NX Quanex Corp

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K/A

(Amendment No. 1)

 

 

CURRENT REPORT

Pursuant to Section 13 OR 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): June 15, 2015

 

 

Quanex Building Products Corporation

(Exact name of registrant as specified in its charter)

 

 

 

Delaware		001-33913		26-1561397
(State or other jurisdiction of incorporation)		(Commission File Number)		(IRS 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) 961-4600

 

(Former name or former address, if changed since last report.)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 

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Item 2.01 Completion of Acquisition or Disposition of Assets.

On June 16, 2015, Quanex Building Products Corporation, a Delaware corporation (“we,” “us,” “our,” “Quanex” or the “Company”), filed a Current Report on Form 8-K announcing a Share Purchase Agreement, effective June 15, 2015, by and among Quanex and the shareholders of Flamstead Holdings Limited, a company incorporated and registered in England and Wales (“Flamstead”): Roger Hartshorn, Janet Hartshorn, Garner Properties Limited, Michael Bosworth, and Joan Bosworth. Under the Purchase Agreement, concurrently with execution, Quanex purchased from the shareholders all of the outstanding ownership shares of Flamstead (the “Purchase”). Following the pre-sale reorganization and Purchase, Flamstead became a wholly-owned subsidiary of Quanex and we acquired, as a result thereof, the following wholly-owned subsidiaries of Flamstead, each of which is incorporated and registered in England and Wales: HL Plastics Limited; Vintage Windows Limited; Wegoma Machinery Sales Limited; and Liniar Limited (collectively, the “Subsidiaries”). The Purchase Agreement was filed as Exhibit 2.1 to the Current Report on Form 8-K filed by the Company on June 16, 2015, and is incorporated herein by reference.

This transaction constituted the purchase of a “significant amount of assets,” as such phrase is defined in Instruction 4 to Item 2.01 of Form 8-K, and therefore requires disclosure of certain financial information. We are amending our Current Report on Form 8-K filed on June 16, 2015 to provide the financial statements and pro forma financial information required by the Securities and Exchange Commission Rules.

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Item 9.01 Financial Statements and Exhibits

(a) Financial statements of businesses acquired: Exhibit 99.1 attached hereto and incorporated by reference herein includes the audited financial statements for the periods specified in Rule 3-05(b) of Regulation S-X (17 CFR 210.3-05(b), including the Independent Auditor’s Report thereon.

(b) Pro forma financial information: Exhibit 99.2 attached hereto and incorporated by reference herein includes the following unaudited pro forma financial statements giving effect to the transaction pursuant to the Purchase Agreement described under Item 2.01 above:

 

•

Unaudited pro forma condensed consolidated balance sheet as of April 30, 2015;

 

•

Unaudited pro forma condensed consolidated statements of income (loss) for the six months ended April 30, 2015, and the year ended October 31, 2014; and

 

•

Notes to unaudited pro forma condensed consolidated financial statements

(d) Exhibits: The following exhibits are filed or furnished as part of this report:

Exhibits

 

 

*	Attached hereto

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

				QUANEX BUILDING PRODUCTS CORPORATION
Date: August 21, 2015				By:		/s/ Brent L. Korb
						Brent L. Korb
						Senior Vice President — Finance and Chief Financial Officer

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EXHIBIT INDEX

 

Exhibit Number		Description
2.1		Share Purchase Agreement relating to Flamstead Holdings Limited, dated June 15, 2015, by and among Quanex Building Products Corporation and the shareholders of Flamstead Holdings Limited (included as Exhibit 2.1 to Quanex Building Products Corporation’s Current Report on Form 8-K filed on June 16, 2015, and incorporated herein by reference).
23.1*		Consent of KPMG LLP
99.1*		Audited combined financial statements of Combined Flamstead Group as of December 31, 2014 and 2013 and for each of the years in the three-year period ended December 31, 2014.
99.2*		Unaudited pro forma condensed consolidated financial information.

 

*	Attached hereto

Exhibit 23.1

Consent of Independent Auditors

The Board of Directors

Flamstead Holdings Limited

We consent to the incorporation by reference in the registration statements (No. 333-150392, 333-173245 and 333-194812) on Form S-8 of Quanex Building Products Corporation of our report dated August 21, 2015, with respect to the combined balance sheets of the Combined Flamstead Group as of December 31, 2014 and 2013, and the related combined profit and loss accounts and cash flow statements for each of the years in the three-year period ended December 31, 2014, which report appears in the Form 8-K/A of Quanex Building Products Corporation to be filed on August 21, 2015.

 

(Signed) KPMG LLP

Nottingham, United Kingdom

August 21, 2015

Exhibit 99.1

Combined Flamstead Group

Combined financial statements

3 years ended 31 December 2014

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Combined Flamstead Group

Combined financial statements

3 years ended 31 December 2014

Contents

 

Independent auditor’s report			1
Combined profit and loss account			2
Combined balance sheet			3
Combined cash flow statement			4
Notes			5

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Combined Flamstead Group

Combined financial statements

3 years ended 31 December 2014

Independent auditor’s report

We have audited the accompanying combined financial statements of the Combined Flamstead Group which comprise the combined balance sheets as of December 31, 2014, and December 31, 2013, and the related combined statements of profit and loss and cash flows for each of the years in the three-year period ended December 31, 2014 and the related notes to the combined financial statements, which, as described in Note 1 to the combined financial statements, have been prepared on the basis of generally accepted accounting practice in the United Kingdom.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these combined financial statements in accordance with U.K. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of combined financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these combined financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the combined financial statements. The procedures selected depend on the auditors’ judgement, including the assessment of the risks of material misstatement of the combined financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the combined financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the combined financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of the Combined Flamstead Group as of December 31, 2014, and December 31, 2013, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2014, in accordance with generally accepted accounting principles in the United Kingdom.

Emphasis of matter

As discussed in Note 1 to the combined financial statements, the Combined Flamstead Group prepared its combined financial statements in accordance with generally accepted accounting practice in the United Kingdom which differs from U.S. generally accepted accounting principles. Our opinion is not modified with respect to this matter.

 

Nottingham, United Kingdom		(signed) KPMG LLP
August 21, 2015

 

1

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Combined Flamstead Group

Combined financial statements

3 years ended 31 December 2014

 

Combined profit and loss account

for the years ended 31 December 2012, 2013 and 2014

 

		Note				2012				2013				2014
						£				£				£
Group turnover			2				43,068,562				50,870,572				61,555,823
Changes in stocks of finished goods and work in progress							1,099,181				(358,974	)			775,380
Own work capitalised							354,881				216,143				202,305
Raw materials and consumables							(23,502,810	)			(26,053,395	)			(32,461,927	)
Staff costs			4				(9,306,445	)			(11,259,576	)			(12,825,816	)
Depreciation and amortisation			8,9				(2,150,417	)			(2,565,666	)			(2,801,025	)
Other operating charges							(6,420,451	)			(6,559,195	)			(6,908,164	)
Operating profit			3				3,142,501				4,289,909				7,536,576
Interest receivable			5				15,673				—				325
Interest payable and similar charges			6				(917,062	)			(954,885	)			(871,028	)
Profit on ordinary activities before taxation							2,241,112				3,335,024				6,665,873
Tax on profit on ordinary activities			7				(507,897	)			(448,739	)			(1,353,482	)
Profit for the period							1,733,215				2,886,285				5,312,391

There were no recognised gains and losses other than those disclosed in the profit and loss account, and therefore no separate statement of total recognised gains and losses has been presented.

There were no discontinued activities in any of the years.

 

2

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Combined Flamstead Group

Combined financial statements

3 years ended 31 December 2014

 

Combined balance sheet

as at 31 December 2013 and 2014

 

		Note				2013				2014
						£				£
Fixed assets
Intangible assets			8				291,684				537,052
Tangible assets			9				22,468,569				24,787,381
Investment property			10				—				238,492
							22,760,253				25,562,925
Current assets
Stocks			11				4,828,226				5,989,966
Debtors: amounts falling due within one year			12				6,791,239				8,004,237
Debtors: amounts falling due after more one year			12				—				191,135
Cash at bank and in hand							110,519				2,808,201
							11,729,984				16,993,539
Creditors: amounts falling due within one year			13				(13,406,114	)			(16,210,648	)
Net current assets / (liabilities)							(1,676,130	)			782,891
Total assets less current assets							21,084,123				26,345,816
Creditors: amounts falling due after more than one year			14				(8,657,836	)			(8,588,221	)
Provisions for liabilities			15				(673,668	)			(917,912	)
Net assets and invested equity			16				11,752,619				16,839,683

 

3

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Combined Flamstead Group

Combined financial statements

3 years ended 31 December 2014

 

Combined cash flow statement

for the year ended 31 December 2012, 2013 and 2014

 

		Note				2012				2013				2014
						£				£				£
Net cash flow from operating activities			17				4,634,075				6,585,095				8,816,812
Return on investments and servicing of finance			18				(901,389	)			(954,885	)			(1,096,030	)
Taxation							(6,410	)			(83,736	)			(241,352	)
Capital expenditure and financial investment			18				(2,802,951	)			(2,955,759	)			(3,001,281	)
Cash inflow before financing							923,325				2,590,715				4,478,149
Financing			18				228,579				(2,893,050	)			(1,780,467	)
Increase/(decrease) in cash in the period							1,151,904				(302,335	)			2,697,682

Reconciliation of net cash flow to movement in net debt

for the year ended 31 December 2012, 2013 and 2014

 

		Note				2012				2013				2014
						£				£				£
Increase/(decrease) in cash in the year							1,151,904				(302,335	)			2,697,682
Cash outflow from decrease in debt and lease financing							(222,180	)			2,893,050				1,780,467
Change in net debt resulting from cash flows							929,724				2,590,715				4,478,149
New finance lease							(1,535,983	)			(1,941,902	)			(2,636,719	)
Debt to equity conversion							750,000				122,370				—
Movement in net debt in the year							143,741				771,183				1,841,430
Net debt at start of year			19				(14,972,702	)			(14,828,961	)			(14,057,778	)
Net debt at end of year			19				(14,828,961	)			(14,057,778	)			(12,216,348	)

 

4

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Combined Flamstead Group

Combined financial statements

3 years ended 31 December 2014

 

Notes

(forming part of the financial statements)

 

1	Accounting policies

Basis of preparation

These combined financial statements have been prepared for the purpose of meeting the requirements of Rule 3-05 of Regulation S-X of the Securities Act of 1933, as amended, in connection with the filing of a Form 8-K/A by Quanex Building Products Corporation (‘Quanex’).

Throughout the periods presented, the Combined Flamstead Group did not exist as a legally constituted group. The combined financial statements have therefore been derived from the combination of the financial statements of the following entities:

 

•

Flamstead Holdings limited

 

•

H L Plastics Limited

 

•

Vintage Windows Limited

 

•

Wegoma Machinery Sales Limited

 

•

Liniar Limited

 

•

Tarpey Harris Limited

 

•

Flamstead Investments Limited

 

•

H L Ravenscroft Limited,

and presented in accordance with Generally Accepted Accounting Practice in the United Kingdom (‘UK GAAP’), to represent the financial position of the Combined Flamstead Group as though it were a single economic entity.

UK GAAP varies in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such differences is presented in note 26 to the Combined financial statements.

The directors of Flamstead Holdings Limited determined that this presentation represents the Combined Flamstead Group most appropriately based on several factors including that (1) Quanex acquired substantially all of the pre-acquisition business of the Combined Flamstead Group, and (2) the entities forming Flamstead, with the exception of Wegoma Machinery Sales Limited, which has been included from the acquisition date (see Note 24), have been under common control and management throughout the period covered by the financial statements.

The combined financial statements comprise an aggregation of the earnings, financial position and cash flows of the above mentioned entities after eliminating outstanding balances, investments, transactions and cash flows between such entities.

On August 21, 2015, the Board of Directors of Flamstead Holdings Limited approved the combined financial statements of the Combined Flamstead Group and authorised their issue.

 

5

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Combined Flamstead Group

Combined financial statements

3 years ended 31 December 2014

 

Notes (continued)

 

1	Accounting policies (continued)

 

Subsidiary undertakings

A subsidiary undertaking is an undertaking where the Company holds, either directly or indirectly, a controlling interest. These interests are included using the acquisition method of accounting. Under this method the results of subsidiary undertakings acquired or sold during the period are included in the combined profit and loss account from the date of acquisition or up to the date of disposal.

Joint venture undertakings

A joint venture undertaking is an undertaking where the Company does not hold a controlling interest but is one in which the Company has a long-term interest and where it can exercise joint control. In these instances the Group’s share of the profits or losses of joint ventures is included in the combined profit and loss account and its interest in the net assets is included under investments in the combined balance sheet.

Turnover

Turnover comprises revenue recognised by the company in respect of services supplied, exclusive of Value Added Tax and trade discounts. Turnover is recognised upon the transfer of risks and rewards to the customer. Additionally equipment is sold to certain profile customers on hire purchase terms and as the substantial risks and rewards of ownership have passed to the customer upon delivery, turnover and an associated hire purchase debtor are recognised in respect of these sales.

Intangible assets and goodwill

Purchased goodwill and development costs are stated at cost less amortisation. Amortisation is calculated so as to write off the cost of an asset over the useful economic life of that asset as follows:

 

Goodwill		-		5% - 20% on cost
Development costs		-		10% - 33% on cost
Customer lists		-		33% on cost

Tangible fixed assets and depreciation

Tangible fixed assets are stated at cost less depreciation. Depreciation is provided at rates calculated to write off the cost less estimated residual value of each asset over its expected useful life, as follows:

 

Leasehold improvements		-		over the term of the lease
Freehold buildings		-		2.5% on cost
Plant and machinery		-		8%-25% on cost
Fixtures and fittings		-		7%-33% on cost

Freehold land is not depreciated.

 

6

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Flamstead Group

Combined financial statements

3 years ended 31 December 2014

 

Notes (continued)

 

1	Accounting policies (continued)

 

Investment property

Investment properties are interests in land and buildings held for their investment potential with income to the company arising from the rental of such properties and capital appreciation.

Investment properties are included in the balance sheet at their open market value and are not subject to depreciation.

Formal valuations by an independent qualified surveyor are carried out every 5 years or when the directors consider that a significant change in valuation could reasonably have arisen. At intervening period ends the valuation is determined by the directors.

Changes in the valuation of investment properties are taken to the statement of total recognised gains and losses and recognised in an investment revaluation reserve within capital and reserves on the balance sheet.

Hire purchase

Assets acquired under finance leases are capitalised and the outstanding future lease obligations are shown in creditors net of the finance charge allocated to future periods.

Operating lease rentals are charged to the profit and loss account on a straight line basis over the period of the lease.

Stocks

Stocks are stated at the lower of cost and net realisable value after making due allowance for obsolete and slow moving stocks on the following basis:

Raw materials, consumables and goods for resale are valued on a first in, first out basis.

For work in progress and finished goods, cost is taken as production cost, which includes an appropriate proportion of attributable overheads.

Deferred taxation

Full provision is made for deferred tax assets and liabilities arising from all timing differences between the recognition of gains and losses in the financial statements and recognition in the tax computation.

A net deferred tax asset is recognised when it is more likely than not that there will be future taxable profits.

Provision is made at the tax rates expected to apply at the time the liabilities crystallise.

Foreign currencies

Monetary assets and liabilities denominated in foreign currencies are translated into sterling at rates of exchange ruling at the balance sheet date.

Transactions in foreign currencies are translated into sterling at the rate ruling on the date of the transaction.

Pension contributions

The company operates a defined contribution pension scheme. The assets of the scheme are held separately from those of the company in an independently administered fund. The amount charged to the profit and loss account represents the contributions payable to the scheme in respect of the accounting period.

 

7

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Combined Flamstead Group

Combined financial statements

3 years ended 31 December 2014

 

Notes (continued)

 

2

Turnover

The geographical analysis of turnover is as follows:

 

		2012				2013				2014
		£				£				£
United Kingdom			40,564,819				47,697,362				58,382,364
Other European Union			2,082,536				2,930,657				3,014,273
Rest of World			421,207				242,553				159,186
			43,068,562				50,870,572				61,555,823

 

3	Operating profit

 

		2012				2013				2014
		£				£				£
Operating profit is stated after charging/(crediting)
Amortisation of intangible assets			216,636				278,596				173,208
Depreciation of tangible assets:
Owned by the group			1,475,122				1,588,369				1,944,160
Held under finance leases			458,659				698,701				683,657
Loss / (profit) on sale of fixed assets			(1,667	)			(42,601	)			18,188
Foreign exchange losses/(gains)			(6,695	)			62,374				(59,353	)
Operating lease rentals:
Plant and machinery			100,907				195,572				207,642
Other			213,750				375,000				331,050

 

4	Staff costs

Group staff costs, including directors’ remuneration, were as follows:

 

		2012				2013				2014
		£				£				£
Wages and salaries			8,334,865				9,834,420				11,499,081
Social security costs			825,667				963,988				1,085,978
Other pension costs			145,913				461,168				240,757
			9,306,445				11,259,576				12,825,816

The average number of employees, including directors, during the year was as follows:

 

		2012				2013				2014
		Number				Number				Number
Management			3				3				5
Administration			27				27				35
Selling and distribution			31				38				42
Production (including management)			277				332				393
			338				400				475

 

8

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Combined Flamstead Group

Combined financial statements

3 years ended 31 December 2014

 

Notes (continued)

 

5	Interest receivable

 

		2012				2013				2014
		£				£				£
Other interest receivable			15,673				—				325

 

6	Interest payable and similar charges

 

		2012				2013				2014
		£				£				£
On bank loans and overdrafts			558,555				558,225				454,242
On other loans			553				—				15,228
On hire purchase contracts			182,362				212,437				240,996
Other interest (see note 14)			175,592				184,223				160,562
			917,062				954,885				871,028

 

7

Taxation

Analysis of tax charge in the year

 

		2012				2013				2014
		£				£				£
UK corporation tax
Current tax on income for the year			85,839				242,936				1,119,397
Adjustments in respect of prior years			30,585				(2,103	)			(6,159	)
Total current tax			116,424				240,833				1,113,238
Deferred tax charge
Origination/reversal of timing differences			391,482				213,375				152,018
Adjustments in respect of prior years			(9	)			(5,469	)			88,226
Tax on profit on ordinary activities			507,897				448,739				1,353,482

 

9

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Combined Flamstead Group

Combined financial statements

3 years ended 31 December 2014

 

Notes (continued)

 

7	Taxation (continued)

 

Factors affecting tax charge for the year

The tax assessed for the year is lower (2013: lower; 2012: lower) than the standard rate of corporation tax in the UK of 21.45% (2013: 23.25%; 2012: 24.5%). The differences are explained below:

 

		2012				2013				2014
		£				£				£
Profit on ordinary activities before tax			2,241,112				3,335,024				6,665,873
Current tax at 21.49% (2013: 23.25%, 2012: 24.5%)			548,712				774,237				1,431,697
Effects of:
Expenses not deductible for tax purposes			59,226				48,828				40,801
Capital allowances in excess of depreciation			(39,018	)			(105,155	)			(25,525	)
Other timing differences			25,740				57,037				(9,773	)
Research and development tax credits			(118,130	)			(201,157	)			(99,818	)
Deduction for profits attributable to patented products			—				(55,792	)			(204,840	)
Losses utilised			(381,959	)			(288,953	)			(10,449	)
Fixed asset differences			—				17,483				—
Benefit of small companies rate band			—				(3,592	)			(2,696	)
Marginal relief			(8,732	)			—				—
Adjustments in respect of prior years			30,585				(2,103	)			(6,159	)
Current tax charge for the period			116,424				240,833				1,113,238

Factors that may affect future tax charges

The group has no further trading losses to carry forward (2013: £462,000; 2012: £1,766,000).

The Budget on 20 March 2013 announced that the UK corporation tax rate will reduce to 20% by 2015.

Reductions in the UK corporation tax rate from 23% to 21% (effective from 1 April 2014) and 20% (effective from 1 April 2015) were substantively enacted on 2 July 2013. This will reduce the company’s future tax rate accordingly. The deferred tax liability as at 31 December 2014 has been calculated based on the rate of 20% substantively enacted at the balance sheet date.

 

10

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Combined Flamstead Group

Combined financial statements

3 years ended 31 December 2014

 

Notes (continued)

 

8	Intangible fixed assets

 

		Customer								Development
		lists				Goodwill				costs				Total
		£				£				£				£
Cost
At 1 January 2013			81,642				241,317				684,038				1,006,997
Additions			—				—				8,280				8,280
At 31 December 2013			81,642				241,317				692,318				1,015,277
At 1 January 2014			81,642				241,317				692,318				1,015,277
Additions			—				150,000				268,576				418,576
At 31 December 2014			81,642				391,317				960,894				1,433,853
Accumulated amortisation
At 1 January 2013			34,057				90,640				320,300				444,997
Charge for the year			15,328				12,090				251,178				278,596
At 31 December 2013			49,385				102,730				571,478				723,593
At 1 January 2014			49,385				102,730				571,478				723,593
Charge for the year			15,329				17,090				140,789				173,208
At 31 December 2014			64,714				119,820				712,267				896,801
Net book value
At 31 December 2013			32,257				138,587				120,840				291,684
At 31 December 2014			16,928				271,497				248,627				537,052

 

11

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Combined Flamstead Group

Combined financial statements

3 years ended 31 December 2014

 

Notes (continued)

 

9	Tangible fixed assets

 

		Land and				Plant and				Fixtures				Assets under
		buildings				equipment				and fittings				construction				Total
		£				£				£				£				£
Cost
At 1 January 2013			7,982,006				17,743,930				3,386,032				300,991				29,412,959
Additions			581,752				4,068,658				196,417				173,415				5,020,242
Commissioned			—				335,685				—				(335,685	)			—
Disposals			(57,999	)			(725,537	)			(227,124	)			(33,360	)			(1,044,020	)
At 31 December 2013			8,505,759				21,422,736				3,355,325				105,361				33,389,181
At 1 January 2014			8,505,759				21,422,736				3,355,325				105,361				33,389,181
Acquisitions			—				11,575				—				—				11,575
Additions			95,461				4,330,131				635,139				25,000				5,085,731
Commissioned			—				91,564				—				(91,564	)			—
Disposals			—				(613,019	)			—				(13,797	)			(626,816	)
At 31 December 2014			8,601,220				25,242,987				3,990,464				25,000				37,859,671
Accumulated depreciation
At 1 January 2013			656,905				7,312,669				1,619,728				—				9,589,302
Charge for the year			194,731				1,684,717				407,622				—				2,287,070
Disposals			(53,366	)			(688,859	)			(213,535	)			—				(955,760	)
At 31 December 2013			798,270				8,308,527				1,813,815				—				10,920,612
At 1 January 2014			798,270				8,308,527				1,813,815				—				10,920,612
Charge for the year			209,975				1,986,242				431,600				—				2,627,817
Disposals			—				(476,139	)			—				—				(476,139	)
At 31 December 2014			1,008,245				9,818,630				2,245,415				—				13,072,290

 

12

---

Combined Flamstead Group

Combined financial statements

3 years ended 31 December 2014

 

Notes (continued)

 

9	Tangible fixed assets (continued)

 

 

		Land and				Plant and				Fixtures				Assets under
		buildings				equipment				and fittings				construction				Total
		£				£				£				£				£
Net book value
At 31 December 2013			7,707,489				13,114,209				1,541,510				105,361				22,468,569
At 31 December 2014			7,592,975				15,424,357				1,745,049				25,000				24,787,381

Included above are assets held under finance leases or hire purchase contracts as follows:

 

		2013				2014
		£				£
Plant and machinery:
Net book values			5,720,226				5,777,366

 

10	Investment property

 

		Valuation
		£
Cost
At 1 January 2014			—
Additions			238,492
At 31 December 2014			238,492

The property was purchased during the year and as such the directors consider that there is no change in valuation between date of purchase and the year end.

 

11	Stocks and work in progress

 

		2013				2014
		£				£
Group
Raw materials and consumables			1,052,292				1,443,166
Work in progress			254,761				253,880
Finished goods and goods for resale			3,521,173				4,292,920
			4,828,226				5,989,966

 

13

---

Combined Flamstead Group

Combined financial statements

3 years ended 31 December 2014

 

Notes (continued)

 

12

Debtors

 

		2013				2014
		£				£
Due within one year:
Trade debtors			5,352,809				6,114,055
Hire purchase debtors			321,303				140,792
Owed by associated undertakings			219,535				112,000
Other debtors			407,524				1,197,687
Prepayments and accrued income			490,068				439,703
			6,791,239				8,004,237
Due after more than one year:
Hire purchase debtors			—				191,135
			6,791,239				8,195,372

Certain of the Group’s trade debtors are secured under an invoice discounting facility.

 

13	Creditors: amounts falling due within one year

 

		2013				2014
		£				£
Shareholder loans			120,000				120,000
Finance leases			1,038,216				1,313,402
Bank loan			456,594				683,906
Trade finance facility			4,051,816				4,419,020
Trade creditors			4,474,223				4,993,551
Owed to associated undertakings			29,800				—
Corporation tax			242,936				1,114,822
Social security and other taxes			1,649,060				1,812,694
Other creditors			183,913				156,085
Accruals and deferred income			1,159,556				1,597,168
			13,406,114				16,210,648

The finance leases and other loans are secured on the fixed assets to which they relate.

 

14	Creditors: amounts falling due after more than one year

 

		2013				2014
		£				£
Shareholder loans			2,216,015				1,945,602
Bank loans			3,163,060				2,629,086
Finance leases			1,754,626				2,913,533
Other loans and related party loans			1,367,970				1,000,000
Other creditors			156,165				100,000
			8,657,836				8,588,221

 

14

---

Combined Flamstead Group

Combined financial statements

3 years ended 31 December 2014

 

Notes (continued)

 

14	Creditors: amounts falling due after more than one year (continued)

 

Included within the above are amounts falling due as follows:

 

		2013 £				2014 £
Between one and two years:
Bank loans			456,594				383,813
Shareholder loans			120,000				120,000
Other creditors			156,165				30,000
Other loans			367,970				—
Between two and five years
Bank loans			1,265,082				1,240,890
Shareholder loans			360,000				360,000
Other creditors			—				70,000
Over five years:
Bank loans			1,441,384				1,004,383
Shareholder loans			1,736,015				1,465,602
Related party loans			1,000,000				1,000,000

Net obligations under hire purchase contracts are secured on the fixed assets to which they relate and are all due within five years.

The shareholder loans falling due after one year represent £0.6 million (2013: £0.5 million) and £1.4 million (2013: £1.6 million) due to Mr M Bosworth and Mr R L Hartshorn, respectively. The related party loan represents £0.5 million due to each of Mr Bosworth’s sons. The shareholder and the related party charged interest of £160,649 on their outstanding loans (2013: £175,643; 2012: £175,592)

 

15	Provisions for liabilities

 

		2013 £				2014 £
Deferred taxation liability			673,668				913,912
Property related provisions			—				4,000
			673,668				917,912

Provision for deferred taxation

 

		Provision £
At 31 December 2012			465,762
Charge to the profit and loss account			207,906
At 31 December 2013			673,668
Charge to the profit and loss account			240,244
At 31 December 2014			913,912

 

15

---

Combined Flamstead Group

Combined financial statements

3 years ended 31 December 2014

 

Notes (continued)

 

15	Provisions for liabilities (continued)

 

The provision is made up as follows:

 

		2013				2014
		£				£
Accelerated capital allowances			881,474				974,798
Tax losses			(138,141	)			—
Other short term timing differences			(69,665	)			(60,886	)
			673,668				913,912

 

16	Reconciliation of movement in invested equity

 

		2013				2014
		£				£
Profit for the period			2,886,285				5,312,391
Contributions from/(distributions to) investors			122,370				(225,327	)
Net movement in invested equity			3,008,655				5,087,064
Opening invested equity			8,743,964				11,752,619
Closing invested equity			11,752,619				16,839,683

 

17	Net cash flow from operating activities

 

		2012				2013				2014
		£				£				£
Operating profit			3,142,501				4,289,909				7,536,576
Amortisation of intangible fixed assets			216,636				278,596				173,208
Depreciation of tangible fixed assets			1,933,781				2,287,070				2,627,817
Loss/(profit) on disposal of tangible fixed assets			(1,667	)			(42,601	)			18,188
(Increase)/decrease in stocks			(1,124,325	)			430,449				(1,015,625	)
(Increase)/decrease in debtors			(1,719,085	)			57,585				(1,404,133	)
Increase/(decrease) in creditors			2,186,234				(715,913	)			880,781
Net cash inflow from operating activities			4,634,075				6,585,095				8,816,812

 

16

---

Combined Flamstead Group

Combined financial statements

3 years ended 31 December 2014

 

Notes (continued)

 

18	Analysis of cash flows for headings netted in cash flow statement

 

		2012				2013				2014
		£				£				£
Returns on investments and servicing of finance
Interest received			15,673				—				325
Interest paid			(917,062	)			(954,885	)			(871,028	)
Dividend paid			—				—				(225,327	)
			(901,389	)			(954,885	)			(1,096,030	)
Capital expenditure and financial investment
Acquisition of business			—				—				(177,690	)
Purchase of intangible fixed assets			(68,200	)			(8,280	)			(268,576	)
Purchase of tangible fixed assets			(2,859,418	)			(3,078,340	)			(2,687,504	)
Sale of tangible fixed assets			124,667				130,861				132,489
			(2,802,951	)			(2,955,759	)			(3,001,281	)
Financing
New secured loans			523,500				—				152,750
Repayment of bank loans			(328,137	)			(445,211	)			(459,412	)
Repayment of other loans			(332,686	)			(513,181	)			(637,021	)
New other loans (movement on asset-based borrowings)			1,374,603				(639,441	)			365,842
Repayment of finance lease			(1,008,701	)			(1,295,217	)			(1,202,626	)
			228,579				(2,893,050	)			(1,780,467	)

 

19	Analysis of change in net debt

 

		1 January 2012 £				Cash flow £				Other changes £				31 December 2012 £
Cash at bank and in hand			52,942				542,576				—				595,518
Bank overdraft			(791,992	)			609,328				—				(182,664	)
			(739,050	)			1,151,904				—				412,854
Debt
Finance leases			(1,618,875	)			1,008,701				(1,535,983	)			(2,146,157	)
Debts due:
Within one year			(4,935,268	)			(319,634	)			—				(5,254,902	)
After more than one year			(7,679,509	)			(911,247	)			750,000				(7,840,756	)
			(14,972,702	)			929,724				(785,983	)			(14,828,961	)

 

17

---

Combined Flamstead Group

Combined financial statements

3 years ended 31 December 2014

 

Notes (continued)

 

19	Analysis of change in net debt (continued)

 

 

		1 January 2013 £				Cash flow £				Other changes £				31 December 2013 £
Cash at bank and in hand			595,518				(484,999	)			—				110,519
Bank overdraft			(182,664	)			182,664				—				—
			412,854				(302,335	)			—				110,519
Debt
Finance leases			(2,146,157	)			1,295,217				(1,941,902	)			(2,792,842	)
Debts due:
Within one year			(5,254,902	)			626,492				—				(4,628,410	)
After more than one year			(7,840,756	)			971,341				122,370				(6,747,045	)
			(14,828,961	)			2,590,715				(1,819,532	)			(14,057,778	)
		1 January 2014 £				Cash flow £				Other changes £				31 December 2014 £
Cash at bank and in hand			110,519				2,697,682				—				2,808,201
			110,519				2,697,682				—				2,808,201
Debt
Finance leases			(2,792,842	)			1,202,626				(2,636,719	)			(4,226,935	)
Debts due:
Within one year			(4,628,410	)			(594,516	)			—				(5,222,926	)
After more than one year			(6,747,045	)			1,172,357				—				(5,574,688	)
			(14,057,778	)			4,478,149				(2,636,719	)			(12,216,348	)

Net debt includes £3.1 million of shareholder/related party loans (2013: £3.3 million 2012: £3.6 million).

 

20	Capital commitments

At 31 December, the Group had capital commitments as follows:

 

		2012 £				2013 £				2014 £
Contracted for but not provided for in these financial statements			1,329,416				667,216				928,421

 

21

Pensions

The Group operates a defined contribution scheme. The assets of the scheme are held separately from those of the company in an independently administered fund.

 

		2012 £				2013 £				2014 £
Pension costs			145,913				461,168				240,757

 

18

---

Combined Flamstead Group

Combined financial statements

3 years ended 31 December 2014

 

Notes (continued)

 

22	Operating lease commitments

At 31 December, the Group was committed to making the following payments under non-cancellable operating leases in the following year:

 

		Land and buildings												Equipment hire
		2012 £				2013 £				2014 £				2012 £				2013 £				2014 £
Expiring:
Within one year			96,250				—				—				5,505				41,170				41,116
Within two to five years			120,000				120,000				148,000				89,754				124,637				36,863
Over five years			255,000				255,000				255,000				—				—				—
			471,250				375,000				403,000				95,259				165,807				77,979

 

23	Related party transactions

Advantage has been taken of the exemption provided by FRS 8 not to disclose transactions with fellow group companies.

Warehouse and land rental payments of £141,500 were made to Garner Investments LLP (a company owned by Mr & Mrs R Hartshorn) in full settlement in respect of the year ended 31 December 2014 (2013: £255,000; 2012: £63,750).

Warehouse and land rental payments of £141,500 were made to Garner Properties Limited (a company owned by Mr & Mrs R Hartshorn) in full settlement in respect of the year ended 31 December 2014 (2013: £nil, 2012: £nil).

Premises rental payments of £120,000 were made to Marlborough House Properties (a company owned by Mr R Hartshorn and Mr M Bosworth) in full settlement in respect of the year ended 31 December 2014 (2013: £120,000; 2012: £54,176).

The group traded with Mr L A and Mrs S Hartshorn, a business controlled by Mr R Hartshorn’s father and mother.

The transactions during the period, which were on an arm’s length basis, are as follows:

 

		2012 £				2013 £				2014 £
Purchases			5,476				10,227				5,242
Creditor at 31 December							981				820

In 2012 a portion of land on the Denby site was sold at cost for £116,667 to Garner Investments LLP, a company owned by Mr & Mrs Hartshorn. This debt was transferred to Garner Properties Limited on 30 June 2014. The amount of £112,000 (including VAT at 20%) remains outstanding as at 31 December 2014.

Goods were purchased in the year from Mr Gary Cooke, who is the brother of Mr Alan Cooke (a Director of Vintage Windows) to the value of £1,000 (2013: £nil; 2012: £nil). The balance outstanding at the year end, and included within trade creditors, is £1,000 (2013: £nil).

 

19

---

Combined Flamstead Group

Combined financial statements

3 years ended 31 December 2014

 

Notes (continued)

 

24	Acquisitions

On 1 May 2014 Wegoma Machinery Sales Limited acquired 51% of the trade and assets of Wegoma GB Limited. The resulting goodwill of £150,000 was capitalised and will be written off over 20 years. The reasons for selecting that period are that the directors expect the benefits arising from the acquisition to continue for an extended period.

 

		Book value £000				Fair value £000
Fixed assets
Tangible			11,575				11,575
Current assets
Stock			146,115				146,115
Total assets			157,690				157,690
Goodwill							150,000
							307,690
Purchase consideration and costs of acquisition
Cash on completion							157,690
Deferred cash consideration							150,000
							307,690

No fair value adjustments arose. Deferred consideration is payable in equal annual instalments of £30,000.

 

25	Post balance sheet events

On 15 June 2015, Quanex Building Products Corporation, a Delaware corporation, acquired, following a pre-sale reorganization, substantially all of the Combined Flamstead Group for a consideration of £95 million. The results of the acquired entities forming substantially all of the Combined Flamstead Group from 15 June 2015 are consolidated within the financial statements of Quanex Building Products Corporation.

 

20

---

Combined Flamstead Group

Combined financial statements

3 years ended 31 December 2014

 

Notes (continued)

 

26	Summary of significant differences between accounting practice generally accepted in the United Kingdom (UK GAAP) and accounting principles generally accepted in the United States of America (US GAAP)

The accompanying combined financial statements of the Flamstead Group have been prepared in accordance with UK GAAP as described in Note 1. UK GAAP differs in certain respects from the requirements of US GAAP. The effects of the application of US GAAP to the combined Flamstead results and invested equity and cash flow as determined under UK GAAP are set out below:

 

		Profit and loss
		Year ended 31 December
		2013				2014
		£				£
UK GAAP
Profit after taxation for the year			2,886,285				5,312,391
US GAAP adjustments
1. Goodwill			12,090				17,090
2. Research and development			1,634				5,226
3. Finance leases			(565	)			(227	)
4. Derivatives			—				(19,997	)
5. Provisions			8,517				12,834
Total US GAAP adjustments			21,676				14,926
Results under US GAAP			2,907,961				5,327,317
		Invested equity
		Year ended 31 December
		2013				2014
		£				£
UK GAAP
Invested equity			11,752,619				16,839,683
US GAAP adjustments
1. Goodwill			102,730				119,820
2. Research and development			(8,870	)			(3,644	)
3. Finance leases			(10,051	)			(10,278	)
4. Derivatives			—				(19,997	)
5. Provisions			8,517				21,351
Total US GAAP adjustments			92,326				107,252
Invested equity under US GAAP			11,844,945				16,946,935

 

		Cash flow Year ended 31 December
						2013												2014
		Operating				Investing				Financing				Operating				Investing				Financing
		activities				activities				activities			activities				activities				activities
		£				£				£				£				£				£
UK GAAP			6,585,095				(2,955,759	)			(2,893,050	)			8,816,812				(3,001,281	)			(1,780,467	)
US GAAP adjustments Reclassifications
Dividends paid			—				—				—				—				—				(225,327	)
Interest received			—				—				—				325				—				—
Interest paid			(954,885	)			—				—				(871,028	)			—				—
Tax paid			(83,736	)			—				—				(241,352	)			—				—
2 Research and development			(3,304	)			3,304				—				—				—				—
3 Finance leases			74,575				(1,500	)			(73,075	)			85,158				—				(85,158	)
Total US GAAP adjustments			(967,350	)			1,804				(73,075	)			(1,026,897	)			—				(310,485	)
Cash flows under US GAAP			5,617,745				(2,953,955	)			(2,966,125	)			7,789,915				(3,001,281	)			(2,090,952	)

 

21

---

Combined Flamstead Group

Combined financial statements

3 years ended 31 December 2014

 

Notes (continued)

 

26	Summary of significant differences between accounting practice generally accepted in the United Kingdom and accounting principles generally accepted in the United States of America (continued)

 

1. Goodwill

Under UK GAAP, goodwill is amortised over its estimated economic life, not to exceed 20 years.

Under US GAAP, goodwill is not amortised but instead tested at least annually for impairment or more frequently if impairment indicators exist. The adjustment reverses the goodwill previously amortised.

2. Research and development

Under UK GAAP it is permissible to capitalise research and development expenditure if certain criteria are met with the capitalised expenditure then amortised over the period to which economic benefit is expected to be derived.

Under US GAAP expenditure on research and development is typically expensed. The adjustment removes the previously capitalised expenditure and reverses the amortisation that was charged.

3. Finance leases

Under UK GAAP leases are classified as either operating or finance leases based on the guidance in SSAP21 Accounting for leases and hire purchase contracts.

Under US GAAP leases are classified in accordance with ASC 840-10-25. This sets out particular criteria and bright line tests that indicate the existence of a finance lease. Utilising the criteria in ASC 840-10-25 a number of leases have been reclassified from operating leases to finance leases resulting in an increase in recorded liabilities and an additional charge to the profit and loss account.

4. Derivatives

Under UK GAAP derivatives are not required to be carried at fair value.

Under US GAAP derivatives must be measured and recorded at their fair value. The adjustment represents the fair value of foreign currency derivatives held at 31 December.

5. Provisions

Under UK GAAP the provision for credit notes is based on historic credit note rates and is not specific to individual sales.

Under US GAAP provisions must be specific in nature and the adjustment removes these provisions.

6. Taxation

No adjustments have been included for tax, as given the value of these GAAP differences, the amounts involved are not considered material.

 

22

Exhibit 99.2

Unaudited Pro Forma Condensed Consolidated Financial Information

Basis of Presentation

The accompanying unaudited pro forma condensed consolidated balance sheet and statements of income (loss) were prepared based on the historical financial information of Quanex, Flamstead and the Subsidiaries, and gives effect to the purchase transaction which occurred on June 15, 2015, for $133.0 million in cash, net of cash acquired, subject to customary purchase price adjustments.

Prior to the transaction, Flamstead Holdings Limited held 100% of the outstanding equity interests in HL Plastics Limited; Flamstead Investments Limited; HL Ravenscroft Limited; Tarpey-Harris Limited; and Liniar Limited; as well as a majority interest in Wegoma Machinery Sales Limited and a 50% joint venture interest in Vintage Windows Limited. As described in the Purchase Agreement and immediately prior to the transaction, Flamstead Holdings Limited acquired the minority interest in Wegoma Machinery Sales Limited and the remaining 50% joint venture interest in Vintage Windows Limited (referred collectively as the (“Combined Flamstead Group”), and sold its interest in Flamstead Investments Limited, HL Ravenscroft Limited and Tarpey-Harris Limited (referred to as the “Entities Not Acquired”). Results for the Combined Flamstead Group less the Entities Not Acquired are deemed to be “Acquired Flamstead”. We evaluated this acquisition in accordance with the “significance tests” prescribed by the Securities and Exchange Commission Rules, and determined that the acquisition is significant to us. In addition, we determined that we acquired substantially all of the net assets of the Flamstead Group.

Quanex and the Combined Flamstead Group have different fiscal year ends (October 31 and December 31, respectively). In addition, the financial information of the Combined Flamstead Group has historically been reported under generally accepted accounting principles in the United Kingdom and denominated in British pounds sterling. For purposes of our pro forma presentation, we have adjusted these results to reflect generally accepted accounting principles in the United States of America, and have converted to our reporting currency, United States dollars. Consistent with our accounting policy, we translate the balance sheet at the exchange rate on the balance sheet date, and translate the statements of income (loss) using the average exchange rate for the applicable period.

The unaudited pro forma balance sheet at April 30, 2015, reflects the pro forma effect of the purchase transaction as if the transaction was consummated on that date. The unaudited pro forma condensed consolidated statements of income (loss) for the six month period and the twelve-month period reflect the pro forma effect of the purchase transaction as if the transaction was consummated on November 1, 2013. In order to present a consolidated pro forma balance sheet, we have included the historical balance sheet of Quanex, which was included in our Quarterly Report on Form 10-Q for the quarter ended April 30, 2015, and the combined balance sheet for the Acquired Flamstead as of June 15, 2015, which was prepared from historical information. To present the pro forma consolidated statements of income (loss) for the six-month period, we have included the historical statement of income (loss) for Quanex for the six months ended April 30, 2015 and the combined statement of income (loss) for the Acquired Flamstead for the period January 1, 2015, through June 15, 2015. We determined that it was impractical to obtain the full six-month period ended June 30, 2015 as combined financial information for the Combined Flamstead Group was not available, from which to derive amounts for the Entities Not Acquired. If we had included the results for the Acquired Flamstead for the full six-month period ended June 30, 2015, we project that the pro forma impact would have been an increase in revenue of $4.6 million and an increase in pro forma net income of $0.7 million. In order to present the pro forma consolidated statements of income (loss) for the year ended October 31, 2014, we have included the historical statement of income (loss) of Quanex for the year ended October 31, 2014 which was included in our Annual Report on Form 10-K for the fiscal year ended October 31, 2014, and the combined statement of income (loss) for the Acquired Flamstead for the year ended December 31, 2014 (as derived from audited financial statements of the Combined Flamstead Group, adjusted for the unaudited results of the Entities Not Acquired, adjusted to align with presentation under generally accepted accounting principles in the United States of America, and translated to United States dollars). The accompanying unaudited pro forma condensed consolidated financial information for Quanex should be read in conjunction with the consolidated financial statements and notes thereto included in the referenced filings, and the audited combined financial statements of the Combined Flamstead Group accompanying this amended Current Report on Form 8-K/A.

The unaudited pro forma condensed consolidated balance sheet and statements of income (loss) are presented in tabular format as follows: (i) historical consolidated results, as previously filed; (ii) plus results of the Combined Flamstead Group; (iii) less results of the Entities Not Acquired; (iv) plus pro forma adjustments, to arrive at the pro forma results.

The unaudited pro forma condensed consolidated balance sheet and statements of income (loss) include pro forma adjustments which reflect transactions and events that are directly attributable to the transaction and are factually supportable. These pro forma adjustments are described in the notes which accompany these unaudited pro forma condensed consolidated financial statements.

---

QUANEX BUILDING PRODUCTS CORPORATION

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

AS OF APRIL 30, 2015

 

		Quanex As Reported				Combined Flamstead Group				Entities Not Acquired				Pro Forma Adjustments (a)				Pro Forma
		As of 4/30/15				As of 6/15/15				As of 6/15/15				As of 4/30/15				As of 4/30/15
		(In thousands)
ASSETS
Current assets:
Cash and cash equivalents		$	60,030			$	1,869			$	(390	)		$	(41,645	)		$	19,864
Accounts receivable, net			50,210				19,391				(1,087	)			(6,200	)			62,314
Inventories, net			62,994				11,180				(433	)			4,555				78,296
Deferred income taxes			23,684				—				—				—				23,684
Prepaid and other current assets			5,433				798				(75	)			—				6,156
Total current assets			202,351				33,238				(1,985	)			(43,290	)			190,314
Property, plant and equipment, net			111,113				41,131				(12,891	)			50				139,403
Deferred income taxes			7,367				—				—				—				7,367
Goodwill			68,788				754				(132	)			60,137				129,547
Intangible assets, net			65,648				317				—				62,004				127,969
Other assets			5,620				1,680				—				—				7,300
Total assets		$	460,887			$	77,120			$	(15,008	)		$	78,901			$	601,900
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	36,328			$	9,760			$	(385	)		$	—			$	45,703
Accrued liabilities			26,006				16,547				(8,577	)			(1,354	)			32,622
Income tax payable			—				1,221				(246	)			(27	)			948
Current maturities of long-term debt			179				2,406				—				—				2,585
Total current liabilities			62,513				29,934				(9,208	)			(1,381	)			81,858
Long-term debt			455				5,440				(173	)			91,359				97,081
Deferred pension and postretirement benefits			5,949				—				—				—				5,949
Liability for uncertain tax positions			548				—				—				—				548
Long-term deferred tax liabilities			—				1,417				(44	)			13,349				14,722
Other liabilities			11,174				8,394				314				1,611				21,493
Total liabilities			80,639				45,185				(9,111	)			104,938				221,651
Commitments and contingencies
Stockholders’ equity			380,248				31,935				(5,897	)			(26,037	)			380,249
Total liabilities and stockholders’ equity		$	460,887			$	77,120			$	(15,008	)		$	78,901			$	601,900

See accompanying notes to unaudited pro forma condensed consolidated financial statements

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QUANEX BUILDING PRODUCTS CORPORATION

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME (LOSS)

FOR THE SIX-MONTH PERIOD

 

		Quanex As Reported				Combined Flamstead Group				Entities Not Acquired				Pro Forma Adjustments				Pro Forma
		Six Months Ended 4/30/15				Period 1/1/15 to 6/15/15				Period 1/1/15 to 6/15/15				Six Months Ended 4/30/15				Six-Month Period
		(In thousands, except per share data)
Net sales		$	269,863			$	45,002			$	(2,087	)		$	—			$	312,778
Cost and expenses:
Cost of sales (exclusive of items shown separately below)			216,616				30,003				(1,262	)			—				245,357
Selling, general and administrative			39,134				5,798				(455	)			—				44,477
Depreciation and amortization			16,039				2,278				(254	)			1,549	(b)			19,612
Asset impairment charges			—				—				—				—				—
Operating income (loss)			(1,926	)			6,923				(116	)			(1,549	)			3,332
Non-operating income (expense):
Interest income (expense)			(286	)			(438	)			116				(498	) (c)			(1,106	)
Other, net			(266	)			592				(7	)			118	(d)			437
Income (loss) before income taxes			(2,478	)			7,077				(7	)			(1,929	)			2,663
Income tax benefit (expense)			1,678				(1,197	)			46				443	(e)			970
Net income (loss) from continuing operations		$	(800	)		$	5,880			$	39			$	(1,486	)		$	3,633
Earnings (loss) per common share:
Basic		$	(0.02	)														$	0.11
Diluted		$	(0.02	)														$	0.10
Weighted-average common shares outstanding:
Basic			34,362																34,362
Diluted			34,362																34,921

See accompanying notes to unaudited pro forma condensed consolidated financial statements

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QUANEX BUILDING PRODUCTS CORPORATION

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME (LOSS)

FOR THE TWELVE-MONTH PERIOD

 

		Consolidated As Reported				Combined Flamstead Group (f)				Entities Not Acquired				Pro Forma Adjustments				Pro Forma
		Year Ended 10/31/14				Year Ended 12/31/14				Year Ended 12/31/14				Year Ended 10/31/14				Twelve-Month Period
		(In thousands, except per share data)
Net sales		$	595,384			$	101,524			$	(5,418	)		$	—			$	691,490
Cost and expenses:
Cost of sales (exclusive of items shown separately below)			464,584				71,719				(3,087	)			—				533,216
Selling, general and administrative			82,150				12,733				(840	)			—				94,043
Depreciation and amortization			33,869				4,708				(568	)			2,215	(b)			40,224
Asset impairment charges			505				—				—				—				505
Operating income (loss)			14,276				12,364				(923	)			(2,215	)			23,502
Non-operating income (expense):
Interest income (expense)			(562	)			(1,449	)			506				(1,135	) (c)			(2,640	)
Other, net			92				98				(1	)			5,622	(d)			5,811
Income (loss) before income taxes			13,806				11,013				(418	)			2,272				26,673
Income tax benefit (expense)			(5,468	)			(2,231	)			216				(1,127	) (e)			(8,610	)
Net income (loss)		$	8,338			$	8,782			$	(202	)		$	1,145			$	18,063
Earnings (loss) per common share:
Basic		$	0.22															$	0.49
Diluted		$	0.22															$	0.48
Weighted-average common shares outstanding:
Basic			37,128																37,128
Diluted			37,679																37,679

See accompanying notes to unaudited pro forma condensed consolidated financial statements

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Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements

The following adjustments are included in the unaudited pro forma condensed consolidated balance sheet and/or statements of income (loss):

 

(a)

The unaudited pro forma condensed consolidated balance sheet at April 30, 2015 presents the preliminary purchase price allocation for the purchase reflecting consideration paid of $133.0 million, net of cash acquired, resulting in goodwill of approximately $60.1 million, other intangible assets of approximately $62.0 million, long-term deferred tax liabilities of $13.3 million, an increase in other long-term liabilities, and certain working capital changes. The funding reflects the use of cash on hand of $46.3 million and additional debt borrowings of $91.4 million. The unaudited pro forma condensed consolidated statements of income (loss) presented excludes estimated transaction fees of $3.5 million and the impact of the step-up of inventory to fair value of $4.6 million, as these items are not deemed to have a continuing impact to the ongoing operations of Quanex.

 

(b)

Incremental depreciation and amortization expense is associated with the step-up of fixed assets to fair value and the defined-term intangible assets identified at the date of the acquisition of $60.2 million, assuming the transaction occurred on the first day of each of the respective reporting periods.

 

(c)	Incremental interest expense has been calculated based on an increase in debt of $91.4 million applying our incremental borrowing rate, assuming the transaction occurred on the first day of each of the respective reporting periods.

 

(d)

This adjustment reflects a foreign exchange transaction gain on the unhedged foreign exchange position associated with the debt borrowed to fund the transaction. This gain was calculated by converting the debt balance at the exchange rate in effect as of the first day of the period (assuming the transaction occurred on the first day of the reporting period) compared to the debt balance converted at the exchange rate in effect on the last day of the period. This difference is then extended at an average rate for the period to calculate the foreign exchange gain or loss.

 

(e)

This adjustment represents the tax effect associated with the pro forma adjustments referenced above applying the statutory rate in the United Kingdom of 20% with regard to the incremental depreciation and amortization expense, and applying the statutory rate of 35% in the United States with regard to the incremental interest expense and foreign exchange gain.

 

(f)	The following table reconciles the audited combined profit and loss account for the Combined Flamstead Group for the year ended December 31, 2014 to the amounts included in the unaudited pro forma condensed consolidated statement of income (loss) for the Combined Flamstead Group:

 

Description--UK GAAP		Combined Flamstead Group (in GBPs)				Translate to USD (at 1.6484)				GAAP Adjustments & Reclasses (USD)				Combined Flamstead Per Pro Forma (USD)				Description--US GAAP
Group turnover			61,556				101,469				55				101,524			Net sales
																		Cost and expenses:
Changes in stocks of finished goods and work in progress			(775	)			(1,278	)			72,997				71,719			Cost of sales
Own work capitalised			(202	)			(333	)			13,066				12,733			Selling, general and administrative
Raw materials and consumables			32,462				53,510				(53,510	)			—
Staff cost			12,826				21,142				(21,142	)			—
Depreciation and amortization			2,801				4,617				91				4,708			Depreciation and amortization
Other operating costs			6,908				11,387				(11,387	)			—			Asset impairment charges
Operating profit			7,536				12,424				(60	)			12,364			Operating income (loss)
																		Non-operating income (expense):
Interest receivable			—				—				—				—
Interest payable and similar charges			(871	)			(1,436	)			(13	)			(1,449	)		Interest expense
			—				—				98				98			Other, net
Profit on ordinary activities before taxation			6,665				10,988				25				11,013			Income (loss) from continuing operations before income taxes
Tax on profit on ordinary activities			(1,353	)			(2,230	)			(1	)			(2,231	)		Income tax benefit (expense)
Profit for the period			5,312				8,758				24				8,782			Income (loss) from continuing operations

Adjustments made to convert from U.K. GAAP to U.S. GAAP were relatively immaterial and are summarized in the combined financial statements of the Combined Flamstead Group included in Exhibit 99.1, excluding certain reclassifications to present cost of sales and selling, general and administrative expense consistent with U.S. GAAP. These reclassifications had no impact on pro forma income (loss) from continuing operations.