From the Quanex Building Products Presentation on June 9th, 2016

Question (Unknown analyst):

So for a number of the manufacturers, particularly in the window side, it seems that the surge in housing activity in ’13 and then the subsequent drop-off led to some particular labor constraints, just because of the volatility. But there are also underlying longer-term issues. So can you discuss that in a little bit more detail, whether it has to do with finding qualified employees or that has to do with wage rates? Maybe if you can just shed a little bit of light on what you think the drivers of the long-term outlook are?

William C. Griffiths (Chairman and CEO of the Quanex Building Products Corporation):

So frankly, it’s a little bit of everything. I mean, you come to work in one of our plants or a window or a cabinet manufacturing plant, it is not easy work. Starting wage rates are typically, certainly for us, are around $11.50 an hour. We’re in a lot of rural communities. And all the time we keep hearing and now starting to see $15-an-hour minimum wage, right? If you can flip burgers at Burger King for $15 an hour, you’re not going to come and sweat in one of our factories at $11.50. And it’s those entry-level jobs that the automation makes go away. Now clearly, we don’t pay everybody $11.50. I mean, we still pay $25, $30 at the upper end for skilled labor. So the cost is problematic. Clearly, we’re getting to what we would consider full employment in most areas. So those that are unemployed are unemployed for a very good reason. We are very diligent with background checks and with drug testing. And trying to get people through the drug test screens these days is more and more difficult and even more difficult as more states legalize it, right? So I mean, it may be legal to smoke marijuana in Washington State, but you still can’t do it and come to work for us, right? So that’s another inhibitor to getting labor as well. And of course, we, like a lot of our customers, are in rural areas where that unemployment is almost 0 in some cases, particularly the upper Midwest. It’s going to be a continued problem for a long period of time. And we’re trying to get ahead of it. I mean, we have the opportunity in our business to put in simple automation: conveyor systems, automated material handling, re-layout a facility so that processes are next to each other improves quality, reduces working process inventory and reduces costs and improves safety.