended October 31, 2014 and 2013.As of October 31, 2014 and 2013, the accumulated benefit obligation was $28.1 million and $25.2 million, respectively. The accumulated benefitobligation is the present value of pension benefits (whether vested or unvested) attributed to employee service rendered before the measurement date, andbased on employee service and compensation prior to that date. The accumulated benefit obligation differs from the projected benefit obligation in that itincludes no assumption about future compensation levels.The net periodic benefit cost for the years ended October 31, 2014, 2013 and 2012, was as follows:64Table of ContentsQUANEX BUILDING PRODUCTS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Year Ended October 31, 2014 2013 2012 (In thousands)Service cost$3,313 $3,820 $3,652Interest cost1,063 786 815Expected return on plan assets(1,722) (1,400) (1,161)Amortization of net loss— 370 147Net periodic benefit cost$2,654 $3,576 $3,453The changes in plan assets and projected benefit obligations which were recognized in our other comprehensive loss for the years ended October 31,2014, 2013 and 2012 were as follows: Year Ended October 31, 2014 2013 2012 (In thousands)Net loss (gain) arising during the period$2,596 $(2,749) $81Less: Amortization of loss$— $369 $147Total recognized in other comprehensive loss$2,596 $(3,118) $(66)Measurement Date and AssumptionsWe generally determine our actuarial assumptions on an annual basis, with a measurement date of October 31.The following table presents our assumptions for pension benefit calculations for the years ended October 31, 2014, 2013 and 2012: For the Year Ended October 31, 2014 2013 2012 2014 2013 2012Weighted Average Assumptions:Benefit Obligation Net Periodic Benefit CostDiscount rate3.64% 4.18% 3.29% 4.18% 3.29% 4.40%Rate of compensation increase3.00% 2.50% 2.50% 2.50% 2.50% 4.00%Expected return on plan assetsn/a n/a n/a 7.25% 7.25% 7.25%The discount rate was used to calculate the present value of the projected benefit obligation for pension benefits. The rate reflects the amount at whichbenefits could be effectively settled on the measurement date. For the years ended October 31, 2014, 2013 and 2012, we determined our discount rate basedon a pension discount curve. The rate represents the single rate that, if applied to every year of projected benefits payments, would result in the samediscounted value as the array of rates that comprise the pension discount curve.The expected return on plan assets was used to determine net periodic pension expense. The rate of return assumptions were based on projected long-term market returns for the various asset classes in which the plans were invested, weighted by the target asset allocations. We review the return assumption atleast annually. The rate of compensation increase represents the long-term assumption for expected increases in salaries.Plan AssetsThe following tables provide our target allocation for the year ended October 31, 2014, as well as the actual asset allocation by asset category and fairvalue measurements as of October 31, 2014 and 2013: Target Allocation Actual Allocation October 31, 2014 October 31, 2014 October 31, 2013Equity securities60.0% 61.0% 60.0%Fixed income40.0% 39.0% 40.0%65Table of ContentsQUANEX BUILDING PRODUCTS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Fair Value Measurements at October 31, 2014 October 31, 2013 (In thousands)Money market fund$307 $445 Large capitalization$8,088 $7,439Small capitalization3,034 2,745International equity2,773 2,536Other1,267 1,139Equity securities$15,162 $13,859 High-quality core bond$4,933 $4,653High-quality government bond2,452 2,322High-yield bond2,475 2,328Fixed income$9,860 $9,303 Total securities(1)$25,329 $23,607(1) Quoted prices in active markets for identical assets (Level 1).Inputs and valuation techniques used to measure the fair value of plan assets vary according to the type of security being valued. All of the equity anddebt securities held directly by the plans were actively traded and fair values were determined based on quoted market prices.Our investment objective for defined benefit plan assets is to meet the plans’ benefit obligations, while minimizing the potential for future required plancontributions. The investment strategies focus on asset class diversification, liquidity to meet benefit payments and an appropriate balance of long-terminvestment return and risk. Target ranges for asset allocations are determined by matching the actuarial projections of the plans’ future liabilities and benefitpayments with expected long-term rates of return on the assets, taking into account investment return volatility and correlations across asset classes. Planassets are diversified across several investment managers and are generally invested in liquid funds that are selected to track broad market equity and bondindices. Investment risk is carefully controlled with plan assets rebalanced to target allocations on a periodic basis and monitoring of performance ofinvestment managers relative to the investment guidelines established with each investment manager.Expected Benefit Payments and FundingOur pension funding policy is to make the minimum annual contributions required pursuant to the plan. We accelerated contributions to target a 100%funding threshold. Additionally, we consider funding annual requirements early in the fiscal year to potentially maximize the return on assets. For the fiscalyears ended October 31, 2014, 2013 and 2012, we made total pension contributions of $4.1 million, $3.7 million and $4.2 million, respectively.During fiscal 2015, we expect to contribute approximately $1.9 million to the pension plan to reach targeted funding levels and meet minimumcontribution requirements. This expected contribution level will be dependent on many variables, including the market value of the assets compared to theobligation, as well as other market or regulatory conditions. In addition, we consider the cash requirements of our business investment opportunities.Accordingly, actual funding amounts and the timing of such funding may differ from current estimates.66Table of ContentsQUANEX BUILDING PRODUCTS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The following table presents the total benefit payments expected to be paid to participants by year, which includes payments funded from our assets, aswell as payments paid from the plan for the year ended October 31, (in thousands): Pension Benefits2015$2,57720162,41620172,66320182,74820192,9012020 - 202416,199Total$29,504Defined Contribution PlanWe also sponsor defined contribution plans into which we and our employees make contributions. We match 5% up to the first 50% of employeedeferrals. We do not offer our common stock as a direct investment option under these plans. For the years ended October 31, 2014, 2013 and 2012, wecontributed approximately $2.4 million, $2.9 million and $2.5 million for these plans, respectively.Other PlansUnder our postretirement benefit plan, we provide certain healthcare and life insurance benefits for a small number of eligible retired employees whowere employed prior to January 1, 1993. Certain employees may become eligible for those benefits if they reach normal retirement age while working for us.We continue to fund benefit costs on a pay-as-you-go basis. The table below indicates the amount of these liabilities included in the accompanyingconsolidated balance sheets: October 31, 2014 October 31, 2013 (In thousands)Accrued liabilities$49 $74Deferred pension and postretirement benefits1,077 847Total$1,126 $921We also have supplemental benefit plans covering certain executive officers and a non-qualified deferred compensation plan covering members of theBoard of Directors and certain key employees. As of October 31, 2014 and 2013, our liability under the supplemental benefit plan was approximately $1.9million and $3.6 million, respectively, and our liability under the deferred compensation plan was approximately $3.4 million and $6.7 million, respectively.During 2014, we settled approximately $1.8 million and $3.5 million related to the supplemental benefit plan and the deferred compensation plan,respectively, as a result of the separation of three of our executive officers in 2013. As of October 31, 2014 and 2013, the current portion of these liabilitieswas recorded under the caption "Accrued Liabilities," and the long-term portion was included under the caption "Other Liabilities" in the accompanyingbalance sheets.10. Warranty ObligationsWe accrue warranty obligations as we recognize revenue associated with certain products. We make provisions for our warranty obligations based uponhistorical experience of costs incurred for such obligations adjusted, as necessary, for current conditions and factors. During January 2014, we reduced ourwarranty accrual by $2.8 million for certain insulating glass products we no longer produce and for which claim activity for a specific customer had ceased.There are significant uncertainties and judgments involved in estimating our warranty obligations, including changing product designs, differences incustomer installation processes and future claims experience which may vary from historical claims experience. Therefore, the ultimate amount we incur aswarranty costs in the near and long-term may not be consistent with our current estimate.67Table of ContentsQUANEX BUILDING PRODUCTS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) A reconciliation of the activity related to our accrued warranty, including both the current and long-term portions (reported in accrued liabilities andother liabilities, respectively, on the accompanying consolidated balance sheets) follows: Year Ended October 31, 2014 2013 (In thousands)Beginning balance as of November 1, 2013, and 2012, respectively$3,684 $4,781Provision for warranty expense782 768Change in accrual for preexisting warranties(3,400) (1,279)Warranty costs paid(395) (586)Total accrued warranty$671 $3,684Less: Current portion of accrued warranty385 1,700Long-term portion at October 31,$286 $1,98411. Income TaxesWe provide for income taxes on taxable income at the statutory rates applicable. The following table summarizes the components of income taxexpense from continuing operations for the years ended October 31, 2014, 2013 and 2012: Year Ended October 31, 2014 2013 2012 (In thousands)Current Federal$1,271 $2,902 $7,446State and local532 780 1,407Non-U.S.2,535 846 615Total current4,338 4,528 9,468Deferred Federal2,261 (10,498) (10,912)State and local(258) (980) (493)Non-U.S.(873) 62 (570)Total deferred1,130 (11,416) (11,975)Total income tax provision (benefit)$5,468 $(6,888) $(2,507)The following table reconciles our effective income tax rate to the federal statutory rate of 35% for the years ended October 31, 2014, 2013 and 2012: Year Ended October 31, 2014 2013 2012U.S. tax at statutory rate35.0 % 35.0 % 35.0 %State and local income tax2.3 3.0 5.0Non-U.S. income tax(0.1) 0.1 (1.3)US tax on non US earnings(0.3) — —Deferred rate change5.1 — —General business credits(1.8) 0.8 3.0Employee related items— — (5.9)Uncertain tax positions(1.2) 1.9 4.1Change in valuation allowance(1.0) (2.8) (12.1)Other1.6 (2.3) (0.2)Effective tax rate39.6 % 35.7 % 27.6 %68Table of ContentsQUANEX BUILDING PRODUCTS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Significant components of our net deferred tax assets were as follows: October 31, 2014 2013 (In thousands)Deferred tax assets: Employee benefit obligations$15,017 $12,313Goodwill and intangibles— 129Accrued liabilities and reserves1,742 3,872Pension and other benefit obligations2,676 2,044Inventory1,890 1,583Loss and tax credit carry forwards20,107 21,561Other268 261Total gross deferred tax assets41,700 41,763Less: Valuation allowance1,358 2,478Total deferred tax assets, net of valuation allowance40,342 39,285Deferred tax liabilities: Property, plant and equipment7,472 8,064Goodwill and intangibles3,078 —Total deferred tax liabilities10,550 8,064Net deferred tax assets$29,792 $31,221 Uncertain tax position6,805 7,843 $22,987 $23,378 Deferred income tax assets, non-current$1,545 $7,030Deferred income tax assets, current21,442 16,348Net deferred tax assets$22,987 $23,378At October 31, 2014, operating loss carry forwards for tax purposes, mostly comprised of federal and state, were $79.0 million. The majority of suchlosses begin to expire in 2025. Tax credits available to offset future tax liabilities totaled $3.5 million and are not expected to be utilized within the nexttwelve months. We evaluate tax benefits of operating losses and tax credit carry forwards on an ongoing basis, including a review of historical and projectedfuture operating results, the eligible carry forward period and other circumstances. We have recorded a valuation allowance for certain state net operatinglosses as of October 31, 2014 and 2013, totaling $1.4 million ($0.9 million net of federal taxes) and $2.5 million ($1.6 million net of federal taxes),respectively. In assessing the need for a valuation allowance, we consider both positive and negative evidence related to the likelihood of realization of thedeferred tax assets.The following table reconciles the change in the unrecognized income tax benefit for the years ended October 31, 2014, 2013 and 2012 (in thousands):69Table of ContentsQUANEX BUILDING PRODUCTS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) UnrecognizedIncome Tax BenefitsBalance at October 31, 2011 $19,042Additions for tax positions related to the current year 12Additions for tax positions related to the prior year 276Lapse in statute of limitations (3,571)Balance at October 31, 2012 $15,759Additions for tax positions related to the current year 14Additions for tax positions related to the prior year 497Lapse in statute of limitations (3,032)Balance at October 31, 2013 $13,238Additions for tax positions related to the current year —Additions for tax positions related to the prior year 170Lapse in statute of limitations (1,977)Balance at October 31, 2014 $11,431Included in prepaid and other current assets on the accompanying consolidated balance sheets were income tax receivables of $0.4 million and $0.2million as of October 31, 2014 and 2013, respectively.Management has determined that the earnings of our foreign subsidiaries are not required as a source of funding for United States operations and weintend to indefinitely reinvest these funds in our foreign jurisdictions. If the investment in our foreign subsidiaries were completely realized, a potential gainof $21.2 million could exist resulting in an estimated residual United States tax liability of $6.6 million.Our unrecognized tax benefit (UTB) is related to the 2008 spin-off of Quanex from its parent and certain state tax items regarding the interpretation oftax laws and regulations. The total UTB at October 31, 2013 was $13.2 million. Of this amount, $5.4 million was recorded as a liability for uncertain taxpositions and $7.8 million was recorded as deferred income taxes (non-current assets) on the accompanying consolidated balance sheet. During the yearended October 31, 2014, we reduced the liability for uncertain tax positions related to the spin-off by $2.0 million due to the lapse in the statute oflimitations, which resulted in a non-cash increase in retained earnings of $1.6 million and a decrease in income tax expense of $0.4 million. At October 31,2014, $4.6 million is recorded as a liability for uncertain tax positions and $6.8 million is recorded in deferred income taxes (non current assets). The totalUTB of $11.4 million at October 31, 2014, includes $10.8 million for which the recognition of such items would not affect the annual effective tax rate. Forthe years ended October 31, 2014, 2013 and 2012, we recognized a benefit less than $0.1 million, $0.1 million and $0.2 million, respectively, in interest andpenalties which were reported as income tax (benefit) expense in the consolidated statements of income (loss) consistent with past practice.We, along with our subsidiaries, file income tax returns in the United States and various state jurisdictions as well as in the United Kingdom, Germanyand Canada. In certain jurisdictions the statute of limitations has not yet expired. We generally remain subject to examination of our United States incometax returns for 2011 and subsequent years. We generally remain subject to examination of our various state income tax returns for a period of four to fiveyears from the date the return was filed. The state impact of any federal changes remains subject to examination by various states for a period of up to oneyear after formal notification to the state of the federal change.On September 13, 2013, the Internal Revenue Service issued final Tangible Property Regulations (TPR) under Internal Revenue Code (IRC) Section162 and IRC Section 263(a), which prescribe the capitalization treatment of certain repair costs, asset betterments and other costs which could affecttemporary deferred taxes. The regulations became effective for tax years beginning on or after January 1, 2014. Pursuant to U.S. GAAP, as of the date of theissuance, the release of the regulations is treated as a change in tax law. We do not believe the impact of this change in tax law was material to our financialposition or results of operations. We will continue to monitor any future changes in the TPR prospectively.Judgment is required in assessing the future tax consequences of events that have been recognized in our financial statements or income tax returns. Thefinal outcome of the future tax consequences of legal proceedings, if any, as well as the outcome of competent authority proceedings, changes in regulatorytax laws, or interpretation of those tax laws could impact our financial statements. We are subject to the effect of these matters occurring in variousjurisdictions. We believe it is reasonably possible70Table of ContentsQUANEX BUILDING PRODUCTS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) that a decrease of approximately $1.8 million in the UTB may be recognized within the next twelve months as a result of a lapse in the statute of limitations.Our federal income tax returns for the tax years ended October 31, 2011 and 2012 are currently under examination by the Internal Revenue Service.Field work has been completed and no adjustments have been proposed.12. Commitments and ContingenciesOperating Leases and Purchase ObligationsWe have operating leases for certain real estate and equipment used in our business. Rental expense for the years ended October 31, 2014, 2013 and2012 was $6.9 million, $7.1 million and $6.9 million, respectively. We sublease certain of our facilities as of October 31, 2014, pursuant to which we expectto receive future minimum non-cancelable rentals of $1.3 million.We are a party to non-cancelable purchase obligations primarily for door hardware, primary and secondary steel and primary and secondary aluminumused in our manufacturing processes. We paid $5.6 million pursuant to these arrangements for the year ended October 31, 2014. These obligations total $1.7million at October 31, 2014 and extend through fiscal 2015. We had no significant purchase obligations associated with our continuing operations pursuantto these arrangements for the years ended October 31, 2013 and 2012. Future amounts paid pursuant to these arrangements will depend, to some extent, onour usage.The following table presents future minimum rental payments under operating leases with remaining terms in excess of one year at October 31, 2014 (inthousands): OperatingLeases2015$6,92020166,06520175,16820184,05620193,428Thereafter6,729Total$32,366Asset Retirement ObligationWe maintain an asset retirement obligation associated with a leased facility in Kent, Washington. During July 2013, we revised our estimate of futurecash flows associated with this asset retirement obligation and recorded an incremental asset and corresponding liability at fair value totaling $1.2 million.We expect to depreciate the asset and accrete the liability over a seven year term, resulting in a cumulative asset retirement obligation of $2.2 million at suchtime.EnvironmentalWe are subject to extensive laws and regulations concerning the discharge of materials into the environment and the remediation of chemicalcontamination. To satisfy such requirements, we must invest capital and make other expenditures on an on-going basis. We accrue for remediationobligations and adjust our accruals as information becomes available and circumstances develop. Those estimates may change substantially depending onvarious factors, including the nature and extent of contamination, appropriate remediation technologies, and regulatory approvals. When we accrue forenvironmental remediation liabilities, costs of future expenditures are not discounted to their present value, unless the amount and timing of the expendituresare fixed or reliably determinable. When environmental laws are deemed to impose joint and several liability for the costs of responding to contamination,information indicates that it is probable we have incurred a loss, and such amount is estimable, we accrue our allocable share of liability taking into accountthe number of parties participating, the ability of such counter-parties to pay their share of the costs, the volume and nature of the wastes involved, the natureof anticipated response actions, and the nature of our alleged connection to the contamination. The cost of environmental matters has not had a materialadverse effect on our operations or financial condition in the past, and we are not currently aware of any conditions that, we believe, are likely to have amaterial adverse effect on our operations, financial condition or cash flows.We are currently not subject to any remediation activities. Prior to April 1, 2014, we had remediation activities associated with one of our subsidiaries,Nichols Aluminum-Alabama, LLC, a component business unit of Nichols. As discussed in Note 1,71Table of ContentsQUANEX BUILDING PRODUCTS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) "Nature of Operations and Basis of Presentation - Discontinued Operations", on April 1, 2014, we sold Nichols and the liabilities associated with this on-going remediation effort were assumed by Aleris International, Inc.Spacer MigrationWe were notified by certain customers through our German operation that the vapor barrier employed on certain spacer products manufactured prior toMarch 2014 may fail and permit spacer migration in certain extreme circumstances. This product does not have a specific customer warranty, but we havereceived claims from customers related to this issue, which we continue to investigate. We have incurred expense of $1.8 million during 2014 associated withthis issue, including an accrual of $1.2 million at October 31, 2014 for any asserted claim that we deem to be reasonably possible and estimable. We cannotestimate any future liability with regard to unasserted claims. We will investigate any future claims, but we are not obligated to honor any future claims.LitigationFrom time to time, we, along with our subsidiaries, are involved in various litigation matters arising in the ordinary course of our business. Althoughthe ultimate resolution and impact of such litigation is not presently determinable, we believe that the eventual outcome of such litigation will not have amaterial adverse effect on our overall financial condition, results of operations or cash flows.13. Derivative InstrumentsOur derivative activities are subject to the management, direction, and control of the Chief Financial Officer and Chief Executive Officer. Certaintransactions in excess of specified levels require further approval from the Board of Directors.The nature of our business activities requires the management of various financial and market risks, including those related to changes in foreigncurrency exchange rates and aluminum scrap prices. We have historically used foreign currency forwards and options, and aluminum swap contracts tomitigate or eliminate certain of those risks at our subsidiaries. We use foreign currency contracts to offset fluctuations in the value of accounts receivable andpayable balances that are denominated in currencies other than the United States dollar, including the Euro, British Pound and Canadian Dollar. Historically,we have entered into swap contracts to minimize our exposure to aluminum commodity prices. Through the use of swap contracts, we attempt to protectourselves from the effects of changing prices of aluminum on our cost of sales. To the extent that the raw material costs factored into the firm price salescommitments are matched with firm price raw material purchase commitments, changes in aluminum prices should have no effect. Currently, we do not enterinto derivative transactions for speculative or trading purposes. We are exposed to credit loss in the event of nonperformance by the counterparties to ourderivative transactions. We attempt to mitigate this risk by monitoring the creditworthiness of our counterparties and limiting our exposure to individualcounterparties. In addition, we have established master netting agreements in certain cases to facilitate the settlement of gains and losses on specificderivative contracts.We have not designated any of our derivative contracts as hedges for accounting purposes in accordance with the provisions under the AccountingStandards Codification topic 815 "Derivatives and Hedging" (ASC 815). Therefore, changes in the fair value of these contracts and the realized gains andlosses are recorded in the consolidated statements of income (loss) for the years ended October 31, 2014, 2013 and 2012 were as follows (in thousands): Year Ended October 31,Derivatives Not Designated as Hedging InstrumentsLocation of Gain or (Loss):2014 2013 2012Foreign currency derivativesOther, net$568 $(570) $895Aluminum derivativesCost of sales$— $(122) $(476)We have chosen not to offset any of our derivative instruments in accordance with the provisions of ASC 815. Therefore, the assets and liabilities arepresented on a gross basis on our accompanying consolidated balance sheets.The fair values of our outstanding derivative contracts as of October 31, 2014 and 2013 were as follows (in thousands):72Table of ContentsQUANEX BUILDING PRODUCTS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) October 31, 2014 2013Prepaid and other current assets: Aluminum derivatives$— $50Foreign currency derivatives$69 $163Other assets: Aluminum derivatives$— $8Accrued liabilities: Foreign currency derivatives— 38Aluminum derivatives$— $77The following table summarizes the notional amounts and fair value of outstanding derivative contracts at October 31, 2014 and 2013 (in thousands): Notional as indicated Fair Value in $ October 31, 2014 October 31, 2013 October 31, 2014 October 31, 2013Foreign currency derivatives: Sell EUR, Buy USDEUR4,907 7,258 $68 $150Sell CAD, Buy USDCAD331 615 1 (2)Sell EUR, Buy GBPEUR— 880 — 14Buy EUR, Sell GBPEUR— 967 — (12)Buy GBP, Sell USDGBP— 2,435 — (25)Aluminum derivativesLBS— 187 $— $(64)For the classification in the fair value hierarchy, see Note 14, "Fair Value Measurement of Assets and Liabilities", included herewith.14. Fair Value Measurement of Assets and LiabilitiesFair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between marketparticipants at the measurement date. The fair value hierarchy distinguishes between (1) market participant assumptions developed based on market dataobtained from independent sources (observable inputs) and (2) an entity's own assumptions about market participant assumptions developed based on thebest information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priorityto Level 1 and the lowest priority to Level 3. The three levels of the fair value hierarchy are described below:•Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.•Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly or indirectly includingquoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active;inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates) and inputs that are derived principally from orcorroborated by observable market data by correlation or other means.•Level 3 - Inputs that are both significant to the fair value measurement and unobservable.73Table of ContentsQUANEX BUILDING PRODUCTS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The following table summarizes the assets and liabilities measured on a recurring basis based on the fair value hierarchy (in thousands): October 31, 2014 October 31, 2013 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 TotalAssets Short-term investments$69,975 $— $— $69,975 $42,639 $— $— $42,639Aluminum derivatives— — — — — 58 — 58Foreign currency derivatives— 69 — 69 — 163 — 163Total assets$69,975 $69 $— $70,044 $42,639 $221 $— $42,860 Liabilities Aluminum derivatives— — — — — (77) — (77)Foreign currency derivatives$— $— $— $— $— $(38) $— $(38)Total liabilities$— $— $— $— $— $(115) $— $(115)We held short-term investments (with an original maturity of three months or less) in commercial paper at October 31, 2014. As of October 31, 2013, wehad short-term investments in money market funds. We have included these investments as cash and cash equivalents in the accompanying consolidatedbalance sheets. These investments are measured at fair value based on active market quotations and are therefore classified as Level 1. All of our derivativecontracts are valued using quoted market prices from brokers or exchanges and are classified within Level 2 of the fair value hierarchy.As of October 31, 2014 and 2013, we had approximately $2.4 million and $3.7 million, respectively, of certain property, plant and equipment that wasrecorded at fair value on a non-recurring basis and classified as Level 3. The fair value was based on broker opinions. The decrease in value of $1.3 millionfrom October 31, 2013 to October 31, 2014 was due to the sale of a piece of equipment and a facility in Barbourville, Kentucky totaling $0.8 million. Werecorded an asset impairment charge of $0.5 million associated with the facility and an insignificant realized loss on the sale in Barbourville, Kentucky.Carrying amounts reported on the balance sheet for cash, cash equivalents, accounts receivable and accounts payable approximate fair value due to theshort-term maturity of these instruments. Our outstanding debt was variable rate debt that re-prices frequently, thereby limiting our exposure to significantchange in interest rate risk. As a result, the fair value of our debt instruments approximates carrying value at October 31, 2014 and 2013 (Level 3measurement).15. Stock-Based CompensationWe have established and maintain an Omnibus Incentive Plan (2008 Plan) that provides for the granting of restricted stock awards, stock options,restricted stock units, performance share awards and other stock-based and cash-based awards. The 2008 Plan is administered by the Compensation andManagement Development Committee of the Board of Directors.The aggregate number of shares of common stock originally authorized for grant under the 2008 Plan was 2,900,000. At our annual shareholdermeeting held in February 2011, the shareholders approved an amendment which increased the aggregate number of shares available for grant under the 2008Plan by 2,400,000 shares; and at our annual shareholder meeting held in February 2014, the shareholders approved an amendment which increased theaggregate number of shares available for grant under the 2008 Plan by an additional 2,350,000 shares. Any officer, key employee and/or non-employeedirector or any of our affiliates is eligible for awards under the 2008 Plan. Our initial grant of awards under the 2008 Plan was on April 23, 2008. Our practiceis to grant stock options and restricted stock units to non-employee directors on the last business day of each fiscal year, with an additional grant of optionsto each director on the date of his or her first anniversary of service. Once we receive approval from the Board of Directors in December, we grant stockoptions, restricted stock awards, restricted stock units and/or performance shares to employees. Occasionally, we may make additional grants to keyemployees at other times during the year.Restricted Stock AwardsRestricted stock awards are granted to key employees and officers annually, and typically cliff vest over a three-year period with service and continuedemployment as the only vesting criteria. The recipient of the restricted stock awards is entitled to all of the rights of a shareholder, except that the awards arenontransferable during the vesting period. The fair value of the restricted stock award is established on the grant date and then expensed over the vestingperiod resulting in an increase in additional paid-in-capital. Shares are generally issued from treasury stock at the time of grant.74Table of ContentsQUANEX BUILDING PRODUCTS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) A summary of non-vested restricted stock awards activity during the years ended October 31, 2014, 2013 and 2012, follows: Restricted Stock Awards Weighted AverageGrant Date Fair Value perShareNon-vested at October 31, 2011256,390 $12.67Granted83,900 15.08Vested(115,790) 7.82Forfeited(11,800) 16.07Non-vested at October 31, 2012212,700 16.08Granted148,400 18.83Vested(67,300) 16.21Forfeited(110,400) 17.40Non-vested at October 31, 2013183,400 17.46Granted83,400 17.67Vested(30,700) 17.45Forfeited(15,300) 19.25Non-vested at October 31, 2014220,800 $17.42The total weighted average grant-date fair value of restricted stock awards that vested during the years ended October 31, 2014, 2013 and 2012 was$0.5 million, $1.1 million and $0.9 million, respectively. As of October 31, 2014, total unrecognized compensation cost related to unamortized restrictedstock awards totaled $1.9 million. We expect to recognize this expense over the remaining weighted average period of 1.8 years.Stock OptionsStock options are awarded to key employees, officers and non-employee directors. Director stock options vest immediately while employee and officerstock options typically vest ratably over a three-year period with service and continued employment as the vesting conditions. Our stock options may beexercised up to a maximum of ten years from the date of grant. The fair value of the stock options is determined on the grant date and expensed over thevesting period resulting in an increase in additional paid-in-capital.We use the Black-Scholes pricing model to estimate the fair value of our stock options. A description of the methodology for the valuation assumptionfollows:•Expected Volatility – For stock options granted prior to July 1, 2013, we used an estimate of the historical volatility of a selected peer group. EffectiveJuly 1, 2013, we determined that we had sufficient historical data to calculate the volatility of our common stock since our spin-off in April 2008. Webelieve there has been uncertainty in the United States equities market over the past several years and that uncertainty has contributed to volatility inequities in general. We expect this volatility to continue over the foreseeable future. Therefore, we believe that our historical volatility is a proxy forexpected volatility. We have not excluded any of our historical data from the volatility calculation (over this 6 year term), and we are not aware of anyspecific significant factors which might impact our future volatility.•Expected Term – For stock options granted prior to July 1, 2013, we determined the expected term using historical information of our former parentcompany prior to the spin-off in 2008, with regards to option vesting, exercise behavior and contractual expiration, as we believed that this employeegroup was the most similar to our employee group. Separate groups of employees that have similar historical exercise behavior were consideredseparately. Effective July 1, 2013, we determined that we had sufficient historical data to estimate our expected term using our own data with regards tothe exercise behavior, cancellations, retention patterns and remaining contractual terms. When analyzing these patterns and variables, we considered thestratification of the awards (large grants to relatively few employees versus smaller grants to many others), the age of certain employees with largergrants, the historical exercise behavior of the employee group, and fluctuations/volatility of our underlying common stock, as to whether the stockoptions are expected to be out-of-the-money. For our directors, stock options vest immediately, and, as such, the expected term approximates thecontractual term, after adjusting for historical forfeitures. We believe our estimates are reasonable given these factors.75Table of ContentsQUANEX BUILDING PRODUCTS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) •Risk-Free Rate – We base the risk-free rate on the yield at the date of grant of a zero-coupon United States Treasury bond whose maturity period equalsthe option’s expected term.•Expected Dividend Yield – We base the expected dividend yield on our historical dividend payment of approximately $0.16 per share.The following table summarizes the assumptions used to estimate the fair value of our stock options granted during the years ended October 31, 2014,2013 and 2012. Year Ended October 31, 2014 2013 2012Weighted-average expected volatility55.3% 54.9% 54.0%Weighted-average expected term (in years)6.1 5.3 5.0Risk-free interest rate1.9% 1.0% 0.9%Expected dividend yield over expected term1.0% 1.0% 1.0%Weighted average grant date fair value$8.78 $8.75 $6.80The following table summarizes our stock option activity for the years ended October 31, 2014, 2013 and 2012. Stock Options Weighted AverageExercise Price Weighted AverageRemaining ContractualTerm (in years) AggregateIntrinsicValue (000s)Outstanding at October 31, 20112,137,436 $14.08 $3,520Granted607,972 15.82 Exercised(229,423) 13.14 Forfeited/Expired(42,735) 15.71 Outstanding at October 31, 20122,473,250 14.57 $12,908Granted636,645 19.67 Exercised(179,517) 14.39 Forfeited/Expired(55,102) 18.01 Outstanding at October 31, 20132,875,276 15.64 7.0 $7,748Granted189,200 17.99 Exercised(306,611) 19.27 Forfeited/Expired(169,476) 18.71 Outstanding at October 31, 20142,588,389 16.21 6.2 $10,238Vested or expected to vest at October 31, 20142,551,657 16.17 6.9 $10,174Exercisable at October 31, 20141,956,544 $15.58 5.6 $8,829Intrinsic value is the amount by which the market price of the common stock on the date of exercise exceeds the exercise price of the stock option. Forthe years ended October 31, 2014, 2013 and 2012, the total intrinsic value of our stock options that were exercised totaled $2.7 million, $0.8 million and$1.2 million, respectively. The total fair value of stock options vested during the years ended October 31, 2014, 2013 and 2012, was $3.8 million, $3.2million and $2.6 million, respectively. As of October 31, 2014, total unrecognized compensation cost related to stock options was $2.2 million. We expect torecognize this expense over the remaining weighted average period of 1.7 years.Restricted Stock UnitsRestricted stock units may be awarded to key employees and officers from time to time, and annually to non-employee directors. The director restrictedstock units vest immediately but are payable only upon the director's cessation of service, whereas restricted stock units awarded to employees and officerstypically cliff vest after a three-year period with service and continued employment as the vesting conditions. Restricted stock units are not consideredoutstanding shares and do not have voting rights, although the holder does receive a cash payment equivalent to the dividend paid, on a one-for-one basis,on our outstanding common shares. Once the vesting criteria is met, each restricted stock unit is payable to the holder in cash based on the market value ofone76Table of ContentsQUANEX BUILDING PRODUCTS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) share of our common stock. Accordingly, we record a liability for the restricted stock units on our balance sheet and recognize any changes in the marketvalue during each reporting period as compensation expense.The following table summarizes non-vested restricted stock unit activity during the years ended October 31, 2014, 2013 and 2012: Restricted Stock Units Weighted AverageGrant Date Fair ValueNon-vested at October 31, 201121,000 $18.35Granted162,632 15.60Vested(7,632) 19.77Forfeited(15,000) 18.35Non-vested at October 31, 2012161,000 15.47Granted6,875 17.78Vested(12,875) 18.05Forfeited(54,000) 15.08Non-vested at October 31, 2013101,000 15.62Granted12,135 18.58Vested(29,635) 18.35Forfeited— —Non-vested at October 31, 201483,500 15.08During the years ended October 31, 2014, 2013 and 2012, we paid $0.5 million, $0.1 million and $0.2 million, respectively, to settle restricted stockunits. All outstanding restricted stock units awarded to officers and employees are expected to vest in November 2014.Performance Share AwardsHistorically, we have granted performance units to key employees and officers annually. These awards cliff vest after a three-year period with serviceand performance measures such as relative total shareholder return and earnings per share growth as vesting conditions. These awards were treated as aliability and marked to market based upon our assessment of the achievement of the performance measures, with the assistance of third-party compensationconsultants.For the annual grant which occurred in December 2013, we granted performance shares rather than performance units. These performance share awardshave the same performance measures (relative total shareholder return and earnings per share growth). However, the number of shares earned is variabledepending on the metrics achieved, and the settlement method is 50% in cash and 50% in our common stock.To account for this award, we have bifurcated the portion subject to a market condition (relative total shareholder return) and the portion subject to aninternal performance measure (earnings per share growth). We have further bifurcated these awards based on the settlement method, as the portion expected tosettle in stock (equity component) and the portion expected to settle in cash (liability component).To value the shares subject to the market condition, we utilized a Monte Carlo simulation model to arrive at a grant-date fair value. This amount will beexpensed over the three-year term of the award with a credit to additional paid-in-capital. To value the shares subject to the internal performance measure, weused the value of our common stock on the date of grant as the grant-date fair value per share. This amount will be expensed over the three-year term of theaward, with a credit to additional paid-in-capital, and could fluctuate depending on the number of shares ultimately expected to vest based on our assessmentof the probability that the performance conditions will be achieved. For both performance conditions, the portion of the award expected to settle in cash willbe recorded as a liability and will be marked to market over the three-year term of the award, and could fluctuate depending on the number of sharesultimately expected to vest.In conjunction with the annual grant in December 2013, we awarded 155,800 performance shares, of which 0% to 200% of these shares may ultimatelyvest, depending on the achievement of the performance conditions. During 2014, 7,000 of these77Table of ContentsQUANEX BUILDING PRODUCTS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) performance shares were forfeited. For the period from the date of grant through October 31, 2014, we have recorded $1.0 million of compensation expenserelated to these performance share awards.Performance share awards are not considered outstanding shares and do not have voting rights, although dividends are accrued over the performanceperiod and will be payable in cash based upon the number of performance shares ultimately earned.The following table summarizes amounts expensed as selling, general and administrative expense related to restricted stock awards, stock options,restricted stock units and performance share awards for the years ended October 31, 2014, 2013 and 2012(in thousands): Year Ended October 31, 2014 2013 2012Restricted stock awards$1,220 $165 $1,117Stock options2,301 4,745 3,286Restricted stock units781 313 1,201Performance share awards981 — —Total compensation expense5,283 5,223 5,604Income tax effect2,092 1,864 1,922Net compensation expense$3,191 $3,359 $3,68216. Stockholders' EquityAs of October 31, 2014, our authorized capital stock consists of 125,000,000 shares of common stock, at par value of $0.01 per share, and 1,000,000shares of preferred stock, with no par value. As of October 31, 2014 and 2013, we had 37,632,032 and 37,653,639 shares of common stock issued,respectively, and 36,214,332 and 37,165,254 shares of common stock outstanding, respectively. There were no shares of preferred stock issued oroutstanding at October 31, 2014 and 2013.Stock Repurchase Program and Treasury StockOur Board of Directors approved a stock repurchase program that authorized the repurchase of 2,000,000 shares of our common stock (1,000,000 onMay 27, 2010 and 1,000,000 on August 25, 2011). No shares were purchased under this program in fiscal 2014 and there were 905,663 shares available forrepurchase under the program prior to its cancellation in September 2014. Our Board cancelled this program on September 5, 2014, and approved a new stockrepurchase program authorizing us to use up to $75.0 million to repurchase shares of our common stock. For the period from September 5, 2014 throughOctober 31, 2014, we purchased 1,316,326 shares at a cost of $24.2 million under the new program.The objective of this repurchase program is to acquire shares opportunistically. We record treasury stock purchases under the cost method whereby theentire cost of the acquired stock is recorded as treasury stock. Shares are generally issued from treasury stock at the time of grant of restricted stock awards andthe exercise of stock options. On the subsequent issuance of treasury shares, we record proceeds in excess of cost as an increase in additional paid in capital.17. Other Income (Expense)Other income (expense) included under the caption "Other, net" on the accompanying consolidated statements of income (loss), consisted of thefollowing (in thousands): Year Ended October 31, 2014 2013 2012Foreign currency transaction (losses) gains$(695) $474 $(857)Foreign currency exchange derivative gains (losses)568 (570) 895Interest income119 63 206Other100 203 (19)Other income$92 $170 $22578Table of ContentsQUANEX BUILDING PRODUCTS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 18. Segment InformationWe have four operating segments which we aggregate into one reportable segment, in accordance with ASC Topic 280-10-50, “Segment Reporting”(ASC 280). This aggregation is based on factors including, but not limited to: (1) similar nature of products serving the building products industry,specifically the fenestration business; (2) similar production processes, although there are some differences in the amount of automation amongst operatingplants; (3) similar types or classes of customers, namely the primary original equipment manufacturers (OEMs) in the window and door industry; (4) similardistribution methods for product delivery, although the extent of the use of third-party distributors will vary amongst the businesses; (5) similar regulatoryenvironment; and (6) converging long-term economic similarities. The primary market drivers of our business are residential remodeling and replacementactivity (R&R) and new home construction.Prior to April 1, 2014, we presented two reportable operating segments: (1) Engineered Products and (2) Aluminum Sheet Products. In addition, werecorded LIFO inventory adjustments, corporate office charges and inter-segment eliminations as Corporate & Other. On April 1, 2014, we sold Nichols, thesole operating segment included in our Aluminum Sheet Products reportable segment. To account for Nichols as a discontinued operation, we reclassifiedcertain costs from Corporate & Other to Nichols, including a portion of the LIFO reserve, as well as insurance accruals related to incurred but not reportedworkers compensation claims, to properly reflect these direct expenses as a component of the disposal group.The following table reconciles our segment presentation as previously reported in our Annual Report on Form 10-K for the years ended October 31,2013 and 2012, to the current presentation.Year Ended October 31, 2013As Previously Reported Discontinued Operations Reclassification Current PresentationEngineered Products Net sales$554,867 $— $— $554,867Inter-segment sales113 (113) — —Depreciation and amortization31,368 — 22,153 53,521Operating income (loss)45,324 — (64,145) (18,821)Capital expenditures$17,674 $— $7,534 $25,208Aluminum Sheet Products Net sales$397,775 $(397,775) $— $—Inter-segment sales12,605 (12,605) — —Depreciation and amortization6,983 (6,983) — —Operating income (loss)(996) (1,092) 2,088 —Capital expenditures$12,723 $(12,723) $— $—Corporate & Other Net sales$— $— $— $—Inter-segment sales(12,718) 12,718 — —Depreciation and amortization22,153 — (22,153) —Operating income (loss)(62,057) — 62,057 —Capital expenditures$7,534 $— $(7,534) $—79Table of ContentsQUANEX BUILDING PRODUCTS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Year Ended October 31, 2012As Previously Reported Discontinued Operations Reclassification Current PresentationEngineered Products Net sales$478,578 $— $— $478,578Inter-segment sales— — — —Depreciation and amortization28,115 — 1,860 29,975Operating income (loss)28,490 — (37,352) (8,862)Capital expenditures$17,540 $— $14,950 $32,490Aluminum Sheet Products Net sales$350,398 $(350,398) $— $—Inter-segment sales11,917 (11,917) — —Depreciation and amortization7,621 (7,621) — —Operating income (loss)(17,098) 16,091 1,007 —Capital expenditures$10,381 $(10,381) $— $—Corporate & Other Net sales$— $— $— $—Inter-segment sales(11,917) 11,917 — —Depreciation and amortization1,860 — (1,860) —Operating income (loss)(36,345) — 36,345 —Capital expenditures$14,950 $— $(14,950) $—Geographic InformationOur manufacturing facilities and all long-lived assets are located in the United States, United Kingdom and Germany. We attribute our net sales to ageographic region based on the location of the customer. The following tables provide information concerning our net sales for the years ended October 31,2014, 2013 and 2012, and our long-lived assets as of October 31, 2014 and 2013 (in thousands): Year Ended October 31,Net Sales:2014 2013 2012United States$484,601 $454,365 $378,314Canada26,605 23,108 25,158Asian countries18,867 17,390 18,504European countries57,098 52,051 49,686Other foreign countries8,213 7,953 6,916Total net sales$595,384 $554,867 $478,578 Year Ended October 31,Long-lived assets, net2014 2013United States$219,568 $209,064Germany21,708 35,779United Kingdom8,907 12,806Total long-lived assets, net$250,183 $257,649Effective November 1, 2013 we transferred net intangibles of $15.7 million to the United States from our foreign operations in Germany (net value of $11.7million) and the United Kingdom (net value of $4.0 million), with a resulting cumulative translation adjustment of $1.0 million dollars.80Table of ContentsQUANEX BUILDING PRODUCTS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 19. Earnings Per ShareWe compute basic earnings per share by dividing net income by the weighted average number of common shares outstanding during the period. Dilutedearnings per common and potential common shares include the weighted average of additional shares associated with the incremental effect of dilutiveemployee stock options, non-vested restricted stock as determined using the treasury stock method prescribed by U.S. GAAP and contingent sharesassociated with performance share awards, if dilutive.The computation of basic and diluted earnings per share for the year ended October 31, 2014 was as follows (in thousands, except per share data): Year Ended October 31, 2014 Income Weighted Average Shares Per ShareBasic earnings per common share$29,234 37,128 $0.79Effect of dilutive securities: Stock options— 467 Restricted stock— 84 Diluted earnings per common share$29,234 37,679 $0.78The computation of diluted earnings per share excludes outstanding stock options and other common stock equivalents when their inclusion would beanti-dilutive. This is always the case when an entity incurs a net loss, as we did for the years ended October 31, 2013 and 2012. During these twelve-monthperiods, 492,288 and 391,813 of common stock equivalents related to stock options, respectively, and 84,222 and 109,389 shares of restricted stock,respectively, were excluded from the computation of diluted earnings per share.For the years ended October 31, 2014, 2013 and 2012, we had 954,372, 816,617 and 928,997 securities, respectively, that were potentially dilutive infuture earnings per share calculations. Such dilution will be dependent on the excess of the market price of our stock over the exercise price and othercomponents of the treasury stock method.20. Restructuring ActivitiesIn November 2011, we committed to a plan to close our facility in Barbourville, Kentucky. The consolidation plan, in part, called for the permanentclosing of this facility, with the equipment used to manufacture the single seal, warm edge spacer system relocated to our facility in Cambridge, Ohio. Webelieve this consolidation allowed us to better serve our customers through streamlined operations. The consolidation of operations and the subsequentclosure of this facility were completed in August 2012, with residual cash payments and minor program costs incurred in fiscal 2013. At April 30, 2014, thisfacility was written down to fair market value of $0.5 million and subsequently sold on May 22, 2014. We received sales proceeds of $0.4 million andrealized a loss of $0.1 million at the time of sale.Under ASC Topic 712, “Compensation - Nonretirement Postemployment Benefits”, we are required to record charges for contractual terminationbenefits and other ongoing benefit arrangements when it is probable that employees will be entitled to benefits under the contract’s terms and the amount canbe reasonably estimated. We determined that certain severance pay qualifies as either a contractual termination benefit or an ongoing benefit arrangement,and accordingly recognized $3.4 million in severance during the year ended October 31, 2012. Severance was paid out during 2012 as employees exited.Under ASC Topic 420, “Exit or Disposal Cost Obligations,” we are required to record charges for one-time employee termination benefits, contracttermination costs, and other associated costs as incurred. In February 2012, we and the union representing Barbourville employees reached an agreement topay a one-time incentive bonus to employees upon their planned exit date termination, provided certain performance criteria were met. The salariedemployees were offered the same one-time incentive bonus under the same terms as the union employees. There were no significant restructuring chargesrecognized for the years ended October 31, 2014 and 2013. For the year ended October 31, 2012, we expensed $9.0 million for restructuring charges, ofwhich $3.4 million was for employee-related termination costs and $5.6 million was for facility consolidation related costs.81Table of ContentsQUANEX BUILDING PRODUCTS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The following table reconciles the beginning and ending liability balances pursuant to this restructuring plan for the year ended October 31, 2013 (inthousands): EmployeeTermination Costs FacilityConsolidation Costs TotalBalance at October 31, 2012$173 $65 $238Charges (credits) to expense(15) — (15)Cash payments(158) (65) (223)Balance at October 31, 2013$— $— $—21. Unaudited Quarterly DataSelected quarterly financial data for the years ended October 31, 2014 and 2013 was as follows (amounts in thousands, except per share amounts):For the Quarter EndedJanuary 31, 2014 April 30, 2014 July 31, 2014 October 31, 2014Net sales$126,379 $135,208 $169,981 $163,816Cost of sales96,189 108,649 130,706 129,040Depreciation and amortization8,544 8,494 8,512 8,319Operating income (loss)(862) (2,828) 12,666 5,299Income (loss) from continuing operations(1,212) (2,030) 8,567 3,013Net income (loss)$(3,901) $20,131 $8,047 $4,957Basic earnings (loss) per share, continuing operations$(0.03) $(0.05) $0.23 $0.08Diluted earnings (loss) per share, continuing operations(0.03) (0.05) 0.23 0.08Basic earnings (loss) per share(0.11) 0.54 0.22 0.13Diluted earnings (loss) per share(0.11) 0.53 0.21 0.13Cash dividends paid per common share$0.04 $0.04 $0.04 $0.04For the Quarter EndedJanuary 31, 2013 April 30, 2013 July 31, 2013 October 31, 2013Net sales$106,119 $125,140 $156,765 $166,843Cost of sales83,294 95,731 116,026 124,682Depreciation and amortization8,030 9,812 10,373 25,306Operating (loss) income(9,029) (8,605) 7,366 (8,553) (Loss) income from continuing operations(5,170) (6,863) 5,126 (5,477)Net (loss) income$(8,118) $(7,348) $4,969 $(1,206)Basic (loss) earnings per share, continuing operations$(0.14) $(0.19) $0.14 $(0.15)Diluted (loss) earnings per share, continuing operations(0.14) (0.19) 0.14 (0.15)Basic (loss) earnings per share(0.22) (0.20) 0.13 (0.03)Diluted (loss) earnings per share(0.22) (0.20) 0.13 (0.03)Cash dividends paid per common share$0.04 $0.04 $0.04 $0.0422. New Accounting PronouncementsIn August 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-15, Presentation of Financial Statements-Going Concern (Subtopic205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which requires management to evaluate whether conditionsexist which raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date of the financial statements (orwithin one year of when the financial statements are available to be issued). If such conditions exist, disclosure is required of: (1) the principal conditions; (2)management’s evaluation of the significance of the conditions on the entity’s ability to meet obligations; and (3) management’s plans to alleviate this82Table of ContentsQUANEX BUILDING PRODUCTS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) substantial doubt related to the ability to continue as a going concern. If management’s plans do not alleviate this substantial doubt, management mustspecifically disclose that there is substantial doubt about the entity’s ability to continue as a going concern within one year after the date of the financialstatements (or date the financial statements are available to be issued), in addition to the disclosure noted above. This guidance becomes effective for theannual period ending after December 15, 2016, and for annual periods and interim periods thereafter. We expect to adopt this guidance during fiscal 2017.We do not expect this guidance to have a material impact on our consolidated financial statements.In June 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-12, Compensation - Stock Compensation (Topic 718): Accounting forShare-Based Payments When the Terms of an Award Provide That a Performance Target Could be Achieved after the Requisite Service Period. Thisamendment requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performancecondition that affects vesting or as a nonvesting condition that affects the grant-date fair value of an award, and provides explicit guidance for those awards.This guidance becomes effective for fiscal years beginning on or after December 15, 2015. We expect to adopt this guidance during fiscal 2017, and we arecurrently evaluating the impact on our consolidated financial statements.In May 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers. This guidance prescribes amethodology to determine when revenue is recognizable and constitutes a principles-based approach to revenue recognition based on the consideration towhich the entity expects to be entitled in exchange for goods or services. In addition, this guidance requires additional disclosure in the notes to thefinancial statements with regard to the methodology applied. This pronouncement becomes effective for annual reporting periods beginning after December15, 2016, and interim periods within that reporting period, and will essentially supersede and replace existing revenue recognition rules in U.S. GAAP,including industry-specific guidance. We expect to adopt this pronouncement in fiscal 2018, and we are currently evaluating the impact on our consolidatedfinancial statements.In April 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-08, Presentation of Financial Statements (Topic 205) and Property,Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. This new guidanceclarifies the definition of a discontinued operation as a disposal of a component of any entity, or a group of such components, which represent a strategic shiftthat has or will have a major effect on an entity’s operations and financial results. This guidance should result in fewer applications of discontinuedoperations accounting treatment. However, if such accounting treatment is required, the guidance requires additional footnote disclosures with regard to themajor classes of line items constituting pretax profit or loss of the discontinued operation, a reconciliation of the major classes of assets and liabilities of thediscontinued operation, and additional disclosure with regard to cash flows of the discontinued operation. This guidance becomes effective for fiscal yearsbeginning on or after December 15, 2014. We expect to adopt this guidance during fiscal 2016, and we are currently evaluating the impact on ourconsolidated financial statements.In July 2013, the FASB issued Accounting Standards Update (ASU) No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net OperatingLoss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, which provides guidance related to the presentation of current and deferredincome taxes on the balance sheet. In general, an entity must present an unrecognized tax benefit related to a net operating loss carryforward, similar tax lossor tax credit carryforward, as a reduction of a deferred tax asset, except in prescribed circumstances through which liability presentation would be appropriate.This guidance becomes effective for fiscal years beginning after December 15, 2013. We expect to adopt this guidance during fiscal 2015 with no materialimpact on our consolidated financial statements.In February 2013, the FASB issued ASU No. 2013-2, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, whichrequires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, anentity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out ofaccumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to bereclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in theirentirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about thoseamounts. We adopted ASU 2013-2 as of November 1, 2013, with no material impact on our consolidated financial statements.In December 2011, the FASB issued ASU No. 2011-11, Disclosures about Offsetting Assets and Liabilities, which requires entities to disclose bothgross information and net information about instruments and transactions eligible for offset in the statement of financial position and instruments andtransactions subject to an agreement similar to a master netting arrangement. The scope of this standard, which was subsequently clarified by ASU 2013-1,includes derivatives, sale and repurchase agreements, reverse sale and repurchase agreements, and securities borrowing and securities lending arrangements.These disclosures assist users of83Table of ContentsQUANEX BUILDING PRODUCTS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) financial statements in evaluating the effect or potential effect of netting arrangements on an entity's financial position. We adopted ASU 2011-11 as ofNovember 1, 2013, with no material impact on our consolidated financial statements.23. Subsequent EventsNone.Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.None.Item 9A. Controls and Procedures.Evaluation of Disclosure Controls and ProceduresUnder the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we haveevaluated the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15(e) under the Securities Exchange Act of 1934 (1934 Act) as ofOctober 31, 2014. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of October 31, 2014, the disclosurecontrols and procedures are effective.Management’s Annual Report on Internal Control over Financial ReportingRefer to Management’s Annual Report on Internal Control over Financial Reporting on page 42 of this Annual Report on Form 10-K.Auditor's Report Relating to Effectiveness of Internal Control over Financial ReportingRefer to the Report of Independent Registered Public Accounting Firm on page 40 of this Annual Report on Form 10-K.Changes in Internal Control over Financial ReportingThere have been no changes in internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the 1934 Act) during themost recent fiscal quarter that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.Item 9B. Other Information.None.84Table of Contents PART IIIItem 10. Directors, Executive Officers and Corporate Governance.Pursuant to General Instruction G(3) to Form 10-K, the information on "Directors, Executive Officers and Corporate Governance" is incorporated hereinby reference from the Registrant's Definitive Proxy Statement relating to the 2015 Annual Meeting of Stockholders of Quanex Building Products Corporationor an amendment to this Form 10-K, which is to be filed with the SEC pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended,within 120 days after the close of the fiscal year ended October 31, 2014.Item 11. Executive Compensation.Pursuant to General Instruction G(3) to Form 10-K, the information on "Executive Compensation" is incorporated herein by reference from theRegistrant's Definitive Proxy Statement relating to the 2015 Annual Meeting of Stockholders of Quanex Building Products Corporation or an amendment tothis Form 10-K, which is to be filed with the SEC pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, within 120 days afterthe close of the fiscal year ended October 31, 2014.Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.Pursuant to General Instruction G(3) to Form 10-K, the information on "Security Ownership of Certain Beneficial Owners and Management andRelated Stockholder Matters" is incorporated herein by reference from the Registrant's Definitive Proxy Statement relating to the 2015 Annual Meeting ofStockholders of Quanex Building Products Corporation or an amendment to this Form 10-K, which is to be filed with the SEC pursuant to Regulation 14Aunder the Securities Exchange Act of 1934, as amended, within 120 days after the close of the fiscal year ended October 31, 2014.Item 13. Certain Relationships and Related Transactions, and Director Independence.Pursuant to General Instruction G(3) to Form 10-K, the information on "Certain Relationships and Related Transactions, and Director Independence" isincorporated herein by reference from the Registrant's Definitive Proxy Statement relating to the 2015 Annual Meeting of Stockholders of Quanex BuildingProducts Corporation or an amendment to this Form 10-K, which is to be filed with the SEC pursuant to Regulation 14A under the Securities Exchange Act of1934, as amended, within 120 days after the close of the fiscal year ended October 31, 2014.Item 14. Principal Accountant Fees and Services.Pursuant to General Instruction G(3) to Form 10-K, the information on "Principal Accountant Fees and Services" is incorporated herein by referencefrom the Registrant's Definitive Proxy Statement relating to the 2015 Annual Meeting of Stockholders of Quanex Building Products Corporation or anamendment to this Form 10-K, which is to be filed with the SEC pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, within120 days after the close of the fiscal year ended October 31, 2014.PART IVItem 15. Exhibits and Financial Statement Schedules.1. Financial StatementsThe financial statements included in this report are listed in the Index to Financial Statements on page 39 of this Annual Report on Form 10-K.2. Financial Statement SchedulesSchedules for which provision is made in the applicable accounting regulations of the SEC are either not required under the related instructions orinapplicable.3. ExhibitsThe exhibits required to be filed pursuant to Item 15(b) of Form 10-K are listed in the Exhibit Index filed herewith, which Exhibit Index is incorporatedherein by reference. Exhibits 10.1 through 10.8, 10.15 through 10.23, and 10.25 through 10.50 listed in the Exhibit Index filed herewith, are management orcompensatory plans or arrangements required to be filed as exhibits to this Annual Report on Form 10-K pursuant to Item 15(b) thereof.85Table of Contents SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed onits behalf by the undersigned thereunto duly authorized. QUANEX BUILDING PRODUCTS CORPORATION Date:December 12, 2014 /s/ Brent L. Korb Brent L. Korb Senior Vice President – Finance and Chief Financial Officer(Principal Financial Officer)Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theRegistrant and in the capacities and on the dates indicated. Name Title Date /s/ William C. Griffiths Chairman of the Board, December 12, 2014William C. Griffiths President and Chief Executive Officer /s/ Susan F. Davis Director December 12, 2014Susan F. Davis /s/ LeRoy D. Nosbaum Director December 12, 2014LeRoy D. Nosbaum /s/ Joseph D. Rupp Director December 12, 2014Joseph D. Rupp /s/ Curtis M. Stevens Director December 12, 2014Curtis M. Stevens /s/ Robert R. Buck Director December 12, 2014Robert R. Buck /s/ Brent L. Korb Senior Vice President—Finance and Chief Financial Officer December 12, 2014Brent L. Korb (Principal Financial Officer) /s/ Dewayne Williams Vice President and Controller December 12, 2014Dewayne Williams (Principal Accounting Officer) 86Table of Contents EXHIBIT INDEXExhibit Number Description of Exhibits2.1 Distribution Agreement among Quanex Corporation, Quanex Building Products LLC and Quanex Building Products Corporation(incorporated by reference to Exhibit 10.1 to Quanex Corporation’s Current Report on Form 8-K filed with the Commission onDecember 24, 2007). 2.2 Agreement and Plan of Merger, dated as of January 31, 2011, by and among Quanex Building Products Corporation, QSB Inc.,Lauren Holdco Inc., Lauren International, Inc. and Kevin E. Gray, as agent for the shareholders of Lauren Holdco Inc., filed asExhibit 2.1 of the Registrant’s Current Report on Form 8-K (Reg. No. 001-33913) as filed with the Securities and ExchangeCommission on February 2, 2011, and incorporated herein by reference. 2.3 Limited Liability Company Interest Purchase Agreement dated February 7, 2014, by and among Quanex Building ProductsCorporation, Nichols Aluminum, LLC and Aleris International Inc., filed as Exhibit 2.1 of the Registrant’s Current Report on Form8-K (Reg. No. 001-33913) as filed with the Securities and Exchange Commission on February 10, 2014, and incorporated hereinby reference. 2.4 Limited Liability Company Interest Purchase Agreement dated February 7, 2014 amendment filed on Form 8-K (Reg. No. 001-33913) as filed with the Securities and Exchange Commission on February 10, 2014, and incorporated herein by reference. 3.1 Certificate of Incorporation of the Registrant dated as of December 12, 2007, filed as Exhibit 3.1 of the Registrant’s RegistrationStatement on Form 10 (Reg. No. 001-33913) as filed with the Securities and Exchange Commission on January 11, 2008, andincorporated herein by reference. 3.2 Amended and Restated Bylaws of the Registrant dated as of August 25, 2011, filed as Exhibit 3.1 of the Registrant’s CurrentReport on Form 8-K (Reg. No. 001-33913) filed with the Securities and Exchange Commission on August 29, 2011, andincorporated herein by reference. 4.1 Form of Registrant’s common stock certificate, filed as Exhibit 4.1 of Amendment No. 1 to the Registrant’s Registration Statementon Form 10 (Reg. No. 001-33913), as filed with the Securities and Exchange Commission on February 14, 2008, and incorporatedherein by reference. 4.2 Credit Agreement dated as of January 28, 2013, among the Company; certain of its subsidiaries as guarantors; Wells Fargo Bank,National Association, as administrative agent; Wells Fargo Securities, LLC, as lead arranger and syndication agent; and thelenders parties thereto, filed as Exhibit 10.1 of the Registrant’s Current Report on Form 8-K (Reg. No. 001-33913)as filed with theSecurities and Exchange Commission on January 30, 2013, and incorporated herein by reference. †10.1 Quanex Building Products Corporation Amended and Restated 2008 Omnibus Incentive Plan, filed as Exhibit 10.1 to theRegistrant's Current Report on Form 8-K (Reg. No. 001-33913) as filed with the Securities and Exchange Commission on February28, 2014, and incorporated herein by reference. †10.2 Quanex Building Products Corporation Deferred Compensation Plan as amended, filed as Exhibit 10.2 to the Registrant'sQuarterly Report on Form 10-Q (Reg. No. 001-33913) for the quarter ended January 31, 2014, as filed with the Securities andExchange Commission on March 6, 2014, and incorporated herein by reference. †10.3 Quanex Building Products Corporation Restoration Plan, filed as Exhibit 10.8 of Amendment No. 4 to the Registrant’sRegistration Statement on Form 10 (Reg. No. 001-33913), as filed with the Securities and Exchange Commission on March 17,2008, and incorporated herein by reference. †10.4 Quanex Building Products Corporation Supplemental Employees Retirement Plan, filed as Exhibit 10.9 of Amendment No. 4 tothe Registrant’s Registration Statement on Form 10 (Reg. No. 001-33913), as filed with the Securities and Exchange Commissionon March 17, 2008, and incorporated herein by reference. †10.5 Form of Severance Agreement between the Registrant and certain of its executive officers, filed as Exhibit 10.5 of Amendment No.1 to the Registrant’s Registration Statement on Form 10 (Reg. No. 001-33913), as filed with the Securities and ExchangeCommission on February 14, 2008, and incorporated herein by reference. †10.6 Form of Change in Control Agreement between the Registrant and certain of its executive officers, filed as Exhibit 10.6 ofAmendment No. 1 to the Registrant’s Registration Statement on Form 10 (Reg. No. 001-33913), as filed with the Securities andExchange Commission on February 14, 2008, and incorporated herein by reference. 87Table of Contents EXHIBIT INDEXExhibit Number Description of Exhibits†10.7 Form of Indemnity Agreement between the Registrant and each of its independent directors, effective September 2, 2008, filed asExhibit 10.1 of the Registrant’s Current Report on Form 8-K (Reg. No. 001-33913), as filed with the Securities and ExchangeCommission on August 29, 2008, and incorporated herein by reference. †10.8 Form of Indemnity Agreement between the Registrant and each of its officers, effective September 2, 2008, filed as Exhibit 10.2 ofthe Registrant’s Current Report on Form 8-K (Reg. No. 001-33913), as filed with the Securities and Exchange Commission onAugust 29, 2008, and incorporated herein by reference. 10.9 Lease Agreement between Cabot Industrial Properties, L.P. and Quanex Corporation dated August 30, 2002 (and assumed byQuanex Homeshield, LLC on November 1, 2007), filed as Exhibit 10.52 to the Annual Report on Form 10-K of QuanexCorporation (Reg. No. 001-05725) for the fiscal year ended October 31, 2003 and incorporated herein by reference. 10.10 First Amendment to Lease Agreement between Cabot Industrial Properties, L.P. and Quanex Corporation dated May 22, 2007 (andassumed by Quanex Homeshield, LLC on November 1, 2007), filed as Exhibit 10.11 to the Company’s Annual Report on Form 10-K (Reg. No. 001-33913) for the fiscal year ended October 31, 2008, and incorporated herein by reference. 10.11 Second Amendment to Lease Agreement between Dexus Industrial SPE Financed Portfolio LLC, successor in interest to CabotIndustrial Properties, L.P. and Quanex Building Products Corporation dated April 28, 2010, filed as Exhibit 10.12 to theCompany’s Annual Report on Form 10-K (Reg. No. 001-33913) for the fiscal year ended October 31, 2012, and incorporatedherein by reference. 10.12 Lease dated May 3, 1989, and Lease Extension dated June 9, 2004, between Mikron Industries, Inc. and the W.R. Sandwith andMichael G. Ritter Partnership, filed as Exhibit 10.12 to the Company’s Annual Report on Form 10-K (Reg. No. 001-33913) for thefiscal year ended October 31, 2008, and incorporated herein by reference. 10.13 Amendment to Lease by and between W.R. Sandwith and Michael G. Ritter Partnership and Mikron Washington LLC, filed asExhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (Reg. No. 001-33913) for the quarter ended April 30, 2010, andincorporated herein by reference. 10.14 Lease Agreement dated March 31, 2011 between Lauren Real Estate Holding LLC and Edgetech I.G. Inc., filed as Exhibit 10.15 tothe Company’s Annual Report on Form 10-K (Reg. No. 001-33913) for the fiscal year ended October 31, 2012, and incorporatedherein by reference. †10.15 Agreement between Quanex Building Products Corporation and Dewayne Williams, effective July 1, 2013, filed as Exhibit 10.1 ofthe Registrant's Current Report on Form 8-K (Reg. No. 001-33913), as filed with the Securities and Exchange Commission on June20, 2013, and incorporated herein by reference. †10.16 Change in Control Agreement between Quanex Building Products Corporation and Dewayne Williams, effective July 1, 2013,filed as Exhibit 10.2 of the Registrant's Current Report on Form 8-K (Reg. No. 001-33913), as filed with the Securities andExchange Commission on June 20, 2013, and incorporated herein by reference. †10.17 Indemnity Agreement between Quanex Building Products Corporation and Dewayne Williams, effective July 1, 2013, the form ofwhich is filed as Exhibit 10.2 of the Registrant's Current Report on Form 8-K (Reg. No. 001-33913), as filed with the Securities andExchange Commission on August 29, 2008, and incorporated herein by reference. †10.18 Agreement between Quanex Building Products Corporation and Martin Ketelaar, effective June 14, 2013, filed as Exhibit 10.4 ofthe Registrant's Current Report on Form 8-K (Reg. No. 001-33913), as filed with the Securities and Exchange Commission on June20, 2013, and incorporated herein by reference. †10.19 Change in Control Agreement between Quanex Building Products Corporation and Martin Ketelaar, effective June 14, 2013, filedas Exhibit 10.5 of the Registrant's Current Report on Form 8-K (Reg. No. 001-33913), as filed with the Securities and ExchangeCommission on June 20, 2013, and incorporated herein by reference. †10.20 Indemnity Agreement between Quanex Building Products Corporation and Martin Ketelaar, effective June 14, 2013, the form ofwhich is filed as Exhibit 10.2 of the Registrant's Current Report on Form 8-K (Reg. No. 001-33913), as filed with the Securities andExchange Commission on August 29, 2008, and incorporated herein by reference. †10.21 Agreement between Quanex Building Products Corporation and William C. Griffiths, effective July 9, 2013, filed as Exhibit 10.1of the Registrant's Current Report on Form 8-K (Reg. No. 001-33913), as filed with the Securities and Exchange Commission onJuly 9, 2013, and incorporated herein by reference. 88Table of Contents EXHIBIT INDEXExhibit Number Description of Exhibits†10.22 Change in Control Agreement between Quanex Building Products Corporation and William C. Griffiths, effective July 9, 2013,filed as Exhibit 10.2 of the Registrant's Current Report on Form 8-K (Reg. No. 001-33913), as filed with the Securities andExchange Commission on July 9, 2013, and incorporated herein by reference. †10.23 Indemnity Agreement between Quanex Building Products Corporation and William C. Griffiths, effective July 9, 2013, the form ofwhich is filed as Exhibit 10.2 of the Registrant's Current Report on Form 8-K (Reg. No. 001-33913), as filed with the Securities andExchange Commission on August 29, 2008, and incorporated herein by reference. 10.24 Second Amendment to Lease Agreement between HP Properties/Mikron LLC, successor in interest to the W.R. Sandwith andMichael G. Ritter Partnership, and Mikron Washington LLC, dated November 20, 2013. †10.25 Form of Stock Option Agreement for Employees under the Quanex Building Products Corporation 2008 Omnibus Incentive Plan,as amended, filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (Reg. No. 001-33913), as filed with the Securitiesand Exchange Commission on April 29, 2014, and incorporated herein by reference. †10.26 Form of Stock Option Agreement for Section 16 Officers under the Quanex Building Products Corporation 2008 OmnibusIncentive Plan, as amended, filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (Reg. No. 001-33913), as filedwith the Securities and Exchange Commission on April 29, 2014, and incorporated herein by reference. †10.27 Form of Stock Option Agreement for Key Leaders under the Quanex Building Products Corporation 2008 Omnibus Incentive Plan,as amended, filed as Exhibit 10.3 to the Registrant’s Current Report on Form 8-K ( (Reg. No. 001-33913), as filed with theSecurities and Exchange Commission on April 29, 2014, and incorporated herein by reference. †10.28 Form of Stock Option Agreement for Non-Employee Directors under the Quanex Building Products Corporation 2008 OmnibusIncentive Plan, as amended, filed as Exhibit 10.4 to the Registrant’s Current Report on Form 8-K (Reg. No. 001-33913), as filedwith the Securities and Exchange Commission on April 29, 2014, and incorporated herein by reference. †10.29 Form of Restricted Stock Award Agreement for Employees under the Quanex Building Products Corporation 2008 OmnibusIncentive Plan, as amended, filed as Exhibit 10.5 to the Registrant’s Current Report on Form 8-K (Reg. No. 001-33913), as filedwith the Securities and Exchange Commission on April 29, 2014, and incorporated herein by reference. †10.30 Form of Restricted Stock Award Agreement for Section 16 Officers under the Quanex Building Products Corporation 2008Omnibus Incentive Plan, as amended, filed as Exhibit 10.6 to the Registrant’s Current Report on Form 8-K (Reg. No. 001-33913),as filed with the Securities and Exchange Commission on April 29, 2014, and incorporated herein by reference. †10.31 Form of Restricted Stock Award Agreement for Key Leaders under the Quanex Building Products Corporation 2008 OmnibusIncentive Plan, as amended, filed as Exhibit 10.7 to the Registrant’s Current Report on Form 8-K (Reg. No. 001-33913), as filedwith the Securities and Exchange Commission on April 29, 2014, and incorporated herein by reference. †10.32 Form of Restricted Stock Award Agreement for Non-Employee Directors under the Quanex Building Products Corporation 2008Omnibus Incentive Plan, as amended, filed as Exhibit 10.8 to the Registrant’s Current Report on Form 8-K (Reg. No. 001-33913),as filed with the Securities and Exchange Commission on April 29, 2014, and incorporated herein by reference. †10.33 Form of Restricted Stock Unit Award Agreement for Employees under the Quanex Building Products Corporation 2008 OmnibusIncentive Plan, as amended, filed as Exhibit 10.9 to the Registrant’s Current Report on Form 8-K (Reg. No. 001-33913), as filedwith the Securities and Exchange Commission on April 29, 2014, and incorporated herein by reference. †10.34 Form of Restricted Stock Unit Award Agreement for Section 16 Officers under the Quanex Building Products Corporation 2008Omnibus Incentive Plan, as amended, filed as Exhibit 10.10 to the Registrant’s Current Report on Form 8-K (Reg. No. 001-33913),as filed with the Securities and Exchange Commission on April 29, 2014, and incorporated herein by reference. 89Table of Contents EXHIBIT INDEXExhibit Number Description of Exhibits†10.35 Form of Restricted Stock Unit Award Agreement for Key Leaders under the Quanex Building Products Corporation 2008 OmnibusIncentive Plan, as amended, filed as Exhibit 10.11 to the Registrant’s Current Report on Form 8-K (Reg. No. 001-33913), as filedwith the Securities and Exchange Commission on April 29, 2014, and incorporated herein by reference. †10.36 Form of Restricted Stock Unit Award Agreement for Non-Employee Directors under the Quanex Building Products Corporation2008 Omnibus Incentive Plan, as amended, filed as Exhibit 10.12 to the Registrant’s Current Report on Form 8-K (Reg. No. 001-33913), as filed with the Securities and Exchange Commission on April 29, 2014, and incorporated herein by reference. †10.37 Form of Performance Share Award Agreement for Employees under the Quanex Building Products Corporation 2008 OmnibusIncentive Plan, as amended, filed as Exhibit 10.13 to the Registrant’s Current Report on Form 8-K (Reg. No. 001-33913), as filedwith the Securities and Exchange Commission on April 29, 2014, and incorporated herein by reference. †10.38 Form of Performance Share Award Agreement for Section 16 Officers under the Quanex Building Products Corporation 2008Omnibus Incentive Plan, as amended, filed as Exhibit 10.14 to the Registrant’s Current Report on Form 8-K (Reg. No. 001-33913),as filed with the Securities and Exchange Commission on April 29, 2014, and incorporated herein by reference. †10.39 Form of Performance Share Award Agreement for Key Leaders under the Quanex Building Products Corporation 2008 OmnibusIncentive Plan, as amended, filed as Exhibit 10.15 to the Registrant’s Current Report on Form 8-K (Reg. No. 001-33913), as filedwith the Securities and Exchange Commission on April 29, 2014, and incorporated herein by reference. †10.40 Form of Performance Share Award Agreement for Non-Employee Directors the Quanex Building Products Corporation 2008Omnibus Incentive Plan, as amended, filed as Exhibit 10.16 to the Registrant’s Current Report on Form 8-K (Reg. No. 001-33913),as filed with the Securities and Exchange Commission on April 29, 2014, and incorporated herein by reference. †10.41 Form of Performance Unit Award Agreement for Employees under the Quanex Building Products Corporation 2008 OmnibusIncentive Plan, as amended, filed as Exhibit 10.17 to the Registrant’s Current Report on Form 8-K (Reg. No. 001-33913), as filedwith the Securities and Exchange Commission on April 29, 2014, and incorporated herein by reference. †10.42 Form of Performance Unit Award Agreement for Section 16 Officers under the Quanex Building Products Corporation 2008Omnibus Incentive Plan, as amended, filed as Exhibit 10.18 to the Registrant’s Current Report on Form 8-K (Reg. No. 001-33913),as filed with the Securities and Exchange Commission on April 29, 2014, and incorporated herein by reference. †10.43 Form of Performance Unit Award Agreement for Key Leaders under the Quanex Building Products Corporation 2008 OmnibusIncentive Plan, as amended, filed as Exhibit 10.19 to the Registrant’s Current Report on Form 8-K (Reg. No. 001-33913), as filedwith the Securities and Exchange Commission on April 29, 2014, and incorporated herein by reference. †10.44 Form of Performance Unit Award Agreement for Non-Employee Directors under the Quanex Building Products Corporation 2008Omnibus Incentive Plan, as amended, filed as Exhibit 10.20 to the Registrant’s Current Report on Form 8-K (Reg. No. 001-33913),as filed with the Securities and Exchange Commission on April 29, 2014, and incorporated herein by reference. †10.45 Form of Stock Appreciation Right Agreement for Employees under the Quanex Building Products Corporation 2008 OmnibusIncentive Plan, as amended, filed as Exhibit 10.21 to the Registrant’s Current Report on Form 8-K (Reg. No. 001-33913), as filedwith the Securities and Exchange Commission on April 29, 2014, and incorporated herein by reference. †10.46 Form of Stock Appreciation Right Agreement for Section 16 Officers under the Quanex Building Products Corporation 2008Omnibus Incentive Plan, as amended, filed as Exhibit 10.22 to the Registrant’s Current Report on Form 8-K (Reg. No. 001-33913),as filed with the Securities and Exchange Commission on April 29, 2014, and incorporated herein by reference. †10.47 Form of Stock Appreciation Right Agreement for Key Leaders under the Quanex Building Products Corporation 2008 OmnibusIncentive Plan, as amended, filed as Exhibit 10.23 to the Registrant’s Current Report on Form 8-K (Reg. No. 001-33913), as filedwith the Securities and Exchange Commission on April 29, 2014, and incorporated herein by reference. 90Table of Contents EXHIBIT INDEXExhibit Number Description of Exhibits†10.48 Form of Stock Appreciation Right Agreement for Non-Employee Directors under the Quanex Building Products Corporation 2008Omnibus Incentive Plan, as amended, filed as Exhibit 10.24 to the Registrant’s Current Report on Form 8-K (Reg. No. 001-33913),as filed with the Securities and Exchange Commission on April 29, 2014, and incorporated herein by reference. †10.49 Form of Other Stock Based Award Agreement under the Quanex Building Products Corporation 2008 Omnibus Incentive Plan, asamended, filed as Exhibit 10.25 to the Registrant’s Current Report on Form 8-K (Reg. No. 001-33913), as filed with the Securitiesand Exchange Commission on April 29, 2014, and incorporated herein by reference. †10.50 Form of Annual Incentive Award Agreement under the Quanex Building Products Corporation 2008 Omnibus Incentive Plan, asamended, filed as Exhibit 10.26 to the Registrant’s Current Report on Form 8-K (Reg. No. 001-33913), as filed with the Securitiesand Exchange Commission on April 29, 2014, and incorporated herein by reference. *21.1 Subsidiaries of the Registrant. *23.1 Consent of Grant Thornton LLP *23.2 Consent of Deloitte LLP *31.1 Certification by chief executive officer pursuant to Rule 13a-14(a)/15d-14(a). *31.2 Certification by chief financial officer pursuant to Rule 13a-14(a)/15d-14(a). *32 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *101.INS XBRL Instance Document *101.SCH XBRL Taxonomy Extension Schema Document *101.CAL XBRL Taxonomy Extension Calculation Linkbase Document *101.DEF XBRL Taxonomy Extension Definition Linkbase Document *101.LAB XBRL Taxonomy Extension Label Linkbase Document *101.PRE XBRL Taxonomy Extension Presentation Linkbase Document *Filed herewith† Management Compensation or Incentive PlanAs permitted by Item 601(b)(4)(iii)(A) of Regulation S-K, the Registrant has not filed with this Annual Report on Form 10-K certain instruments defining therights of holders of long-term debt of the Registrant and its subsidiaries because the total amount of securities authorized under any of such instruments doesnot exceed 10% of the total assets of the Registrant and its subsidiaries on a consolidated basis. The Registrant agrees to furnish a copy of any suchagreements to the Securities and Exchange Commission upon request.91EXHIBIT 10.24SECOND AMENDMENT TO LEASESBY AND BETWEEN HP PROPERTIES/MIKRON LLC AND MIKRON WASHINGTON LLCThis amendment to Leases (this “Amendment”) is made and entered into as of the 20th day of November, 2013, by and between HPProperties/Mikron LLC, a Washington limited liability company (“Landlord”) and Mikron Washington LLC, a Washington limitedliability company (“Tenant”). Unless otherwise defined herein, capitalized terms used in this Amendment shall have the meanings setforth in the Mikron Leases (as defined below).RECITALSA.Pursuant to that certain Lease between Mikron 1034 Joint Venture, and the W.R. Sandwith and Michael G. Ritter Partnership(Landlord’s predecessors in interest) and Mikron Industries, Inc. (Tenant’s predecessor in interest) dated November 26, 1979,as amended by those certain Amendments to Lease dated December 31, 1986, May 12 1989, October 8, 1993, November 4,1994, May 19, 1995, May 10, 2000, June 9, 2004, December 9, 2004, and January 27, 2010 (as amended, the “1979 Lease”),Tenant leases space consisting of approximately 97,706 square feet in the Industrial Distribution Building located at 1034 6thAvenue North, Kent, Washington.B.Pursuant to that certain Lease between 1034 Joint Venture and Mikron Industries, Inc. and dated May 3, 1989, as amended bythose certain Amendments to Lease dated August 30, 1990, November 4, 1994, May 19, 1995, May 10, 2000, June 9, 2004,December 9, 2004, and January 27, 2010 (as amended the “1989 Lease”), Tenant leases space consisting of approximately75,000 square feet in the Industrial Distribution Building located at 1034 6th Avenue North, Kent, Washington.C.The premises depicted in Exhibit A is collectively referred to herein as the “Leased Premises”.D.The 1979 Lease and the 1989 Lease, together with that certain Lease between Mikron Industries, Inc. and W.R. Sandwithdated July 1, 1994, as amended, are collectively referred to herein as the “Mikron Leases”.E.Tenant assumed its interest in the Mikron Leases by assignment from Mikron Industries, Inc. Landlord consented to theAssignment by that certain Letter Agreement dated June 22, 2006.F.The 1979 Lease and the 1989 Lease expire by their terms on March 1, 2015. Landlord and Tenant desire now to amend bothleases to extend their terms, on the following terms and conditions.NOW THEREFORE, in consideration of the above recitals which by this reference are incorporated herein, the mutualcovenants and conditions contained herein and other valuable consideration, the receipt and sufficiency are hereby acknowledged,Landlord and Tenant agree as follows:AMENDMENT1.Term Extension. The terms of the 1979 Lease and the 1989 Lease are hereby extended for a period of five (5) years (the“Extended Term”), commencing March, 1, 2015 and terminating February 28, 2020, unless sooner terminated in accordance withtheir respective terms. Throughout the Extended Term, the Leased Premises shall be subject to the terms and conditions of theMikron Lease, except as expressly modified by this Amendment.2.Extended Term Rent. The fixed monthly rental charge (the “Monthly Rent”) due under the 1979 Lease and the 1989 Leaserespectively, during the Extended Term shall be as follows:The 1979 Lease consisting of 97,706 square feet will be $41,803.14 for the entire five year term. The 1989 Lease consisting of75,000 square feet will be $27,240.97 for the entire five year term.3. Renewal.3.1 Provided there is no existing uncured material default of Tenant under any of the Mikron Leases, if Tenant desires to continueleasing all of the premises leased under the Mikron Leases (or all of the premises leased under those Mikron Leases which are thenin effect) for a period beyond the Extended Term (such period being the “Renewal Term”), Tenant shall give Landlord writtennotice on or before February 28, 2019 of its desire to negotiate a Renewal Term. In response to such notice, Landlord shall withintwenty (20) days provide Tenant with notice of landlord’s desired term and Monthly Rent for the Renewal Term; provided that theMonthly Rent for Renewal Term (i) shall be the fair market rental value of the Leased Premises upon commencement of theRenewal Term, (ii) shall in no event be less than the Monthly Rent due during the month immediately prior to the commencementof the Renewal Term and (iii) shall in no event escalate more than fifteen percent (15%) during any five consecutive years of theRenewal Term. In determining the fair market rental value of the Leased Premises, consideration shall be given to the then currentmarket rate for similar properties in the general vicinity of the Leased Premises with similar lease provisions.3.2 If the parties do not agree upon the monthly Rent for the Leased Premises during the Renewal Term by June 15, 2019 (the“Trigger Date”), either party may demand that the Monthly Rent be determined by arbitration. In such case, the parties shallendeavor to select a mutually agreeable arbitrator within ten (10) days after such demand. If the parties are unable to agree on anarbitrator within such 10-day period, either party may seek appointment of an arbitrator by the Chief Judge of the Superior Court ofKing County, Washington. Within fourteen (14) days after the arbitrator’s appointment, each party shall submit its estimate of thefair market rental value of the Leased Premises along with any documentary evidence that it may have to support its estimate.Within fourteen (14) days after the arbitrator’s receipt of each party’s estimate and evidence (if any), the arbitrator shall select theestimate that he or she determines is closest to the actual fair market rental value of the Leased Premises. The arbitrator’sdetermination of the estimate that is closest to the actual fair market value of the Leased Premises shall be completed no later thanSeptember 15, 2019 and shall be final and binding. The cost of the arbitrator shall be shared equally by Landlord and Tenant. In noevent shall the fair market rent for the Leased Premises be less than the Monthly Rent due during the last month prior to theRenewal Term.3.3 If the parties have not executed a fully integrated written agreement for lease of the Leased Premises during the Renewal Termon or before September 15, 2019, then Landlord shall be entitled to freely market the Leased Premises and show the LeasedPremises to prospective tenants. Landlord agrees not to market the Leased Premises before this time unless Tenant notifiesLandlord that Tenant does not intend to pursue the Renewal Term.4. Improvements to the Leased Premises. Tenant accepts the Leased Premises in its present condition on an “as-is, where-is” basis.5. Miscellaneous.5.1 This Amendment sets forth the entire agreement between the parties with respect to the matters set forth herein. There havebeen no additional oral or written representations or agreements.5.2 Except as herein modified or amended, the provisions, conditions, and terms of the Mikron Leases shall remain in full forceand effect.5.3 In the case of any inconsistency between the provisions of the Mikron Leases and this Amendment, the provisions of theAmendment shall govern and control.5.4 This Amendment shall be construed and enforced in accordance with the laws of the State of Washington.6. Surrender.Landlord agrees to allow Tenant to exclude the items in Exhibit A attached from work to be done at the termination of this Lease listedas Exclusionary Items. All items listed in the Non-Exclusionary Items on Exhibit A are required to be removed, replaced or repaired asnecessary.IN WITNESS WHEREOF, landlord and tenant have executed this Amendment on the ________________day of____________, _______________.LANDLORD:HP Properties/Mikron LLCBy: __________________________ Name: ________________________Its: __________________________ TENANT:Mikron Washington LLC, a Washington limited Liability companyBy: __________________________ Name: ________________________Its: __________________________ STATE OF WASHINGTON )ss.COUNTY OF KING )This is to certify that I know or have satisfactory evidence that ________________________is the person who appeared before me,and said person acknowledged that he/she signed this instrument, on oath stated that they were authorized to execute the instrumentand acknowledged it as the ___________________________of HP Properties/Mikron LLC, a Washington general partnership to bethe free and voluntary act of such party for the uses and purposes mentioned in the instrument.Dated:___________________, 2013___________________________________________Notary PublicPrint Name: __________________________My appointment expires ________________STATE OF WASHINGTON )ss.COUNTY OF KING )This is to certify that I know or have satisfactory evidence that___________________________is the person who appeared beforeme, and said person acknowledged that he/she signed this instrument, on oath stated that they were authorized to execute theinstrument and acknowledged it as Manager of Mikron Washington LLC, a Washington general partnership to be the free andvoluntary act of such party for the uses and purposes mentioned in the instrument.Dated:___________________, 2013___________________________________________Notary PublicPrint Name: __________________________My appointment expires ________________Exhibit AExclusionary Items:•Structural steel mezzanine structures•Overhead bridge cranes•Electrical power and control panels•Compressed air equipment•Chilled water supply and return piping to equipment and production lines, unless they are in the middle of the space. Lines along wall are fine.•Compressed air piping•Reinstall sprinkler system piping at roof opening locations.Non-Exclusionary Items:•Grinding equipment, cyclone collectors, and related dust control equipment and ductwork•Equipment within the main Blend Tower including resin rail unload system, Regrind handling system, 1102/Calcium handling system, Upperdust control system, Wax handling system, PA-40 handling system, A15 handling system, liquid Stabilizer handling system, ScreeningSystem, Mixers, and Compound Take-Away System including convey line to silos.•Two 15' diameter bolted compound storage silos near Blend Tower that will need to be jacked down and removed.•Material handling convey lines including material lines and air-only vacuum lines.•Blend tower including structural steel and suspended concrete floors.•Metal building components on blend tower above the roof.•Day bins within the plant•Dry Blend equipment including tower structure•Rail load-out system•Closing in roof penetrations and re-roofing at the Blend Tower and for the two 15' diameter compound storage silos near the Blend Tower.•Filling in existing pits in the floor including the following:•Pit at Main Blend Tower•Pit at Dry Blend•Utility trenches•Patch back any wall openings for material convey lines or piping.•Remove all interior building walls and chain link fence as required.•Remove floor bollards, guardrails, etc. where needed.•C Bldg., city water supply to building. Replace piping from meter to building.EXHIBIT 21.1 SUBSIDIARIES OF QUANEX BUILDING PRODUCTS CORPORATION STATE OF INCORPORATIONQuanex Homeshield, LLC DelawareMikron Industries, Inc. WashingtonMikron Washington, LLC WashingtonTruSeal Technologies, Inc. DelawareEdgetech Holding Co. OhioQuanex IG Systems, Inc. OhioEdgetech Europe GmbH GermanyQuanex Services, Inc. DelawareQuanex Screens LLC DelawareEdgetech (UK) LTD. United KingdomExhibit 23.2CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in Registration Statement Nos. 333-150392, 333-173245 and 333-194812 on Forms S-8 of our report datedDecember 18, 2013 (December 12, 2014 as to the retrospective adjustments for discontinued operations discussed in Note 1), relating to the consolidatedfinancial statements of Quanex Building Products Corporation and subsidiaries as of and for each of the two years in the period ended October 31, 2013appearing in this Annual Report on Form 10-K of Quanex Building Products Corporation and subsidiaries for the year ended October 31, 2014./s/ DELOITTE & TOUCHE LLPHouston, TexasDecember 12, 2014Exhibit 31.1CHIEF EXECUTIVE OFFICER CERTIFICATIONI, William C. Griffiths, certify that:1.I have reviewed this annual report on Form 10-K of Quanex Building Products Corporation (the Registrant);2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to makethe statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered bythis report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respectsthe financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;4.The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures [as defined inExchange Act Rules 13a-15(e) and 15d-15(e)] and internal control over financial reporting [as defined in Exchange Act Rules 13a-15(f) and15d-15(f)] for the Registrant and have:a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which this report is being prepared;b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed underour supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financialstatements for external purposes in accordance with generally accepted accounting principles;c.Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions aboutthe effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;andd.Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’smost recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or isreasonably likely to materially affect, the Registrant’s internal control over financial reporting; and5.The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent functions):a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; andb.Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’sinternal control over financial reporting.December 12, 2014 /s/ WILLIAM C. GRIFFITHSWILLIAM C. GRIFFITHSChairman of the Board, President and Chief Executive Officer(Principal Executive Officer)Exhibit 31.2CHIEF FINANCIAL OFFICER CERTIFICATIONI, Brent L. Korb, certify that:1.I have reviewed this annual report on Form 10-K of Quanex Building Products Corporation (the Registrant);2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to makethe statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered bythis report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respectsthe financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;4.The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures [as defined inExchange Act Rules 13a-15(e) and 15d-15(e)] and internal control over financial reporting [as defined in Exchange Act Rules 13a-15(f) and15d-15(f)] for the Registrant and have:a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which this report is being prepared;b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed underour supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financialstatements for external purposes in accordance with generally accepted accounting principles;c.Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions aboutthe effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;andd.Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’smost recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or isreasonably likely to materially affect, the Registrant’s internal control over financial reporting; and5.The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent functions):a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; andb.Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’sinternal control over financial reporting.December 12, 2014 /S/ BRENT L. KORB BRENT L. KORBSenior Vice President – Finance andChief Financial Officer(Principal Financial Officer) Exhibit 32Certification Pursuant To Section 906of the Sarbanes-Oxley Act of 2002(18 U.S.C. SECTION 1350)Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) (theAct), William C. Griffiths, President and Chief Executive Officer of Quanex Building Products Corporation (the Company) and Brent L. Korb, Senior VicePresident – Finance and Chief Financial Officer of the Company, each hereby certify that, to the best of their knowledge:(a)the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2014 as filed with the Securities and Exchange Commission onthe date hereof (the Report), fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, asamended; and(b)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.December 12, 2014 /S/ WILLIAM C. GRIFFITHS /S/ BRENT L. KORBWILLIAM C. GRIFFITHS BRENT L. KORBChairman of the Board, President andChief Executive Officer Senior Vice President—Finance andChief Financial OfficerA signed original of this written statement required by Section 906 has been provided to Quanex Building Products Corporation and will be retainedby Quanex Building Products Corporation and furnished to the Securities and Exchange Commission or its staff upon request.Exhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe have issued our reports dated December 12, 2014, with respect to the consolidated financial statements and internal control over financial reportingincluded in the Annual Report of Quanex Building Products Corporation on Form 10-K for the year ended October 31, 2014. We hereby consent to theincorporation by reference of said reports in the Registration Statements of Quanex Building Products Corporation on Forms S-8 (File No. 333-150392, FileNo. 333-173245 and File No. 333-194812)./s/ GRANT THORNTON LLPHouston, TexasDecember 12, 2014Letter from the CEO: Focus on Fenestration Financial Highlights The following consolidated financial highlights, for the five years ended October 31, 2014, were derived from the Company’s audited Financial Statements. Unless otherwise noted, all information in the table reflects only continuing operations. The data set forth should be read in conjunction with the Company’s Consolidated Financial Statements and accompanying notes included in Item 8 of the Company’s 2014 Annual Report on Form 10-K. The historical information is not necessarily indicative of the results to be expected in the future. units, through a combination of increased Fiscal Years Ended October 31 2014(4) 2013(1) 2012(3)(4) 2011(2)(4)(5) 2010(5) closed at the end of December 2013, and mid-cycle level, I would expect Quanex through the close of this fiscal year we revenues, absent any acquisitions, to be Net sales Cost of sales have expanded capacity by over 70%. We $825 to $875 million, nearly a 40%-50% Selling, general and administrative would sharpen our focus and concentrate are already underway with a further 50% improvement from today’s levels. EBITDA on our window and door markets. I am capacity expansion in 2015, all of which is would also grow from $115 million to $130 pleased to report that we were successful sold out. million at mid-cycle. Depreciation and amortization Operating income (loss) Income (loss) from continuing operations Acquisitions such as this, directly in our As we continue to invest in our existing Net income (loss) Diluted earnings (loss) per share Cash dividends declared per share US dollars in thousands, except per share data $595,384 $554,867 $478,578 $420,258 $361,062 464,584 419,733 355,669 315,765 267,614 82,150 98,969 100,884 75,918 33,869 53,521 29,975 25,390 14,276 (18,821) (8,862) 8,338 (12,384) (6,561) 1,386 (411) 62,110 19,879 11,459 7,766 $29,234 (11,703) (16,534) $9,066 $23,098 $0.78 $0.16 (0.32) $0.16 (0.45) $0.16 $0.24 $0.16 $0.61 $0.14 (1) In December 2012, we acquired substantially all the assets of Alumco, Inc. and its subsidiaries, a manufacturer of window screens, with multiple facilities within the United States. (2) In March 2011, we acquired Edgetech, I.G. Inc. and its German subsidiary. Headquartered in Cambridge, Ohio, Edgetech has three manufacturing facilities, one each in the United States, United Kingdom and Germany, that produce and market a full line of warm edge insulating glass spacer systems for window and door customers in North America and abroad. In March 2011, we also acquired a small vinyl extrusion facility in Yakima, Washington. Accordingly, the estimated fair value of assets acquired in the acquisition and the results of operations were included in our consolidated financial statements as of the effective date of the acquisition. (3) In November 2011, we announced a consolidation program for two of our insulating glass manufacturing facilities, whereby we closed a facility in Barbourville, Kentucky. This facility consolidation was completed ahead of schedule in August 2012. In fiscal 2012, we recorded expenses totaling $9.0 million ($5.9 million net of tax) related to this consolidation. (4) During fiscal 2011, we recognized an expense of $1.9 million ($1.1 million net of tax) to increase our warranty reserve associated with a discontinued legacy product and claims. In fiscal 2014, we decreased our warranty reserve and reduced expense by $2.9 million ($1.8 million net of tax) related to claims associated with this discontinued legacy product. (5) In 2010, we closed a start-up facility in China due to contraction of demand and a decision to serve the international thin film solar panel markets from our North American operations. Accordingly, the assets and liabilities of this start-up facility in China were reported as discontinued operations in the consolidated balance sheets for the applicable periods presented, and the related operating results are reported as discontinued operations in the consolidated statements of income presented, as applicable. FINANCIAL STATISTICS AS OF OCTOBER 31, 2014 Book value per common share: .................................. $11.18 Total debt to capitalization: ......................................... 0.1% Return on invested capital: .......................................... 5.5% Actual number of common shares outstanding: ... 37,633,932 EBITDA RECONCILIATION Quanex Building Products Corporation - Non-GAAP Financial Measure Disclosure (US Dollars in thousands, unaudited) EBITDA (defined as net income or loss before interest, taxes, depreciation and amortization and other, net) is a non-GAAP financial measure that Quanex management uses to measure its operational performance and assist with financial decision-making. EBITDA is a key metric used by management in determining the value of annual incentive awards for its employees. We believe this non-GAAP measure (included under market conditions outlined in our forward-looking guidance) provides a consistent basis for comparison between periods, and will assist investors in understanding our financial performance when comparing our results to other investment opportunities. EBITDA may not be the same as that used by other companies. The company does not intend for this information to be considered in isolation or as a substitute for other measures prepared in accordance with GAAP. Twelve Months Ended October 31, 2014 Income (loss) from continuing operations Income tax expense (benefit) Other, net Interest expense Operating Income (loss) Depreciation and amortization EBITDA $8,338 5,468 (92) 562 14,276 33,869 $48,145 FISCAL 2014 IN REVIEW Ducker Worldwide, window shipments mid to high single-digit growth rates over increased 5.3% during this period. an extended period of four to five years. Another highlight of fiscal 2014 was the acquisition, and subsequent expansion, of a customer’s vinyl extrusion facility in Greenville, Texas. This acquisition This would return U.S. window shipments to a mid-cycle level of 63 to 68 million housing starts and a recovery in the remodel and replacement market. At this Last year, I wrote that we would return Quanex to profitability after two successive years of operating losses, and that we on both accounts. The highlight of the year was the successful current space, remain a high priority business, look for 2015 capital expenditures divestiture of our Nichols Aluminum in our capital deployment strategy. to be $35 million for the year, of which business for $110 million. This, together Unfortunately, this was the only transaction $20 million will go into our vinyl profile with the October 2013 decision to abandon consummated in 2014, even though we business. As a second priority, we will the Company’s ERP implementation had the opportunity to review many more. continue to pursue targeted business project, enabled us to reduce our overhead We will continue to use a very disciplined acquisitions. These may include vertically “WE ARE OPTIMISTIC ABOUT OUR EARNINGS POWER AS THE MARKET RECOVERS AND OUR NUMBER ONE PRIORITY IS TO REMAIN READY TO CAPITALIZE ON THAT RECOVERY. ” approach to our acquisition strategy, integrated vinyl extrusion businesses or whereby the combination of risk, valuation screen manufacturers that allow us to and strategic fit are carefully balanced and expand our existing fenestration footprint, evaluated before proceeding. The final highlight of 2014 was the grow our existing product offerings, acquire complementary technology, enhance our leadership position within the markets we September announcement of a $75 million serve, and expand into new markets or share repurchase program. Using the service lines. We are always in search of same criteria of risk and valuation, together opportunities that can help us better serve with a slow pipeline of suitable acquisition our customers. opportunities, it was clear that a share repurchase program was the best use of our We are optimistic about our earnings excess cash at that time. This program will power as the market recovers and our likely extend into the first half of fiscal 2015. number one priority is to remain ready FISCAL 2015 OUTLOOK to capitalize on that recovery. In 2015 we expect to build on our momentum and position Quanex for a successful While we expect a slow start to 2015, future for our employees, customers and costs, and focus exclusively on improving we anticipate that it will be very similar shareholders. the window and door business. to 2014 in terms of market conditions This renewed focus allowed us to generate 5% to 7% revenue growth and a further EBITDA of $48.1 million, the highest level improvement in profitability, leading to and overall growth. We are forecasting since the spin-off of Quanex Building Products in 2008. This was a 38.7% EBITDA levels of $57 to $63 million. William Griffiths increase over 2013, on a 7.3% increase We continue to believe the housing in revenues. In comparison, according to recovery will follow a slow, steady path of Chairman, President and Chief Executive Officer 48562_Cvr_.indd 2 1/12/15 7:42 AM LEADERSHIP William C. Griffiths Chairman, President & Chief Executive Officer BOARD OF DIRECTORS Robert R. Buck 2, 4 Executive Chairman, Beacon Roofing Supply, Inc. Brent L. Korb Senior Vice President – Finance & Chief Financial Officer Susan F. Davis 3*, 4 Executive Vice President and Chief Human Resources Officer, Johnson Controls, Inc. Kevin P. Delaney Senior Vice President – General Counsel & Secretary Martin P. Ketelaar Vice President – Treasurer & Investor Relations M. Dewayne Williams Vice President – Controller William C. Griffiths 1* Chairman, President and Chief Executive Officer, Quanex Building Products Corporation LeRoy D. Nosbaum 2, 3, 4 Retired President & Chief Executive Officer, Itron, Inc. Joseph D. Rupp 1, 3, 4*, 5 Chairman, President & Chief Executive Officer, Olin Corporation Screens, Grilles & Components Screens, Grilles & Components Window & Door Proﬁ les Window & Door Proﬁ les Corporate Information COMPANY DESCRIPTION (NYSE:NX) With 2014 consolidated sales of $595 million and 24 manufacturing facilities (22 in the US, one in Germany and one in the UK), Quanex has approximately 2,200 employees. We manufacture energy efficient window components that include flexible insulating glass spacers, extruded vinyl profiles, window and door screens, solar panel sealants, and precision-formed metal and wood products for original equipment manufacturers (OEMs) in the residential and commercial window and door industries. We use low-cost production processes and engineering expertise to provide our customers with custom products for their specific window and door applications. We serve a primary customer base in North America, and also serve customers in international markets through our operating plants in the United Kingdom and Germany, as well as through sales and marketing efforts in other countries. COMPANY HEADQUARTERS Quanex Building Products Corporation 1800 West Loop South Suite 1500 Houston, Texas 77027 713.961.4600 800.231.8176 inquiry@quanex.com ANNUAL STOCKHOLDER MEETING Thursday, February 26, 2015 8:00 a.m. C.S.T. Quanex Corporate Offices The Quanex Form 10-K for the fiscal year ended October 31, 2014, can be viewed and downloaded from the company website at www.quanex.com/2014AR. TRANSFER AGENT, SHAREHOLDER RECORDS & DIVIDEND DISBURSING AGENT Wells Fargo Bank N.A. Shareowner Services 1110 Centre Point Curve Mendota Heights, MN 55120-4100 P 800.468.9716 F 651.450.4085 651.450.4064 Outside the United States Curtis M. Stevens 1, 2*,4 Chief Executive Officer, Louisiana-Pacific Corporation Board Committees 1 Executive Committee 2 Audit Committee 3 Compensation & Management Development Committee 4 Nominating & Corporate Governance Committee 5 Lead Director * Denotes Committee Chair 1800 West Loop South Suite 1500 Houston, Texas 77027 www.Quanex.com Insulating Glass Spacers Insulating Glass Spacers 2014 Annual Report NYSE: NX 48562_Cvr_.indd 1 1/12/15 7:42 AM

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