XML 33 R20.htm IDEA: XBRL DOCUMENT v3.25.3
Income Taxes
 12 Months Ended
Oct. 31, 2025
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The provision or benefit for income taxes includes U.S. federal income taxes, foreign income taxes and state income taxes. We provide for income taxes on taxable income at the applicable statutory rates. The following table summarizes the components of income tax expense for the years ended October 31, 2025, 2024 and 2023 (in thousands):
 Year Ended October 31,
202520242023
Current
Federal$9,396 $12,453 $2,631 
State and local2,950 3,326 1,860 
Non-United States14,402 8,580 4,907 
Total current26,748 24,359 9,398 
Deferred
Federal(19,091)(2,371)4,637 
State and local(2,997)(154)1,015 
Non-United States3,553 (12,811)(505)
Total deferred(18,535)(15,336)5,147 
Total income tax expense$8,213 $9,023 $14,545 

For financial reporting purposes, income before income taxes for the years ended October 31, 2025, 2024 and 2023 includes the following components (in thousands):
 Year Ended October 31,
202520242023
Domestic$(221,468)$34,315 $42,586 
Foreign(21,125)7,767 54,460 
Total (loss) income before income taxes
$(242,593)$42,082 $97,046 
The following table reconciles our effective income tax rate to the federal statutory rate for the years ended October 31, 2025, 2024 and 2023:
Year Ended October 31,
202520242023
United States tax at statutory rate21.0 %21.0 %21.0 %
Goodwill impairment
(22.4)%— %— %
Deferred true up(3.3)%— %— %
State and local income taxes net of federal tax benefit0.5 %5.9 %1.8 %
Foreign tax rate differential(0.7)%(1.4)%1.1 %
U.K. patent box benefit1.8 %(12.5)%(5.9)%
Non-deductible transaction costs— %8.4 %— %
U.S. income tax credits2.3 %(8.4)%(4.9)%
Foreign inclusions (including global intangible low-taxed income)(2.6)%8.4 %4.6 %
Permanent differences(0.7)%(1.3)%1.3 %
Tax return to accrual adjustments0.7 %3.5 %(2.3)%
Change in valuation allowance— %(3.1)%— %
Change in uncertain tax position (0.3)%0.1 %(1.1)%
Other0.3 %0.8 %(0.6)%
Effective tax rate(3.4)%21.4 %15.0 %
During the year ended October 31, 2025, the Company recorded a $9.0 million discrete income tax charge related to post measurement period corrections to the deferred tax assets and liabilities established in the acquisition of Tyman. This amount has been recognized through current-period income tax expense. The discrete income tax charge is reflected in the line item “Income tax expense” in the Consolidated Statements of (Loss) Income for the year ended October 31, 2025, and is separately disclosed in the Company’s effective tax rate reconciliation as “Deferred true up”.
Our earnings from our foreign subsidiaries qualify for Federal Dividend Received Deduction and are not subject to withholding taxes upon remittance to the U.S. However, some of the states do not conform to the Federal Dividend Received Deduction. As a result, we have $0.7 million of future tax liability related to potential repatriation of unremitted foreign retained earnings. The amount of undistributed foreign earnings and profits from international operations as of the years ended October 31, 2025 and 2024, respectively, was $66.1 million and $21.7 million.
On July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act (“OBBBA”). The OBBBA makes permanent key elements of the Tax Cuts and Jobs Act, including 100% bonus depreciation, domestic research cost expensing, and the business interest expense limitation. ASC 740, “Income Taxes”, requires the effects of changes in tax rates and laws on deferred tax balances to be recognized in the period in which the legislation is enacted. We have completed our initial assessment of the OBBBA corporate tax provisions which were enacted on July 4, 2025 and estimated our impact on the consolidated financial statements to be immaterial and primarily resulted in a reclass of our income tax payable and deferred tax liability related to the timing differences arising from accelerated tax depreciation. We continue to monitor the impact of these updates.
The Organization for Economic Co-operation and Development ("OECD") Inclusive Framework on Base Erosion and Profit Shifting (“BEPS”) developed an agreement on a two-pillar approach to help address the tax challenges arising from the digitalization of the economy. Pillar One applies to large multinational enterprises and re-allocates part of their profit to the countries where they sell their products and provide services. Quanex does not expect to be subject to the Pillar One rules. Pillar Two aims to establish a minimum global tax rate of 15%, assessed through a top-up tax imposed on a country-by-country basis. In 2023, certain jurisdictions in which we operate enacted legislation consistent with the OECD Pillar Two model effective for taxation year beginning on or after January 1, 2024. We have accrued for additional top-up tax in the United Kingdom and United Arab Emirates where our effective tax rate drops below 15%. The Pillar Two legislation has an immaterial impact our 2025 fiscal year effective tax rate.  However, further changes to our entity structure or changes in jurisdictions in which we operate could adversely impact analysis.  
Significant components of our net deferred tax liabilities and assets were as follows (in thousands):
 October 31,
20252024
Deferred tax assets:
Employee benefit obligations$4,179 $6,830 
Accrued liabilities and reserves2,836 4,132 
Pension and other benefit obligations36 125 
Inventory8,502 2,368 
Right of use liability32,470 31,399 
Research and development5,894 5,810 
Loss and tax credit carry forwards11,311 9,637 
Other— 24 
Total gross deferred tax assets65,228 60,325 
Less: Valuation allowance
4,408 4,395 
Total deferred tax assets, net of valuation allowance60,820 55,930 
Deferred tax liabilities:
Property, plant and equipment39,305 45,554 
Goodwill and intangibles123,596 138,396 
Investments in foreign subsidiaries700 500 
Right of use asset30,193 29,939 
Other313 — 
Total deferred tax liabilities194,107 214,389 
Net deferred tax liabilities$133,287 $158,459 
As of October 31, 2025, gross foreign capital loss, gross foreign net operating loss and gross state operating loss carry forwards totaled $14.2 million, $10.8 million and $25.9 million, respectively. The capital loss and the majority of the foreign net operating loss can be carried forward indefinitely. The majority of the state losses begin to expire in 2033. We evaluate tax benefits of operating losses and tax credit carry forwards on an ongoing basis, including a review of historical and projected future operating results, the eligible carry forward period and other circumstances. We have recorded a valuation allowance for the foreign capital loss and certain foreign operating and state net operating losses as of October 31, 2025 and 2024, totaling $4.4 million and $4.4 million, respectively. The valuation allowance can be affected in future periods by changes to tax laws, changes to statutory tax rates, and changes in estimates of future taxable income. To fully realize these net deferred tax assets, we will need to generate sufficient future taxable income in the jurisdictions where these tax attributes exist during the periods in which the attributes can be utilized. As of each reporting date, management considers the weight of all evidence, both positive and negative, to determine if a valuation allowance is necessary for each jurisdiction’s net deferred tax assets. We place greater weight on historical evidence over future predictions of our ability to utilize net deferred tax assets. We consider future reversals of existing taxable temporary differences, future taxable income exclusive of reversing temporary differences, and taxable income in prior carryback year(s) if carryback is permitted under applicable law.
The following table shows the change in the unrecognized income tax benefit associated with uncertain tax positions for the years ended October 31, 2025, 2024 and 2023 (in thousands):
Unrecognized
Income Tax Benefits
Balance at October 31, 2022
$1,361 
Reassessment of position(1,111)
Balance at October 31, 2023
$250 
Reversal
(250)
Balance at October 31, 2024
$— 
Reassessment of position710 
Balance at October 31, 2025
$710 
We account for uncertain tax benefits in accordance with guidance in ASC 740, which prescribes the minimum recognition threshold a tax position taken or expected to be taken in a tax return is required to meet before being recognized in the financial statements. During the year ended October 31, 2025, we accrued $0.7 million of unrecognized tax benefits primarily related to transfer pricing matters.
We, along with our subsidiaries, file income tax returns in the U.S. and various state and foreign jurisdictions. In certain jurisdictions, the statute of limitations has not yet expired. We generally remain subject to examination of our U.S. income tax returns for 2022 and subsequent years. We generally remain subject to examination of our various state and foreign income tax returns for a period of four to five years from the date the return was filed. The state impact of a reported federal adjustment or change remains subject to examination by various states within the longer of one year or the expiration date of the otherwise applicable statute of limitations. We classify interest on income tax as income tax expenses and classify penalties on income tax as other expenses.