Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and related notes as of April 30, 2024, and for the three and six months ended April 30, 2024 and 2023, included elsewhere herein. For additional information pertaining to our business, including risk factors which should be considered before investing in our common stock, refer to our Annual Report on Form 10-K for the fiscal year ended October 31, 2023.
Our Business
We manufacture components for original equipment manufacturers (OEMs) in the building products industry. These components can be categorized as window and door (“fenestration”) components and kitchen and bath cabinet components. Examples of fenestration components include (1) energy-efficient flexible insulating glass spacers, (2) extruded vinyl profiles, (3) window and door screens, and (4) precision-formed metal and wood products. We also manufacture cabinet doors and other components for OEMs in the kitchen and bathroom cabinet industry. In addition, we provide certain other non-fenestration components and products, which include custom mixing, solar panel sealants, trim moldings, vinyl decking, vinyl fencing, customized compounds, water retention barriers, and conservatory roof components. We use low-cost, short lead-time production processes and engineering expertise to provide our customers with specialized products for their specific window, door, and cabinet applications. We believe these capabilities provide us with unique competitive advantages. We serve a primary customer base in North America and the U.K., and also serve customers in international markets through our operating plants in the U.K. and Germany, as well as through sales and marketing efforts in other countries.
We continue to invest in organic growth initiatives and we intend to continue evaluating business acquisitions that allow us to expand our existing fenestration and cabinet component footprint, enhance our product offerings, provide new complementary technology, enhance our leadership position within the markets we serve and expand into new markets or service lines. We have disposed of non-core businesses in the past, and continue to evaluate our business portfolio to ensure that we are investing in markets where we believe there is potential future growth.
We currently have three reportable business segments: (1) North American Fenestration segment (“NA Fenestration”), comprising four operating segments, manufacturing vinyl profiles, IG spacers, screens, custom compound mixing, and other fenestration components; (2) European Fenestration segment (“EU Fenestration”), comprising our U.K.-based vinyl extrusion business, manufacturing vinyl profiles and conservatories, and the European insulating glass business manufacturing IG spacers; and (3) North American Cabinet Components segment (“NA Cabinet Components”), comprising our North American cabinet door and components business and two wood-manufacturing plants. We maintain a grouping called Unallocated Corporate & Other, which includes transaction expenses, stock-based compensation, long-term incentive awards based on the performance of our common stock and other factors, certain severance, legal, and other costs not deemed to be allocable to all segments, depreciation of corporate assets, interest expense, other, net, income taxes and inter-segment eliminations, and executive incentive compensation and medical expense fluctuations relative to planned costs as determined during the annual planning process. Other corporate general and administrative costs have been allocated to the reportable business segments, based upon a relative measure of profitability in order to more accurately reflect each reportable business segment's administrative costs. We allocate corporate expenses to businesses acquired mid-year from the date of acquisition. The accounting policies of our operating segments are the same as those used to prepare our accompanying condensed consolidated financial statements.
Recent Transactions and Events
On April 22, 2024, we announced that we reached an agreement with Tyman plc, a company incorporated in England and Wales (LSE:TYMN) (“Tyman”) on the terms of a cash and share offer (the “Tyman Acquisition”), under which we will acquire the entire issued and to be issued share capital of Tyman for approximately $1.1 billion (based on the each of the £/US$ exchange rate and the Company’s last reported trading price as of April 19, 2024) in enterprise value. Under the terms of the Tyman Acquisition, Tyman shareholders will be entitled to elect to receive: (i) 240 pence in cash and 0.05715 of a share of Quanex common stock, par value of $0.01 per share, to be newly issued in connection with the Tyman Acquisition (the “New Quanex Shares”) for each Tyman ordinary share (such shares, the “Tyman Shares” and such option, the “Main Offer”) or (ii) under an alternative to the Main Offer, New Quanex Shares at an exchange ratio of 0.14288 of a New Quanex Share for each Tyman Share (such option, the “Capped All-Share Alternative”), provided, that, the Capped All-Share Alternative shall be made available for up to 25% of the Tyman Shares outstanding. The Tyman Acquisition will be implemented by means of a court-sanctioned scheme of arrangement under the UK Companies Act 2006, as amended (the” Scheme”). The Tyman Acquisition has been unanimously approved by the Boards of Directors of both Quanex and Tyman and is currently expected to close in the second half of calendar year 2024, subject to the satisfaction of customary closing conditions, including shareholder approval from both Tyman and Quanex shareholders and regulatory approvals.
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On May 2, 2024, we entered into a deal contingent foreign exchange forward currency contract to manage our exposure to foreign currency exchange rate fluctuations against the USD and GBP for approximately $605 million of the $1.1 billion purchase consideration for the proposed Tyman Acquisition. This forward contract will expire if the Tyman Acquisition terminates or does not close by March 18, 2025. This forward contract will be accounted for as a derivative and will be classified in other current assets and other current liabilities on the consolidated balance sheet, with changes in fair value recognized in the consolidated income statement.
Tyman’s family of brands includes highly regarded names that boast wide customer bases and offer product solutions in the window and door hardware, commercial access solutions, and seals and extrusions vertical segments for residential and commercial users across its North America, UK and Ireland, and International divisions.
On November 1, 2022, we entered into an Asset Purchase Agreement with LMI and the equity owners of LMI, Lauren International, Ltd. and Meteor-US-Beteiligungs GMBH. Under the Purchase Agreement, we acquired substantially all of the operating assets comprising LMI’s polymer mixing and rubber compound production business and also agreed to assume certain liabilities relating to the Acquisition. As consideration for the Purchased Assets, we paid $91.3 million in cash utilizing funds borrowed under our Credit Facility. In connection with the Acquisition, we amended our existing finance lease with Lauren Real Estate Holding LLC for the purpose of adding an additional lease renewal option and increasing rental space by approximately 60,000 square feet of rental space which was added to the 313,595 square feet of rentable area located in Cambridge, Ohio.
U.S. and global markets are experiencing volatility and disruption following the escalation of geopolitical tensions and the military conflicts currently ongoing in Ukraine and Gaza. Although the length and impact of these ongoing military conflicts are highly unpredictable, the conflicts could lead to market or operational disruptions, including significant volatility in commodity prices, credit and capital markets, as well as supply chain interruptions. Russia, Europe’s largest provider of natural gas, has significantly reduced the export of natural gas compared to the beginning of the conflict resulting in the increase in natural gas prices and the potential for natural gas shortages. In addition, one of the suppliers of a vapor barrier used in the production of our insulating glass spacers is located in Israel and may experience a disruption as a result of the ongoing conflict in Gaza. If these trends continues, this would not only negatively impact our European manufacturing facilities, this may also impact our customers and their demand for our products. We continue to monitor these situations and their impact on our business.
The conflicts in Ukraine and Gaza and their impacts on the global economy, including inflation and the price of raw materials, supply chain disruptions, and the volatility in interest rates including home mortgage rates, are unpredictable and there may be developments outside our control requiring us to adjust our operating plan.
Market Overview and Outlook
We believe the primary drivers of our operating results continue to be North American new home construction and residential remodeling and replacement (R&R) activity. We believe that housing starts and window shipments are indicators of activity levels in the homebuilding and window industries, and we use this data, as published by or derived from third-party sources, to evaluate the market. We have evaluated the market using data from the National Association of Homebuilders (NAHB) with regard to housing starts, and published reports by Ducker Worldwide, LLC (Ducker), a consulting and research firm, with regard to window shipments in the U.S. We obtain market data from Catalina Research, a consulting and research firm, for insight into the U.S. residential wood cabinet demand.
In April 2024 , the NAHB forecasted calendar-year housing starts to be approximately 1.4 million in the 2024 and 2025 calendar-years. In May 2024 , the Ducker forecast indicated that total window shipments are expected to decrease 1.4% in calendar-year 2024 and increase 2.9% in 2025.
Several commodities in our business are subject to pricing fluctuations, including polyvinyl resin (PVC), titanium dioxide (TiO2), petroleum products, aluminum and wood. For the majority of our customers and critical suppliers, we have price adjusters in place which effectively share the impact of pass-through price changes for our primary commodities with our customers commensurate with the market at large. Our long -term exposure to these price fluctuations is somewhat mitigated due to the contractual component of the adjuster programs. However, these adjusters are not in place with all customers and for all commodities, and there is a level of exposure to such volatility due to the lag associated with the timing of price updates in accordance with our customer agreements, particularly with regard to hardwoods. In addition, some of these commodities are in high demand, particularly in Europe, which can affect the cost of the raw materials, a portion of which we may not be able to fully recover.
The global economy remains uncertain due to currency devaluations, political unrest, terror threats, global pandemics such as COVID-19, and even the political landscape in the U.S. These and other macro-economic factors have impacted the
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global financial markets, which may have contributed to significant changes in foreign currencies. We continue to monitor our exposure to changes in exchange rates.
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Results of Operations
Three Months Ended April 30, 2024 Compared to Three Months Ended April 30, 2023
Three Months Ended April 30,
2024 2023 Change $ % Variance
(Dollars in thousands)
Net sales $ 266,201 $ 273,535 $ (7,334) (3) %
Cost of sales (excluding depreciation and amortization) 199,963 206,372 (6,409) (3) %
Selling, general and administrative 34,707 27,371 7,336 27 %
Depreciation and amortization 10,894 10,456 438 4 %
Operating income 20,637 29,336 (8,699) (30) %
Interest expense (950) (2,244) 1,294 (58) %
Other, net 4 (29) 33 (114) %
Income tax expense (4,314) (5,551) 1,237 (22) %
Net income $ 15,377 $ 21,512 $ (6,135) (29) %
Our period-over-period results by reportable segment follow.
Changes Related to Operating Income by Reportable Segment:
NA Fenestration
Three Months Ended April 30,
2024 2023 $ Change % Variance
(Dollars in thousands)
Net sales $ 159,774 $ 156,975 $ 2,799 2%
Cost of sales (excluding depreciation and amortization) 122,261 122,472 (211) —%
Selling, general and administrative 13,730 14,158 (428) (3)%
Depreciation and amortization 5,218 5,050 168 3%
Operating income $ 18,565 $ 15,295 $ 3,270 21%
Operating income margin 12 % 10 %
Net Sales. Net s ales increased $2.8 million, or 2%, for the three months ended April 30, 2024 compared to the same period in 2023, which was primarily driven by a $2.6 million increase in volumes due to a return to normal seasonality and an increase in price and raw material indexes of $0.2 million.
Cost of Sales. The cost of sales decreased $0.2 million, for the three months ended April 30, 2024 compared to the same period in 2023. Cost of sales decreased primarily due to deflation of raw materials during the period.
Selling, General and Administrative. S elling, general and administrative expenses decreased $0.4 million, or 3%, for the three months ended April 30, 2024 compared to the sa me period in 2023 primarily due to decreases in professional fees year-over-year.
EU Fenestration
Three Months Ended April 30,
2024 2023 $ Change % Variance
(Dollars in thousands)
Net sales $ 56,583 $ 63,763 $ (7,180) (11)%
Cost of sales (excluding depreciation and amortization) 35,694 40,452 (4,758) (12)%
Selling, general and administrative 7,873 8,452 (579) (7)%
Depreciation and amortization 2,538 2,353 185 8%
Operating income $ 10,478 $ 12,506 $ (2,028) (16)%
Operating income margin 19 % 20 %
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Net Sales . Net sales decreased $7.2 million, or 11%, for the three months ended April 30, 2024 compared to the same period in 2023, which was primarily driven by a $6.1 million decrease in volumes largely due to softer market demand and $1.7 million of base price decreases partially offset by $0.6 million benefit from foreign currency rate change.
Cost of Sales. The cost of sales decreased $4.8 million, or 12%, for the three months ended April 30, 2024 compared to the same period in 2023. Cost of sales decreased primarily due to lower volumes and the deflation of the price of raw materials, partially offset by foreign currency rate changes during the period.
Selling, General and Administrative. Selling, general and administrative expense decreased $0.6 million, or 7%, for the three months ended April 30, 2024 compared to the same period in 2023. The decrease is primarily due to a decrease in professional fees, partially offset by an increase in labor costs, year-over-year.
NA Cabinet Components
Three Months Ended April 30,
2024 2023 $ Change Variance %
(Dollars in thousands)
Net sales $ 51,078 $ 53,518 $ (2,440) (5)%
Cost of sales (excluding depreciation and amortization) 42,624 43,731 (1,107) (3)%
Selling, general and administrative 5,066 5,971 (905) (15)%
Depreciation and amortization 3,082 2,970 112 4%
Operating income $ 306 $ 846 $ (540) (64)%
Operating income margin 1 % 2 %
Net Sales . N et sales decreased $2.4 million, or 5%, for the three months ended April 30, 2024 compared to the same period in 2023, which was driven by a $1.6 million decrease in price and raw material surcharges and a $0.8 million decrease in volumes due to softer market demand driven by weaker consumer confidence.
Cost of Sales . Cost of sales decreased $1.1 million, or 3%, for the three months ended April 30, 2024 compared to the same period in 2023. Cost of sales decreased primarily due to lumber price deflation and lower volumes during the period.
Selling, General and Administrative . Selling, general and administrative expense decreased $0.9 million, or 15%, for the three months ended April 30, 2024 compared to the same period in 2023 primarily due to a decrease in labor costs and professional fees year-over-year.
Unallocated Corporate & Other
Three Months Ended April 30,
2024 2023 $ Change Variance %
(Dollars in thousands)
Net sales $ (1,234) $ (721) $ (513) 71%
Cost of sales (excluding depreciation and amortization) (616) (283) (333) 118%
Selling, general and administrative 8,038 (1,210) 9,248 (764)%
Depreciation and amortization 56 83 (27) (33)%
Operating (loss) income $ (8,712) $ 689 $ (9,401) (1,364)%
Net Sales . Net sales for Unallocated Corporate & Other represents the elimination of inter-segment sales for the three months ended April 30, 2024 and 2023.
Cost of Sales . Cost of sales for Unallocated Corporate & Other consists of the elimination of inter-segment sales, profit in inventory, and other costs.
Selling, General and Administrative . Selling, general and administrative expenses increased $9.2 million, or 764%, for the three months ended April 30, 2024 compared to the same period in 2023. This increase is primarily attributable to a $7.0 million increase in transaction and advisory fees, higher compensation expense including the valuations of our stock-based compensation awards, and an increase in medical claims expense during the three months ended April 30, 2024 as compared to the prior year period.
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Changes related to Non-Operating Items:
Interest Exp ense . Interest expense decreased $1.3 million for the three months ended April 30, 2024 compared to the same period in 2023 as a result of lower borrowings outstanding during the three months ended April 30, 2024 as compared to the prior year period.
Income Taxes . We recorded inco me tax expense of $4.3 million on pre-tax income of $19.7 million for the three months ended April 30, 2024, an effective rate of 21.9%, and income tax expense of $5.6 million on pre-tax income of $27.1 million for the three months ended April 30, 2023, an effective rate of 20.5%. The increase in the effective tax rate year-over-year was primarily driven by an increase in non-deductible permanent differences.
Six Months Ended April 30, 2024 Compared to Six Months Ended April 30, 2023
Six Months Ended April 30,
2024 2023 Change $ % Variance
(Dollars in thousands)
Net sales $ 505,356 $ 535,451 $ (30,095) (6) %
Cost of sales (excluding depreciation and amortization) 387,686 416,521 (28,835) (7) %
Selling, general and administrative 67,070 64,115 2,955 5 %
Depreciation and amortization 22,046 21,076 970 5 %
Operating income 28,554 33,739 (5,185) (15) %
Interest expense (2,018) (4,503) 2,485 (55) %
Other, net 1,046 189 857 453 %
Income tax expense (5,956) (6,004) 48 (1) %
Net income $ 21,626 $ 23,421 $ (1,795) (8) %
Our period-over-period results by reportable segment follow.
Changes Related to Operating Income by Reportable Segment:
NA Fenestration
Six Months Ended April 30,
2024 2023 $ Change % Variance
(Dollars in thousands)
Net sales $ 307,769 $ 309,955 $ (2,186) (1)%
Cost of sales (excluding depreciation and amortization) 240,629 247,189 (6,560) (3)%
Selling, general and administrative 29,640 27,453 2,187 8%
Depreciation and amortization 10,693 10,295 398 4%
Operating income $ 26,807 $ 25,018 $ 1,789 7%
Operating income margin 9 % 8 %
Net Sales. Net sales decreased $2.2 million, or 1%, for the six months ended April 30, 2024 compared to the same period in 2023, which was primarily driven by a $1.7 million decrease in volumes mainly due to softer market demand and a return to lower volumes in the fall and early winter months due a return of normal seasonality and a $0.5 million decrease in price and raw material indexes.
Cost of Sales. The cost of sales decreased $6.6 million, or 3%, for the six months ended April 30, 2024 as compared to the same period in 2023. Cost of sales, including labor, decreased primarily due to lower volumes and deflation of raw materials during the period.
Se lling, General and Administrative. S elling, general and administrative expenses increased $2.2 million, or 8%, for the six months ended April 30, 2024 as compared to the same period in 2023. The increase is primarily due to increases in labor costs, partially offset by a decrease in professional fees year-over-year.
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EU Fenestration
Six Months Ended April 30,
2024 2023 $ Change Variance %
(Dollars in thousands)
Net sales $ 106,020 $ 118,715 $ (12,695) (11)%
Cost of sales (excluding depreciation and amortization) 67,397 78,155 (10,758) (14)%
Selling, general and administrative 15,618 15,957 (339) (2)%
Depreciation and amortization 5,096 4,701 395 8%
Operating income $ 17,909 $ 19,902 $ (1,993) (10)%
Operating income margin 17 % 17 %
Net Sales. Net sales decreased $12.7 million, or 11%, comparing the six months ended April 30, 2024 to the same period in 2023, which was primarily driven by a $12.8 million decrease in volumes largely due to softer market demand and $1.5 million of base price decreases, partially offset by $1.6 million of foreign currency rate change.
Cost of Sales. The cost of sales decreased $10.8 million, or 14%, for the six months ended April 30, 2024 compared to the same period in 2023. Cost of sales decreased primarily due to a decrease in volumes, deflation in the price of raw materials and foreign currency impacts.
Selling, General and Administrative. Selling, general and administrative expense decreased $0.3 million, or 2%, for the six months ended April 30, 2024 compared to the same period in 2023. The decrease is primarily due to a decrease in professional fees, partially offset by an increase in labor costs, year-over-year.
NA Cabinet Components
Six Months Ended April 30,
2024 2023 $ Change Variance %
(Dollars in thousands)
Net sales $ 94,215 $ 108,192 $ (13,977) (13)%
Cost of sales (excluding depreciation and amortization) 81,367 91,787 (10,420) (11)%
Selling, general and administrative 10,192 10,844 (652) (6)%
Depreciation and amortization 6,147 5,904 243 4%
Operating loss $ (3,491) $ (343) $ (3,148) 918%
Operating loss margin (4) % — %
Net Sales . Net sales decreased $14.0 million, or 13%, for the six months ended April 30, 2024 compared to the same period in 2023, which was driven by a $7.2 million decrease in volumes due to softer market demand driven by weaker consumer confidence and a $6.8 million decrease in raw material surcharges.
Cost of Sales . Cost of sales decreased $10.4 million, or 11%, for the six months ended April 30, 2024 compared with the same period in 2023, primarily as a result of lower volumes year-over-year.
Selling, General and Administrative . Selling, general and administrative expense decreased $0.7 million, or 6%, for the six months e nded April 30, 2024 compared to the same period in 2023. This decrease is primarily due to a decrease in labor costs and professional fees year-over-year.
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Unallocated Corporate & Other
Six Months Ended April 30,
2024 2023 $ Change Variance %
(Dollars in thousands)
Net sales $ (2,648) $ (1,411) $ (1,237) 88%
Cost of sales (excluding depreciation and amortization) (1,707) (610) (1,097) 180%
Selling, general and administrative 11,620 9,861 1,759 18%
Depreciation and amortization 110 176 (66) (38)%
Operating loss $ (12,671) $ (10,838) $ (1,833) 17%
Net Sales . Net sales for Unallocated Corporate & Other represents the elimination of inter-segment sales for the six months ended April 30, 2024 and 2023.
Cost of Sales . Cost of sales for Unallocated Corporate & Other consists of the elimination of inter-segment sales, profit in inventory, and other costs.
Selling, General and Administrative . Selling, general and administrative expenses increased $1.8 million, or 18%, for the six months ended April 30, 2024 compared to the same period in 2023. This increase is primarily attributable to an increase in transaction and advisory fees and an increase in medical claims expense during the six months ended April 30, 2024 as compared to the prior year period.
Changes related to Non-Operating Items:
Interest Exp ense . Interest expense decreased $2.5 million for the six months ended April 30, 2024 compared to the same period in 2023 primarily as a result of lower borrowings outstanding during the six months ended April 30, 2024 as compared to the prior year period.
Income Taxes . We recorded income tax expense of $6.0 million on pre-tax income of $27.6 million for the six months ended April 30, 2024, an effective rate of 21.6%, and income tax expense of $6.0 million on a pre-tax income of $29.4 million for the six months ended April 30, 2023, an effective rate of 20.4%. The increase in the effective tax rate year-over-year was primarily driven by an increase in non-deductible permanent differences.
Liquidity and Capital Resources
Overview
Historically, our principal sources of funds have been cash on hand, cash flow from operations, and borrowings under our credit facilities.
We maintain a $325.0 million revolving credit facility (the Credit Facility) that matures in 2027 (5-year term) and requires interest payments calculated at a variable market rate depending upon our Consolidated Net Leverage Ratio. The applicable rate during the six months ended April 30, 2024 was RFR Rate + 1.25%. Our cost of capital could increase depending upon the Consolidated Net Leverage Ratio at the end of any given quarter. In addition to the Con solidated Net Leverage Ratio covenant, we are required to meet a Consolidated Interest Coverage Ratio covenant, and there are limitations on certain transactions including our ability to incur indebtedness, incur liens, dispose of material assets, acquire businesses, make restricted payments and pay dividends (limited to $25.0 million per year). We are amortizing deferred financing fees of $1.0 million straight-line over the remaining term of the facility. For further details of the Credit Facility, refer to Note 6, “Debt and Finance Lease Obligations” to the accompanying unaudited condensed consolidated financial statements contained elsewhere herein.
As of April 30, 2024, we had $56.1 million of cash and equivalents, zero outstanding under the Credit Facility, $3.7 million of outstanding letters of credit and $55.2 million outstanding under finance leases and other debt. Of the $55.2 million outstanding under finance leases and other debt, $51.0 million relates to real estate leases. We had $321.3 million available for use under the Credit Facility at April 30, 2024.
On April 21, 2024, the Company and certain financial institution parties entered into the Interim Facility Agreement, pursuant to which Wells Fargo Bank, National Association, as interim facility agent and interim security agent, and a syndicate of lenders agreed to provide the Company with a $750 million term loan interim facility (“ Interim Facility ”) and the Commitment Letter, pursuant to which certain financial institution parties agreed to provide to the Company, subject to the execution of definitive financing documents, certain term loan and revolving facilities on the terms and conditions set forth in the Commitment Letter (collectively, the “ Facilities ”) in order to, among other things, finance the cash consideration payable by
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the Company in connection with the Tyman Acquisition. The availability of the borrowings under the Facilities (or, in the event that the commitments under the Facilities are not funded on the closing date of the Tyman Acquisition, the Interim Facility Agreement) are subject to the satisfaction of certain customary conditions for financings of this nature. The Interim Facility Agreement contains, and any definitive financing documentation for the Facilities will contain, customary representations and warranties, events of default and covenants for transactions of this type. To the extent any borrowings are made under the Interim Facility Agreement, such loans will mature on the date falling 90 days after the date of first drawdown under the Interim Facility Agreement.
During December 2021, our Board of Directors approved a stock repurchase program that authorized the repurchase of up to $75.0 million worth of shares of our common stock. Repurchases under the program will be made in open market transactions or privately negotiated transactions, subject to market conditions, applicable legal requirements and other relevant factors. During the three months ended April 30, 2024, we did not purchase any shares under this program and as of April 30, 2024 we had a maximum of $62.8 million available to purchase shares under this program. The program does not have an expiration date or a limit on the number of shares that may be purchased.
We repatriated $15.3 million and $21.2 million of f oreign cash during the six months ended April 30, 2024 and 2023, respectively. We expect to repatriate excess cash moving forward and use the funds to retire debt or meet current working capital needs. In the U.K., we insure against a portion of our credit losses. We believe our business model, our current cash reserves and our strong balance sheet leave us well-positioned to manage our business and remain in compliance with our debt covenants.
Analysis of Cash Flow
The following table summarizes our cash flow results for the six months ended April 30, 2024 and 2023:
Six Months Ended
April 30,
2024 2023
(Dollars in thousands)
Cash provided by operating activities $ 36,945 $ 38,460
Cash used for investing activities $ (17,090) $ (106,275)
Cash (used for) provided by financing activities $ (21,887) $ 54,313
Operating A ctivities . Cash provided by operating activities decreased $1.5 million for the six months ended April 30, 2024 compared to the six months ended April 30, 2023. The decrease in operating cash flow is primarily due to a decrease in net income year-over-year partially offset by favorable changes to net working capital.
Investing Activities. Cash used for investing activities decreased $89.2 million for the six months ended April 30, 2024 compared to the same period in 2023, primarily as a result of no business acquisitions in 2024 compared to the acquisition of LMI in 2023.
Financing Activities. Cash used for financing activities was $21.9 million for the six months ended April 30, 2024 compared to cash provided by financing activities of $54.3 million for the same period in 2023. The change in investing cash flows is primarily as a result of a decrease in net borrowings of long-term debt. During the six months ended April 30, 2023, $91.3 million of the borrowings of long-term debt were related to the acquisition of LMI.
Liquidity Requirements
Historically, our strategy for deploying cash has been to invest in organic growth opportunities, develop our infrastructure, and ex plore strategic acquisitions. Other uses of cash include paying cash dividends to our shareholders and repurchasing our common stock. During the six months ended April 30, 2024 and 2023, we repatriated $15.3 million and $21.2 million, respectively, of foreign earnings from our foreign locations. We maintain cash balances in foreign countries which total $16.0 million as of April 30, 2024.
Critical Accounting Policies and Estimates
The preparation of our financial statements in accordance with accounting principles generally accepted in the U.S. (U.S. GAAP) requires us to make estimates and assumptions that affect the reported amount of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. Estimates and assumptions about future events and their effects cannot be perceived with certainty. Estimates may change as new events occur, as more experience is acquired, as
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additional information becomes available and as our operating environment changes. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, and that we believe provide a basis for making judgments about the carrying value of assets and liabilities that are not readily available through open market quotes. We must use our judgment with regard to uncertainties in order to make these estimates. Actual results could differ from these estimates.
For a description of our critical accounting policies and estimates, see our Annual Report on Form 10-K for the fiscal year ended October 31, 2023. Our critical accounting policies and estimates have not changed materially during the six months ended April 30, 2024.
New Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standards setting bodies that we adopt as of the specified effective date. We did not adopt any new accounting pronouncements during the three and six months ended April 30, 2024.
Accounting Standards Not Yet Adopted
In November 2023, the FASB issued “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 with early adoption is permitted. The guidance is to be applied retrospectively to all prior periods presented in the financial statements. We are currently evaluating the potential impact of adopting this new guidance on our consolidated financial statements and related disclosures.
In December 2023, the FASB issued “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” which includes updates to the income tax disclosures related to the rate reconciliation and disaggregation of income taxes paid by jurisdiction. The guidance is effective for fiscal years beginning after December 15, 2024 with early adoption permitted. The amendments should be applied prospectively, however retrospective application is permitted. We are currently evaluating the potential impact of adopting this new guidance on our consolidated financial statements and related disclosures.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.