What changed in this filing

/stocks — the workspaceLOADING

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2020-11-25 compared with 2019-11-27 · 73 added, 48 removed, 148 unchanged (45% of the section changed)

1 unchanged sentence

INTEREST RATE RISK

Our exposure to interest rate risk relates primarily to our investment portfolio.

We do not use derivative financial instruments to hedge against interest rate risk.

We may be exposed to interest rate risk should we decide to invest in marketable securities.

When we held marketable securities, we classified them as available-for-sale and were carried at fair value.

Our investments historically consisted of money market funds, certificates of deposit, commercial paper, corporate bonds and government municipal bonds.

Our investment policy specifies the types of eligible investments and minimum credit quality of our investments, as well as diversification and concentration limits which mitigate our risk.

We do not use derivative financial instruments to hedge against interest rate risk because the majority of our investments mature in less than one year.

We are exposed to market risks related to fluctuations in interest rates on amounts borrowed under the Credit Facility.

As of September 30, 2020, we had $48.1 million outstanding under our Term Loan and $15.0 million outstanding under our Revolving Loan.

Prior to May 4, 2020, borrowings under the Credit Facility bore interest rates based on an underlying variable benchmark plus applicable margin based on our total leverage ("ABR");

this interest rate was reset quarterly.

Effective May 4, 2020, borrowings under the Credit Facility bear a variable interest rate of LIBOR plus an applicable margin spread from 3.25% to 1.25%.

The amount of the applicable margin spread is a function of our leverage ratio and is reset monthly.

Based on the balance sheet position for both the Term Loan and Revolving Loan at September 30, 2020, the annualized effect of a 25 basis point change in interest rates would increase or decrease our interest expense by $0.3 million.

For additional information, see Note 8 to our consolidated financial statements.

For our Credit Facility, interest rate changes generally do not affect the fair value of the debt instruments, but do impact future earnings and cash flows, assuming other factors are held constant.

FOREIGN CURRENCY RISK

We are exposed to foreign currency transaction risk associated with certain sales being denominated in Euros, British Pounds, Japanese Yen or Canadian Dollars and in certain cases, transactions in U.S.Dollars in our foreign entities.

Dollars in our foreign entities.

We are also exposed to foreign currency translation risk as the financial position and operating results of our foreign subsidiaries are translated into U.S.

6 unchanged sentences

Fiscal year ended

September 30,

September 30, % increase

2020 2019 (decrease)

Euro 1.1268 1.1300 (0.3) %

British Pound 1.2722 1.2769 (0.4) %

Japanese Yen 0.0093 0.0091 2.2 %

Canadian Dollar 0.7441 0.7518 (1.0) %

6 unchanged sentences

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

Board of Directors and Shareholders

Digi International Inc.

1 unchanged sentence

We have audited the accompanying consolidated balance sheets of Digi International Inc.

(a Delaware corporation) and subsidiaries (the “Company”) as of September 30, 2019 and 2018, and the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended September 30, 2019, and the related notes and consolidated financial statement schedule included under Item 15 (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2019 and 2018, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2019, in conformity with accounting principles generally accepted in the United States of America.

(a Delaware corporation) and subsidiaries (the “Company”) as of September 30, 2020 and 2019,the related consolidated statements of operations, comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended September 30, 2020, and the related notes and consolidated financial statement schedule included under Item 15 (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2020, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of September 30, 2020, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated November 25, 2020 expressed an unqualified opinion.

Change in accounting principle

As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for leases in fiscal year 2020 due to the adoption of ASC Topic 842, Leases.

Basis for opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

3 unchanged sentences

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

8 unchanged sentences

Fiscal year ended September 30,

(as adjusted)*

2020 2019 2018

(in thousands, except per common share data)

Product $ 248,374 $ 224,530 $ 201,737

Service 30,897 29,673 25,156

Total revenue 279,271 254,203 226,893

2 unchanged sentences

Cost of service 12,490 13,350 10,329

Amortization 4,487 2,963 2,871

Total cost of sales 135,299 135,168 117,839

Gross profit 143,972 119,035 109,054

Operating expenses:

2 unchanged sentences

General and administrative 36,012 25,685 28,276

Restructuring charge

Restructuring charge (reversal) 117 ( 87 ) 301

Total operating expenses 132,655 108,963 106,272

Operating income 11,317 10,072 2,782

Other income, net:

Other (expense) income, net:

Interest income 304 733 445

Interest expense ( 3,592 ) ( 102 ) ( 25 )

Other income, net

Total other income, net

Other (expense) income, net ( 566 ) 442 48

Total other (expense) income, net ( 3,854 ) 1,073 468

Income before income taxes 7,463 11,145 3,250

Income tax provision

Income tax (benefit) expense ( 948 ) 1,187 1,619

Net income $ 8,411 $ 9,958 $ 1,631

Net income per common share:

Basic $ 0.29 $ 0.36 $ 0.06

Diluted $ 0.28 $ 0.35 $ 0.06

Weighted average common shares:

*Prior period information has been restated for the adoption of ASU No.

2014-09, “ Revenue from Contracts with Customers (Topic 606) ”, which we adopted on October 1, 2018.

Basic 28,849 27,905 27,083

Diluted 29,546 28,554 27,652

The accompanying notes are an integral part of the consolidated financial statements.

2 unchanged sentences

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Fiscal years ended September 30,

(as adjusted)*

Fiscal year ended September 30,

2020 2019 2018

(in thousands)

Other comprehensive (loss) income, net of tax:

Net income $ 8,411 $ 9,958 $ 1,631

Other comprehensive income (loss), net of tax:

Foreign currency translation adjustment 1,698 ( 2,003 ) ( 865 )

3 unchanged sentences

Less income tax benefit (2) — — ( 8 )

Other comprehensive (loss) income, net of tax

Other comprehensive income (loss), net of tax 1,698 ( 1,989 ) ( 867 )

Comprehensive income $ 10,109 $ 7,969 $ 764

Recorded in Other income, net in our Consolidated Statements of Operations.

Recorded in Income tax provision in our Consolidated Statements of Operations.

*Prior period information has been restated for the adoption of ASU No.

2014-09, “ Revenue from Contracts with Customers (Topic 606) ”, which we adopted on October 1, 2018.

(1) Recorded in Other (expense) income, net in our Consolidated Statements of Operations.

(2) Recorded in Income tax (benefit) expense in our Consolidated Statements of Operations.

The accompanying notes are an integral part of the consolidated financial statements.

3 unchanged sentences

As of September 30,

(as adjusted)*

(in thousands, except share data)

1 unchanged sentence

Cash and cash equivalents $ 54,129 $ 92,792

Marketable securities

Accounts receivable, net 59,227 56,417

Inventories 51,568 39,764

Other current assets 5,134 3,574

Assets held for sale

Total current assets 170,058 192,547

1 unchanged sentence

Identifiable intangible assets, net 121,248 30,667

Goodwill 210,135 153,422

Deferred tax assets 389 7,330

Operating lease right-of-use assets 14,334 —

Other non-current assets 1,011 875

Total assets $ 528,682 $ 398,698

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Current portion of long-term debt $ 1,972 $ —

Accounts payable 28,067 21,183

2 unchanged sentences

Contingent consideration on acquired businesses 4,228 5,407

Current portion of operating lease liabilities 2,527 —

Other current liabilities 7,373 4,110

2 unchanged sentences

Deferred tax liabilities 17,171 261

Contingent consideration on acquired businesses

Long-term debt 58,980 —

Operating lease liabilities 16,193 —

Other non-current liabilities 1,650 3,809

Total liabilities 157,182 49,720

Commitments and Contingencies (see Notes 16 & 17)

Commitments and Contingencies (see Note 17)

Stockholders’ equity:

11 unchanged sentences

Total liabilities and stockholders’ equity $ 528,682 $ 398,698

*Prior period information has been restated for the adoption of ASU No.

2014-09, “ Revenue from Contracts with Customers (Topic 606) ”, which we adopted on October 1, 2018.

The accompanying notes are an integral part of the consolidated financial statements.

3 unchanged sentences

Fiscal year ended September 30,

(as adjusted)*

2020 2019 2018

Operating activities:

(in thousands)

Net income $ 8,411 $ 9,958 $ 1,631

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

2 unchanged sentences

Stock-based compensation 7,237 5,655 4,854

Excess tax benefits from stock-based compensation

Deferred income tax benefit ( 3,357 ) ( 799 ) ( 376 )

(Gain) loss on sale of property, equipment and improvements

Gain on sale of property, equipment and improvements — ( 4,392 ) ( 622 )

Change in fair value of contingent consideration ( 128 ) 1,190 1,377

1 unchanged sentence

Provision for inventory obsolescence 2,630 1,874 2,056

Other, net 366 ( 156 ) 368

Changes in operating assets and liabilities (net of acquisitions):

Accounts receivable 5,539 ( 6,589 ) ( 16,004 )

Inventories ( 11,133 ) ( 1,062 ) ( 11,344 )

Other assets ( 704 ) ( 866 ) ( 1,412 )

Income taxes ( 1,100 ) ( 103 ) 697

Accounts payable 3,205 8,232 2,728

2 unchanged sentences

Investing activities:

Purchase of marketable securities

Proceeds from maturities of marketable securities — 4,750 32,032

3 unchanged sentences

Purchase of property, equipment, improvements and certain other intangible assets ( 899 ) ( 9,335 ) ( 1,842 )

Net cash provided by (used in) investing activities

Net cash (used in) provided by investing activities ( 136,997 ) 5,511 ( 23,337 )

Financing activities:

Acquisition earn-out payments

Excess tax benefits from stock-based compensation

Proceeds from long-term debt 119,018 — —

Payments on long-term debt ( 55,893 ) — —

Payments for contingent consideration ( 4,698 ) ( 3,748 ) —

Proceeds from stock option plan transactions 5,902 4,874 5,460

Proceeds from employee stock purchase plan transactions 1,065 1,058 1,115

Repurchase of common stock

Taxes paid for net share settlement of share-based payment awards ( 1,791 ) ( 1,071 ) ( 748 )

Net cash provided by financing activities 63,603 1,113 5,827

Effect of exchange rate changes on cash and cash equivalents 253 ( 810 ) 80

Net increase (decrease) in cash and cash equivalents

Net (decrease) increase in cash and cash equivalents ( 38,663 ) 34,778 ( 20,208 )

Cash and cash equivalents, beginning of period 92,792 58,014 78,222

4 unchanged sentences

Supplemental schedule of non-cash investing and financing activities:

Accrual for capitalized intangible asset

Accrual for property, equipment, improvements and certain other intangibles assets $ ( 26 ) $ — $ ( 78 )

Transfer of inventory to property, equipment and improvements $ ( 1,363 ) $ ( 1,064 ) $ ( 2,159 )

Liability related to acquisition of business $ ( 5,100 ) $ — $ ( 2,300 )

*Prior period information has been restated for the adoption of ASU No.

2014-09, “ Revenue from Contracts with Customers (Topic 606) ”, which we adopted on October 1, 2018.

The accompanying notes are an integral part of the consolidated financial statements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk