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 July 31, 2024, and for the three and nine months ended July 31, 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 August 1, 2024, we completed our Tyman Acquisition of Tyman plc, a company incorporated in England and Wales (“Tyman”). The aggregate consideration due pursuant to the Tyman Acquisition at closing comprised of 14,139,477 New Quanex Shares and cash consideration of approximately $504.1 million (being the Pound Sterling amount of cash consideration of £392.2 million in respect of all of the Tyman Shares converted to U.S. Dollars at an exchange rate of 1.2855). New Quanex Shares issued in connection with the Tyman Acquisition on the New York Stock Exchange took effect on August 2, 2024 and Tyman’s shares on the London Stock Exchange were canceled.
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 Asset 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. As consideration for the Purchased Assets, we paid $91.3 million in cash utilizing funds borrowed under our Credit Facility. In connection with the LMI 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.
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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 July 2024 , the NAHB forecasted calendar-year housing starts to be approximately 1.3 million, 1.4 million and 1.5 million in the 2024, 2025 and 2026 calendar-years, respectively. In August 2024 , the Ducker forecast indicated that total window shipments are expected to decrease 3.3% in calendar-year 2024 and increase 3.1% 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 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 July 31, 2024 Compared to Three Months Ended July 31, 2023
Three Months Ended July 31,
2024 2023 Change $ % Variance
(Dollars in thousands)
Net sales $ 280,345 $ 299,640 $ (19,295) (6) %
Cost of sales (excluding depreciation and amortization) 209,441 221,065 (11,624) (5) %
Selling, general and administrative 36,509 30,516 5,993 20 %
Depreciation and amortization 10,953 10,596 357 3 %
Operating income 23,442 37,463 (14,021) (37) %
Interest expense (878) (2,068) 1,190 (58) %
Other, net 9,474 402 9,072 2,257 %
Income tax expense (6,688) (4,099) (2,589) 63 %
Net income $ 25,350 $ 31,698 $ (6,348) (20) %
Our period-over-period results by reportable segment follow.
Changes Related to Operating Income by Reportable Segment:
NA Fenestration
Three Months Ended July 31,
2024 2023 $ Change % Variance
(Dollars in thousands)
Net sales $ 170,258 $ 177,081 $ (6,823) (4)%
Cost of sales (excluding depreciation and amortization) 130,301 135,126 (4,825) (4)%
Selling, general and administrative 16,918 14,254 2,664 19%
Depreciation and amortization 5,194 5,033 161 3%
Operating income $ 17,845 $ 22,668 $ (4,823) (21)%
Operating income margin 10 % 13 %
Net Sales. Net s ales decreased $6.8 million, or 4%, for the three months ended July 31, 2024 compared to the same period in 2023, which was primarily driven by a $8.8 million decrease in volumes due to softer market demand driven by weaker consumer confidence partially offset by an increase in price and raw material indexes of $2.0 million.
Cost of Sales. The cost of sales decreased $4.8 million, or 4%, for the three months ended July 31, 2024 compared to the same period in 2023. Cost of sales decreased primarily due to decrease in volumes partially offset by pricing and inflation of raw materials during the period.
Selling, General and Administrative. S elling, general and administrative expenses increased $2.7 million, or 19%, for the three months ended July 31, 2024 compared to the sa me period in 2023. The increase is primarily due to increases in labor costs and professional fees year-over-year.
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EU Fenestration
Three Months Ended July 31,
2024 2023 $ Change % Variance
(Dollars in thousands)
Net sales $ 59,617 $ 67,889 $ (8,272) (12)%
Cost of sales (excluding depreciation and amortization) 36,930 41,266 (4,336) (11)%
Selling, general and administrative 7,390 8,039 (649) (8)%
Depreciation and amortization 2,609 2,434 175 7%
Operating income $ 12,688 $ 16,150 $ (3,462) (21)%
Operating income margin 21 % 24 %
Net Sales . Net sales decreased $8.3 million, or 12%, for the three months ended July 31, 2024 compared to the same period in 2023, which was primarily driven by a $5.6 million decrease in volumes largely due to softer market demand driven by weaker consumer confidence, $1.8 million of base price decreases and $0.9 million of foreign currency rate change.
Cost of Sales. The cost of sales decreased $4.3 million, or 11%, for the three months ended July 31, 2024 compared to the same period in 2023. Cost of sales decreased primarily due to lower volumes, the deflation of the price of raw materials and foreign currency rate changes during the period.
Selling, General and Administrative. Selling, general and administrative expense decreased $0.6 million, or 8%, for the three months ended July 31, 2024 compared to the same period in 2023. The decrease is primarily due to a decrease in labor costs and a decrease in professional fees year-over-year.
NA Cabinet Components
Three Months Ended July 31,
2024 2023 $ Change Variance %
(Dollars in thousands)
Net sales $ 51,448 $ 55,385 $ (3,937) (7)%
Cost of sales (excluding depreciation and amortization) 42,911 44,935 (2,024) (5)%
Selling, general and administrative 5,162 5,095 67 1%
Depreciation and amortization 3,093 3,084 9 —%
Operating income $ 282 $ 2,271 $ (1,989) (88)%
Operating income margin 1 % 4 %
Net Sales . N et sales decreased $3.9 million, or 7%, for the three months ended July 31, 2024 compared to the same period in 2023, which was driven by a $4.6 million decrease in volumes due to softer market demand driven by weaker consumer confidence partially offset by a $0.7 million increase in price and raw material surcharges.
Cost of Sales . Cost of sales decreased $2.0 million, or 5%, for the three months ended July 31, 2024 compared to the same period in 2023. Cost of sales decreased primarily due to lower volumes partially offset by lumber price inflation during the period.
Selling, General and Administrative . Selling, general and administrative expense remained flat for the three months ended July 31, 2024 compared to the same period in 2023.
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Unallocated Corporate & Other
Three Months Ended July 31,
2024 2023 $ Change Variance %
(Dollars in thousands)
Net sales $ (978) $ (715) $ (263) 37%
Cost of sales (excluding depreciation and amortization) (701) (262) (439) 168%
Selling, general and administrative 7,039 3,128 3,911 125%
Depreciation and amortization 57 45 12 27%
Operating loss $ (7,373) $ (3,626) $ (3,747) 103%
Net Sales . Net sales for Unallocated Corporate & Other represents the elimination of inter-segment sales for the three months ended July 31, 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 $3.9 million, or 125%, for the three months ended July 31, 2024 compared to the same period in 2023. This increase is primarily attributable to a $5.6 increase in transaction and advisory fees partially offset by lower compensation expense including the valuations of our stock-based compensation awards during the three months ended July 31, 2024 as compared to the prior year period.
Changes related to Non-Operating Items:
Interest Exp ense . Interest expense decreased $1.2 million for the three months ended July 31, 2024 compared to the same period in 2023 as a result of lower borrowings outstanding during the three months ended July 31, 2024 as compared to the prior year period.
Income Taxes . We recorded income tax expense of $6.7 million on pre-tax income of $32.0 million for the three months ended July 31, 2024, an effective rate of 20.9%, and income tax expense of $4.1 million on pre-tax income of $35.8 million for the three months ended July 31, 2023, an effective rate of 11.5%. The increase in the effective tax rate year-over-year was primarily driven by an increase in non-deductible permanent differences.
Nine Months Ended July 31, 2024 Compared to Nine Months Ended July 31, 2023
Nine Months Ended July 31,
2024 2023 Change $ % Variance
(Dollars in thousands)
Net sales $ 785,701 $ 835,091 $ (49,390) (6) %
Cost of sales (excluding depreciation and amortization) 597,127 637,586 (40,459) (6) %
Selling, general and administrative 103,579 94,631 8,948 9 %
Depreciation and amortization 32,999 31,672 1,327 4 %
Operating income 51,996 71,202 (19,206) (27) %
Interest expense (2,896) (6,571) 3,675 (56) %
Other, net 10,520 591 9,929 1,680 %
Income tax expense (12,644) (10,103) (2,541) 25 %
Net income $ 46,976 $ 55,119 $ (8,143) (15) %
Our period-over-period results by reportable segment follow.
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Changes Related to Operating Income by Reportable Segment:
NA Fenestration
Nine Months Ended July 31,
2024 2023 $ Change % Variance
(Dollars in thousands)
Net sales $ 478,027 $ 487,036 $ (9,009) (2)%
Cost of sales (excluding depreciation and amortization) 370,930 382,315 (11,385) (3)%
Selling, general and administrative 46,558 41,707 4,851 12%
Depreciation and amortization 15,887 15,328 559 4%
Operating income $ 44,652 $ 47,686 $ (3,034) (6)%
Operating income margin 9 % 10 %
Net Sales. Net sales decreased $9.0 million, or 2%, for the nine months ended July 31, 2024 compared to the same period in 2023, which was primarily driven by a $10.5 million decrease in volumes mainly due to softer market demand driven by weaker consumer confidence partially offset by a $1.5 million increase in price and raw material indexes.
Cost of Sales. The cost of sales decreased $11.4 million, or 3%, for the nine months ended July 31, 2024 as compared to the same period in 2023. Cost of sales, including labor, decreased primarily due to a decrease in volumes partially offset by inflation of raw materials during the period.
Se lling, General and Administrative. S elling, general and administrative expenses increased $4.9 million, or 12%, for the nine months ended July 31, 2024 as compared to the same period in 2023. The increase is primarily due to increases in labor costs and professional fees year-over-year.
EU Fenestration
Nine Months Ended July 31,
2024 2023 $ Change Variance %
(Dollars in thousands)
Net sales $ 165,637 $ 186,604 $ (20,967) (11)%
Cost of sales (excluding depreciation and amortization) 104,327 119,421 (15,094) (13)%
Selling, general and administrative 23,008 23,996 (988) (4)%
Depreciation and amortization 7,705 7,135 570 8%
Operating income $ 30,597 $ 36,052 $ (5,455) (15)%
Operating income margin 18 % 19 %
Net Sales. Net sales decreased $21.0 million, or 11%, comparing the nine months ended July 31, 2024 to the same period in 2023, which was primarily driven by a $18.4 million decrease in volumes largely due to softer market demand driven by weaker consumer confidence and $3.3 million of base price decreases, partially offset by $0.7 million benefit from foreign currency rate change.
Cost of Sales. The cost of sales decreased $15.1 million, or 13%, for the nine months ended July 31, 2024 compared to the same period in 2023. Cost of sales decreased primarily due to a decrease in volumes and deflation in the price of raw materials, partially offset by foreign currency impacts.
Selling, General and Administrative. Selling, general and administrative expense decreased $1.0 million, or 4%, for the nine months ended July 31, 2024 compared to the same period in 2023. The decrease is primarily due to a decrease in professional fees and decrease in labor costs, year-over-year.
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NA Cabinet Components
Nine Months Ended July 31,
2024 2023 $ Change Variance %
(Dollars in thousands)
Net sales $ 145,663 $ 163,577 $ (17,914) (11)%
Cost of sales (excluding depreciation and amortization) 124,278 136,722 (12,444) (9)%
Selling, general and administrative 15,354 15,939 (585) (4)%
Depreciation and amortization 9,240 8,988 252 3%
Operating (loss) income $ (3,209) $ 1,928 $ (5,137) (266)%
Operating (loss) income margin (2) % 1 %
Net Sales . Net sales decreased $17.9 million, or 11%, for the nine months ended July 31, 2024 compared to the same period in 2023, which was driven by an $11.8 million decrease in volumes due to softer market demand driven by weaker consumer confidence and a $6.1 million decrease in raw material surcharges.
Cost of Sales . Cost of sales decreased $12.4 million, or 9%, for the nine months ended July 31, 2024 compared with the same period in 2023. Cost of sales decreased primarily as a result of lower volumes year-over-year.
Selling, General and Administrative . Selling, general and administrative expense decreased $0.6 million, or 4%, for the nine months ended July 31, 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.
Unallocated Corporate & Other
Nine Months Ended July 31,
2024 2023 $ Change Variance %
(Dollars in thousands)
Net sales $ (3,626) $ (2,126) $ (1,500) 71%
Cost of sales (excluding depreciation and amortization) (2,408) (872) (1,536) 176%
Selling, general and administrative 18,659 12,989 5,670 44%
Depreciation and amortization 167 221 (54) (24)%
Operating loss $ (20,044) $ (14,464) $ (5,580) 39%
Net Sales . Net sales for Unallocated Corporate & Other represents the elimination of inter-segment sales for the nine months ended July 31, 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 $5.7 million, or 44%, for the nine months ended July 31, 2024 compared to the same period in 2023. This increase is primarily attributable to a $7.4 million increase in transaction and advisory fees and an increase in medical claims expense partially offset by lower compensation expense including the valuations of our stock-based compensation awards during the nine months ended July 31, 2024 as compared to the prior year period.
Changes related to Non-Operating Items:
Interest Exp ense . Interest expense decreased $3.7 million for the nine months ended July 31, 2024 compared to the same period in 2023 primarily as a result of lower borrowings outstanding during the nine months ended July 31, 2024 as compared to the prior year period.
Income Taxes . We recorded income tax expense of $12.6 million on pre-tax income of $59.6 million for the nine months ended July 31, 2024, an effective rate of 21.2%, and income tax expense of $10.1 million on a pre-tax income of $65.2 million for the nine months ended July 31, 2023, an effective rate of 15.5%. The increase in the effective tax rate year-over-year was primarily driven by an increase in non-deductible permanent differences.
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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 Existing Credit Agreement) 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 nine months ended July 31, 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 $0.9 million straight-line over the remaining term of the facility. For further details of the Existing Credit Agreement , refer to Note 6, “Debt and Finance Lease Obligations” to the accompanying unaudited condensed consolidated financial statements contained elsewhere herein.
On June 12, 2024, in connection with the Tyman Acquisition, the Company, Wells Fargo Bank, National Association (“Wells Fargo Bank”, acting as agent, swingline lender and issuing lender, the “Agent”), the other entities therein specified in the capacities therein specified, and the lenders parties thereto, entered into an amendment to the Second Amended and Restated Credit Agreement, dated as of July 6, 2022 the Existing Credit Agreement, and the Existing Credit Agreement as so amended, the “Amended Credit Agreement”). The Amended Credit Agreement did not become effective until August 1, 2024 upon the completion the Tyman Acquisition. For further information regarding the Tyman Acquisition and the Amended Credit Agreement, refer to Note 16, “Subsequent Events.”
The Amended Credit Agreement will (i) increase the senior secured revolving credit facility to an aggregate principal amount of $475 million (the “Revolving Credit Facility”) and (ii) provide for a senior secured term loan A facility in an aggregate principal amount of $500 million (the “Term A Facility” and together with the Revolving Credit Facility, the “Facilities”). The Revolving Credit Facility will include alternative currency, letter of credit, and swing-line sub-facilities of $100 million, $30 million, and $15 million, respectively. The maturity date of the Facilities will be five years after the acquisition effective date, maturing on August 1, 2029.
As of July 31, 2024, we had $94.0 million of cash and equivalents, zero outstanding under the Existing Credit Agreement , $3.7 million of outstanding letters of credit and $55.0 million outstanding under finance leases and other debt. Of the $55.0 million outstanding under finance leases and other debt, $50.7 million relates to real estate leases. We had $321.3 million available for use under the Existing Credit Agreement at July 31, 2024.
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 July 31, 2024, we did not purchase any shares under this program and as of July 31, 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 $33.2 million and $30.2 million of f oreign cash during the nine months ended July 31, 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.
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Analysis of Cash Flow
The following table summarizes our cash flow results for the nine months ended July 31, 2024 and 2023:
Nine Months Ended
July 31,
2024 2023
(Dollars in thousands)
Cash provided by operating activities $ 83,333 $ 102,559
Cash used for investing activities $ (23,320) $ (113,569)
Cash (used for) provided by financing activities $ (25,456) $ 26,687
Operating A ctivities . Cash provided by operating activities decreased $19.2 million for the nine months ended July 31, 2024 compared to the same period in 2023. The decrease in operating cash flow is primarily due to a decrease in net income year-over-year and unfavorable changes to net working capital. The unfavorable changes in working capital were largely driven by a decrease in cash inflows related to inventory in 2024 as compared to the prior year, partially offset by a decrease in income tax receivables.
Investing Activities. Cash used for investing activities decreased $90.2 million for the nine months ended July 31, 2024 compared to the same period in 2023, primarily as a result of no business acquisitions during the nine months ended July 31, 2024 compared to the $91.3 million acquisition of LMI in the prior year period.
Financing Activities. Cash used for financing activities was $25.5 million for the nine months ended July 31, 2024 compared to cash provided by financing activities of $26.7 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 partially offset by a decrease in the purchase of treasury shares.
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 nine months ended July 31, 2024 and 2023, we repatriated $33.2 million and $30.2 million, respectively, of foreign earnings from our foreign locations. We maintain cash balances in foreign countries which total $16.0 million as of July 31, 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 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 nine months ended July 31, 2024.
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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 nine months ended July 31, 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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