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Item 7. Management’s Discussion and Analysis

2020-08-21 compared with 2019-08-27 · 224 added, 406 removed, 122 unchanged (84% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following management's discussion and analysis of financial condition and results of operations ("MD&A") is intended to help the reader

understand our results of operations and financial condition.

The following management’s discussion and analysis of financial condition and results of operations (“MD&A”) is intended to help the reader understand our results of operations and financial condition.

MD&A is provided as a supplement to, and should be read in conjunction with, our financial statements and the accompanying notes.

We are a vertically integrated designer and manufacturer of specialized electronic systems and components for critical applications.

products and provide related services in diversified markets, including homeland security, healthcare, defense and aerospace.

We sell our products and provide related services in diversified markets, including homeland security, healthcare, defense and aerospace.

We have three operating divisions:

(a) Security, providing security

and inspection systems and turnkey security screening solutions;

(b) Healthcare, providing patient monitoring and diagnostic cardiology systems;

and (c) Optoelectronics and

Manufacturing, providing specialized electronic components for our Security and Healthcare divisions, as well as to third parties for applications in the defense and aerospace markets, among others.

(a) Security, providing security and inspection systems and turnkey security screening solutions;

(b) Healthcare, providing patient monitoring, diagnostic cardiology, and connected care systems;

and (c) Optoelectronics and Manufacturing, providing specialized electronic components for our Security and Healthcare divisions, as well as to third parties for applications in the defense and aerospace markets, among others.

Security Division.

Through our Security division, we provide security screening products and services globally, as well as

turnkey security screening

These products and services are used to inspect baggage, parcels, cargo, people, vehicles and other objects for weapons, explosives, drugs, radioactive and nuclear materials and other

Through our Security division, we provide security screening products and services globally, as well as turnkey security screening solutions.

These products and services are used to inspect baggage, parcels, cargo, people, vehicles and other objects for weapons, explosives, drugs, radioactive and nuclear materials and other contraband.

Revenues from our Security division accounted for 64% of our total consolidated revenues for fiscal 2020.

a result of the terrorist attacks in the U.S.

and in other locations worldwide, security and inspection products have increasingly been used at a wide range of facilities other than

airports, such as border crossings, railways, seaports, cruise line terminals, freight forwarding operations, sporting venues, government and military installations and nuclear facilities.

that our wide-ranging product portfolio together with our ability to provide turnkey screening solutions position us to competitively pursue security and inspection opportunities as they arise

throughout the world.

As a result of terrorist attacks and smuggling operations against the U.S.

and in other locations worldwide, security and inspection products have increasingly been used at a wide range of facilities other than airports, such as border crossings, railways, seaports, cruise line terminals, freight forwarding operations, sporting venues, government and military installations and nuclear facilities.

We believe that our wide-ranging product portfolio together with our ability to provide turnkey screening solutions position us to competitively pursue security and inspection opportunities as they arise throughout the world.

Currently, the U.S.

federal government is discussing various options to address the U.S.

federal government's overall fiscal challenges and we cannot predict the outcome of these

federal government’s overall fiscal challenges and we cannot predict the outcome of these efforts.

While we believe that national security spending will continue to be a priority, U.S.

government budget deficits and the national debt have created increasing pressure to examine and reduce

spending across many federal agencies.

government budget deficits and the national debt have created increasing pressure to examine and reduce spending across many federal agencies.

Additionally, there continues to be volatility in international markets that has impacted international security spending.

We believe that the diversified

product portfolio and international customer mix of our Security division position us well to withstand the impact of these uncertainties and even benefit from specific initiatives within various

We believe that the diversified product portfolio and international customer mix of our Security division position us well to withstand the impact of these uncertainties and even benefit from specific initiatives within various governments.

However, depending on how future sequestration cuts are implemented and how the U.S.

federal government and our other international customers manage their fiscal challenges, we believe

that these actions could have a material, adverse effect on our business, financial condition and results of operations.

federal government and our other international customers manage their fiscal challenges, including the impact of the COVID-19 pandemic, we believe that these actions could have a material, adverse effect on our business, financial condition and results of operations.

Healthcare Division.

Through our Healthcare division, we design, manufacture, market and service patient monitoring and

diagnostic cardiology systems

globally for sale primarily to hospitals and medical centers.

Our products monitor patients in critical, emergency and perioperative care areas of the hospital and provide information, through wired

and wireless networks, to physicians and nurses who may be at the patient's

bedside, in another area of the hospital or even outside the hospital.

Through our Healthcare division, we design, manufacture, market and service patient monitoring, diagnostic cardiology, and connected care systems globally for sale primarily to hospitals and medical centers.

Our products monitor patients in critical, emergency and perioperative care areas of the hospital and provide information, through wired and wireless networks, to physicians and nurses who may be at the patient’s bedside, in another area of the hospital or even outside the hospital.

Revenues from our Healthcare division accounted for 16% of our total consolidated revenues for fiscal 2020.

healthcare markets in which we operate are highly competitive.

We believe that our customers choose among competing products on the basis of product performance, functionality, value

There is continued uncertainty regarding the U.S.

federal government budget and the Affordable Care Act, either of which

impact hospital spending, third-party payer reimbursement and fees to be levied on certain medical device revenues, any of which could adversely affect our business and results of operations.

addition, hospital capital spending appears to have been impacted by strategic uncertainties surrounding the Affordable Care Act and economic pressures.

We also believe that global economic

uncertainty has caused some hospitals and healthcare providers to delay purchases of our products and services.

During this period of uncertainty, sales of our healthcare products may be negatively

The healthcare markets in which we operate are highly competitive.

We believe that our customers choose among competing products on the basis of product performance, functionality, value and service.

Although there has been an increase in demand for patient monitoring products due to the COVID-19 pandemic, there is continued uncertainty regarding the U.S.

federal government budget and the Affordable Care Act, either of which may impact hospital spending, third-party payer reimbursement and fees to be levied on certain medical device revenues, any of which could adversely affect our business and results of operations.

In addition, hospital capital spending appears to have been impacted by strategic uncertainties surrounding the Affordable Care Act and economic pressures.

We also believe that global economic uncertainty has caused some hospitals and healthcare providers to delay purchases of our products and services.

During this period of uncertainty, sales of our healthcare products may be negatively impacted.

We cannot predict when the markets will fully recover or when the uncertainties related to the U.S.

federal government will be resolved and, therefore, when this period of delayed and

diminished purchasing will end.

federal government will be resolved and, therefore, when this period of delayed and diminished purchasing will end.

A prolonged delay could have a material adverse effect on our business, financial condition and results of operations.

Optoelectronics and Manufacturing Division.

Through our Optoelectronics and Manufacturing division, we design, manufacture and

market optoelectronic

devices and flex circuits and provide electronics manufacturing services globally for use in a broad range of applications, including aerospace and defense electronics, security and inspection

systems, medical imaging and diagnostics, telecommunications, office automation, computer peripherals, industrial automation, automotive diagnostic systems, and consumer products.

We also provide our

optoelectronic devices and electronics manufacturing services to OEM customers, and our own Security and Healthcare divisions.

Revenues from external customers in our Optoelectronics and Manufacturing

division accounted for 21% of our total consolidated revenues for fiscal 2019.

Through our Optoelectronics and Manufacturing division, we design, manufacture and market optoelectronic devices and flex circuits and provide electronics manufacturing services globally for use in a broad range of applications, including aerospace and defense electronics, security and inspection systems, medical imaging and diagnostics, telecommunications, office automation, computer peripherals, industrial automation, and consumer products.

We also provide our optoelectronic devices and electronics manufacturing services to OEM customers, and our own Security and Healthcare divisions.

Revenues from external customers in our Optoelectronics and Manufacturing division accounted for 20% of our total consolidated revenues for fiscal 2020.

Consolidated Results

Discussion and analysis of our financial condition and results of operations for fiscal 2017 has been omitted from this Annual Report on

Form 10-K, and is available in Item 7 of Part II, "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K

for the year ended June 30, 2018.

Discussion and analysis of our financial condition and results of operations for fiscal 2018 has been omitted from this Annual Report on Form 10-K, and is available in Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended June 30, 2019.

Fiscal 2020 Compared with Fiscal 2019.

We reported consolidated sales of $1,182.1 million in fiscal 2019, a 9% increase

over the prior year,

which drove a year-over-year increase in gross profit of $38.9 million.

Our income from operations increased by 93% from the prior year to $107.8 million in fiscal 2019.

This increase in

profitability was driven primarily by our 9% increase in sales including the contribution from acquisitions and a decrease in impairment, restructuring and other charges.

We reported consolidated sales of $1,166.0 million in fiscal 2020, a 1.4% decrease over compared to the prior year, which drove a year-over-year decrease in gross profit of $10.0 million.

Our income from operations decreased by 3% from the prior year to $104.9 million in fiscal 2020.

This decrease in profitability was driven primarily by an increase in impairment, restructuring and other charges.

Acquisitions.

In July 2018, we acquired an optoelectronics solutions business for $17.5 million, plus up to $1 million

contingent consideration, which may be earned over an 18-month period.

The acquisition was financed with cash on hand and borrowings under our revolving bank line of credit.

The goodwill recognized

for this business is expected to be deductible for income tax purposes.

August 2018, we (through our Security division) completed an acquisition of a privately held services company for approximately $0.8 million, plus up to approximately

$5 million in contingent consideration, which may be earned over a five-year period.

The acquisition was financed with cash on hand.

The goodwill recognized for this business is not expected to

be deductible for income tax purposes.

January 2019, we (through our Security division) completed an acquisition of a privately held sales and services company.

The acquisition was financed with cash on hand and was in an

amount determined to be insignificant by management.

We acquired several small businesses during fiscal years 2020 and 2019 as described in Note 2 to the consolidated financial statements.

Trends and Uncertainties

The following is a discussion of certain trends and uncertainties that we believe have and may continue to influence our results of operations.

The following is a discussion of certain trends and uncertainties that we believe have influenced, and may continue to influence, our results of operations.

Coronavirus Pandemic.

Coronavirus disease 2019 (“COVID-19”) was first reported in late 2019.

In March 2020, the World Health Organization characterized COVID-19 as a global pandemic, and President Trump declared a national emergency concerning the pandemic.

COVID-19 has dramatically impacted the global health and economic environment, with millions of confirmed cases, business slowdowns and shutdowns, and market volatility.

The COVID-19 outbreak has caused, and is likely to continue to cause, significant economic disruptions and has impacted, and is expected to continue to impact, our operations and the operations of our suppliers and customers as a result of quarantines, facility closures and travel and logistics restrictions.

While we do not expect these impacts to be long-term, there is uncertainty around the duration and ultimate impact of the COVID-19 outbreak.

Our Healthcare division has experienced increased demand for certain products as a result of COVID-19, but our other divisions have experienced adverse changes in the timing of demand for products and services.

In our Security division, order activity has been impacted most prominently with respect to our aviation and cargo products.

As many of our customers in both our Security and Optoelectronics and Manufacturing divisions are being impacted by the pandemic, we are also receiving requests to delay deliveries of equipment and modify service arrangements, and we are experiencing delays in the timing of orders.

In addition, as a result of COVID-19 related government regulations, certain of our global manufacturing facilities had to limit operations somewhat in the fourth quarter of fiscal 2020, and it is possible that our operations could be similarly impacted in the future.

If these business interruptions resulting from COVID-19 were to be prolonged or expanded in scope, our business, financial condition, results of operations and cash flows would be materially and adversely impacted.

We intend to continue to actively monitor the situation and may take actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in our best interests and the best interests of our employees, suppliers and customers.

For a further discussion of potential risks to our business from the COVID-19 pandemic, see Part I, Item 1A.

Risk Factors in this annual report on Form 10-K.

Global Economic Considerations.

Global macroeconomic factors, coupled with the U.S.

political climate, have created uncertainty

and impacted demand

for certain of our products and services primarily in our Security and Healthcare divisions.

The current status and potential outcomes of Brexit negotiations has contributed to global economic

uncertainty and could have an adverse impact on our UK business, including our orders and sales operations and personnel in the UK.

In addition to the COVID-19 pandemic, other global macroeconomic factors, coupled with the U.S.

political climate, have created uncertainty and impacted demand for certain of our products and services.

We do not know how long this uncertainty will continue.

we expect that there may be a period of delayed or deferred purchasing by our customers.

These factors could have a material negative effect on our business, results of operations and financial

Additionally, our international operations provide a significant portion of our total revenue and expenses.

Many of these revenues and expenses are denominated in currencies other than the

dollar, and, as a result, may be significantly affected by changes in foreign exchange rates.

Therefore, we expect that there may be a period of delayed or deferred purchasing by our customers.

These factors could have a material negative effect on our business, results of operations and financial condition.

Global Trade.

The current domestic and international political environment, including existing and potential changes to U.S.

foreign policies

related to global trade and tariffs, have resulted in uncertainty surrounding the future state of the global economy.

Further, the U.S.

government has announced that sanctions would be imposed against

certain businesses and individuals in select countries.

Additional changes may require us to modify our current business practices and could have a material adverse effect on our business, results of

operations and financial condition in any particular reporting period.

In addition to the COVID-19 pandemic, the current domestic and international political environment, including in relation to recent and further potential changes by the U.S.

and other countries in policies on global trade and tariffs, have resulted in uncertainty surrounding the future state of the global economy and global trade.

This uncertainty is exacerbated by sanctions imposed by the U.S.

government against certain businesses and individuals in select countries.

Continued or increased uncertainty regarding global trade due to these or other factors may require us to modify our current business practices and could have a material adverse effect on our business, results of operations and financial condition.

Healthcare Considerations.

Although our financial results improved in fiscal year 2019, the results of our operations had been

adversely impacted in

prior periods by difficulties associated with product launches in our Healthcare division.

These issues may continue to adversely impact our results of operations for additional periods.

Additionally,

there have been numerous efforts advanced by the Trump administration and Congress to repeal and replace or modify the Affordable Care Act, which has created uncertainty in the healthcare industry

that has adversely impacted, and may continue to adversely impact, our results of operations.

EU Threat Detection Standards.

The EU has implemented regulations for all airports within the EU to have hold baggage screening

systems that are

compliant with the European Civil Aviation Conference (ECAC) Standard 3 by September 2020.

However, this deadline could potentially be delayed.

Our Security division's real time tomography

(RTT) product has passed the ECAC explosive detection system Standard 3 threat detection requirement.

As described above, our Healthcare division has experienced some increased demand for its patient monitoring products as a result of the COVID-19 pandemic.

Increased healthcare capital purchases in 2020 may result in fewer capital purchases in following years as the market is flooded with product.

The pandemic may also impact our ability to manufacture product needed to timely fill orders if we need to close our manufacturing facility due to employee COVID-19 cases.

European Union Threat Detection Standards.

The EU has implemented regulations for all airports within the EU, that use explosive detection systems, to have hold baggage screening systems that are compliant with the European Civil Aviation Conference (ECAC) Standard 3.

Upon issuance of the regulations, the deadline for compliance with this mandate was set for September 2020.

Given the current uncertainty surrounding the COVID-19 situation, the EU has revised the regulations, and the date whereby airports that use explosive detection systems for hold baggage screening have to meet Standard 3 has been changed to September 2021.

There is an ongoing discussion around whether this deadline should be further moved and whether a second deadline for previous generation explosive detection systems installed between 2011 and 2014 needing to be replaced with Standard 3 should be moved from 2022 to 2024.

Our Security division’s real time tomography (RTT) product has passed the ECAC explosive detection system Standard 3 threat detection requirement.

Government Policies.

Our net income could be affected by changes in U.S.

or foreign government tax policies, such as the Tax Act,

the implications

and uncertainties of which are described elsewhere in this report.

We attempt to manage our currency exposure in certain countries.

Changes in government policies in these areas might impact our

financial condition and results of operations.

or foreign government policies.

For example, the LIBOR index will be discontinued by the end of calendar year 2021.

When the LIBOR index is discontinued, the terms of our revolving credit facility allow for a replacement rate to be determined in accordance with the credit agreement.

Changes in government policies could impact our financial condition and results of operations.

Mexico SAT Contract.

Our contract with the Mexican government to provide a turnkey security screening solution at various locations throughout the country expired in June 2020.

While we are engaged in discussions for the continuation of the program, we cannot provide any assurance that this program will be continued and, if the program is continued, upon what terms.

If the program is not continued or continued upon modified terms, our results of operations could be adversely affected.

Critical Accounting Policies and Estimates

The following discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements,

which have been prepared in conformity with accounting principles generally accepted in the United States ("U.S.

Our preparation of these consolidated financial statements requires us

to make judgments and estimates that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported

amounts of revenues and expenses during the reporting period.

The following discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States (“U.S.

Our preparation of these consolidated financial statements requires us to make judgments and estimates that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances.

As a result, actual results may differ from such estimates.

Our senior management has reviewed these critical accounting policies and related disclosures with the Audit Committee of our Board of

Our senior management has reviewed these critical accounting policies and related disclosures with the Audit Committee of our Board of Directors.

The following summarizes our critical accounting policies and significant estimates used in preparing our consolidated financial statements:

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Product Sales.

We recognize revenue from sales of products upon shipment or

delivery when control of the

product transfers to the customer, depending on the terms of each sale, and when

In the circumstance where terms of a product sale include subjective customer acceptance criteria, revenue is deferred until we have achieved the acceptance criteria unless the

customer acceptance criteria are perfunctory or inconsequential.

We recognize revenue from sales of products upon shipment or delivery when control of the product transfers to the customer, depending on the terms of each sale, and when collection is probable.

In the circumstance where terms of a product sale include subjective customer acceptance criteria, revenue is deferred until we have achieved the acceptance criteria unless the customer acceptance criteria are perfunctory or inconsequential.

We generally offer customers payment terms of less than one year.

In cases when payment terms extend beyond one year, we consider

whether the contract has a significant financing component.

In cases when payment terms extend beyond one year, we consider whether the contract has a significant financing component.

Service Revenue.

Revenue from services includes installation and implementation of products and turnkey security screening services and

Revenue from services includes installation and implementation of products and turnkey security screening services and after-market services.

Generally, revenue from services is recognized over time as the services are performed.

Revenues from out of warranty service maintenance contracts are recognized ratably over the respective

terms of such contracts.

Revenues from out of warranty service maintenance contracts are recognized ratably over the respective terms of such contracts.

Deferred revenue for such services arises from payments received from customers for services not yet performed.

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Sales agreements with customers can be project specific, cover a period of time, and can be renewable periodically.

The contracts

may contain terms and conditions with respect to payment, delivery, installation, services, warranty and other rights.

In certain instances, we consider an accepted customer order, governed by a

master sales agreement, to be the contract with the customer when legal rights and obligations exist.

Contracts with customers may include the sale of products and services, as discussed in the

paragraphs above.

The contracts may contain terms and conditions with respect to payment, delivery, installation, services, warranty and other rights.

In certain instances, we consider an accepted customer order, governed by a master sales agreement, to be the contract with the customer when legal rights and obligations exist.

Contracts with customers may include the sale of products and services, as discussed in the paragraphs above.

In certain instances, contracts can contain multiple performance obligations as discussed in the paragraph below.

According to the terms of a sale contract, we may receive

consideration from a customer prior to transferring goods to the customer, and we record these prepayments as a contract liability.

We also record deferred revenue, typically related to service

contacts, when consideration is received before the services have been performed.

We recognize customer deposits and deferred revenue as net sales after all revenue recognition criteria are met.

determining revenue recognition for contracts, we use judgment based on our understanding of the obligations within each contract.

We determine whether or not customer acceptance

criteria are perfunctory or inconsequential.

According to the terms of a sale contract, we may receive consideration from a customer prior to transferring goods to the customer, and we record these prepayments as a contract liability.

We also record deferred revenue, typically related to service contacts, when consideration is received before the services have been performed.

We recognize contract liabilities and deferred revenue as net sales after all revenue recognition criteria are met.

When determining revenue recognition for contracts, we make judgments based on our understanding of the obligations in each contract.

We determine whether or not customer acceptance criteria are perfunctory or inconsequential.

The determination of whether or not customer acceptance terms are perfunctory or inconsequential impacts the amount and timing of revenue recognition.

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Multiple Performance Obligations.

Certain agreements with customers include the sale of capital equipment involving multiple elements

include civil works to prepare a site for the installation of equipment, manufacture and delivery of equipment, installation and integration of equipment, training of customer personnel to operate the

equipment and after-market service of the equipment.

We generally separate multiple elements in a contract into separate performance obligations if those elements are distinct, both individually and

in the context of the contract.

If multiple promises comprise a series of distinct services which are substantially the same and have the same pattern of transfer, they are combined and accounted for

as a single performance obligation.

cases where obligations in a contract are distinct and thus require separation into multiple performance obligations, revenue recognition guidance requires that contract consideration

be allocated to each distinct performance obligation based on its relative standalone selling price.

The value allocated to each performance obligation is then recognized as revenue when the revenue

recognition criteria for each distinct promise or bundle of promises has been met.

standalone selling price for each performance obligation is an amount that depicts the amount of consideration to which the entity expects to be entitled in exchange for transferring

the good or service.

Certain agreements with customers include the sale of capital equipment involving multiple elements that may include civil works to prepare a site for the installation of equipment, manufacture and delivery of equipment, installation and integration of equipment, training of customer personnel to operate the equipment and after-market service of the equipment.

We generally separate multiple elements in a contract into separate performance obligations if those elements are distinct, both individually and in the context of the contract.

If multiple promises comprise a series of distinct services which are substantially the same and have the same pattern of transfer, they are combined and accounted for as a single performance obligation.

In cases where obligations in a contract are distinct and thus require separation into multiple performance obligations, revenue recognition guidance requires that contract consideration be allocated to each distinct performance obligation based on its relative standalone selling price.

The value allocated to each performance obligation is then recognized as revenue when the revenue recognition criteria for each distinct promise or bundle of promises has been met.

The standalone selling price for each performance obligation is an amount that depicts the amount of consideration to which the entity expects to be entitled in exchange for transferring the good or service.

When there is only one performance obligation associated with a contract, the entire sale value is attributed to that obligation.

When a contract contains multiple performance

obligations the transaction value is first allocated using the observable price, which is generally a list price net of applicable discount or the price used to sell in similar circumstances.

circumstances when a selling price is not directly observable, we will estimate the standalone selling price using information available to us including our market assessment and expected cost plus

The timetable for fulfilment of each of the distinct performance obligations can range from completion in a short amount of time and entirely within a single

reporting period to completion over several reporting periods.

The timing of revenue recognition for each performance obligation may be dependent upon several milestones, including physical delivery

of equipment, completion of factory acceptance test, completion of site acceptance test, installation and connectivity of equipment, certification of training of personnel and, in the case of

after-market service deliverables, the passage of time (typically evenly over the post-warranty period of the service deliverable).

often provide a guarantee to support our performance under multiple performance obligations.

In the event that customers are permitted to terminate such arrangements, the underlying

contract typically requires payment for deliverables and reimbursement of costs incurred through the date of termination.

adopted new revenue recognition guidance issued by the FASB effective July 1, 2018 using the modified retrospective method.

See Note 1 to the consolidated financial

When a contract contains multiple performance obligations the standalone selling price is first estimated using the observable price, which is generally a list price net of applicable discount or the price used to sell the good or service in similar circumstances.

In circumstances when a selling price is not directly observable, we will estimate the standalone selling price using information available to us including our market assessment and expected cost plus margin.

The timetable for fulfilment of each of the distinct performance obligations can range from completion in a short amount of time and entirely within a single reporting period to completion over several reporting periods.

The timing of revenue recognition for each performance obligation may be dependent upon several milestones, including physical delivery of equipment, completion of factory acceptance test, completion of site acceptance test, installation and connectivity of equipment, certification of training of personnel and, in the case of after-market service deliverables, the passage of time (typically evenly over the post-warranty period of the service deliverable).

We often provide a guarantee to support our performance under multiple performance obligations.

In the event that customers are permitted to terminate such arrangements, the underlying contract typically requires payment for deliverables and reimbursement of costs incurred through the date of termination.

We adopted new revenue recognition guidance issued by the FASB effective July 1, 2018 using the modified retrospective method.

See Note 1 to the consolidated financial statements.

Allowance for Doubtful Accounts.

The allowance for doubtful accounts involves estimates based on management's judgment, review

of individual

receivables and analysis of historical bad debts.

We monitor collections and payments from our customers and we maintain allowances for doubtful accounts for estimated losses resulting from the

inability of our customers to make required payments.

The allowance for doubtful accounts involves estimates based on management’s judgment, review of individual receivables and analysis of historical bad debts.

We monitor collections and payments from our customers and we maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments.

We also assess current economic trends that might impact the level of credit losses in the future.

If the financial condition of our customers

were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances could be required.

If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances could be required.

Inventories are generally stated at the lower of cost (first-in, first-out) or net realizable value.

We write down

inventory for

slow-moving and obsolete inventory based on historical usage, orders on hand, assessments of future demands, market conditions among other items.

If these factors are less favorable than those

projected, additional inventory write-downs may be required.

We write down inventory for slow-moving and obsolete inventory based on historical usage, orders on hand, assessments of future demands, market conditions among other items.

If these factors are less favorable than those projected, additional inventory write-downs may be required.

Property and Equipment.

Property and equipment are stated at cost less accumulated depreciation and amortization.

and amortization are

charged while assets are used in service and are computed using the straight-line method over the estimated useful lives of the assets taking into consideration any estimated salvage value.

Depreciation and amortization are charged while assets are used in service and are computed using the straight-line method over the estimated useful lives of the assets taking into consideration any estimated salvage value.

Amortization of leasehold improvements is calculated on the straight-line method over the shorter of the useful life of the asset or the lease term.

Leased capital assets are included in property and

Leased capital assets are included in property and equipment.

Amortization of property and equipment under capital leases is included with depreciation expense.

In the event that property and equipment are idle, as a result of excess capacity or the

early termination, non-renewal or reduction in scope of a turnkey screening operation, such assets are assessed for impairment on a periodic basis and when an indication that impairment may exist.

In the event that property and equipment are idle, as a result of excess capacity or the early termination, non-renewal or reduction in scope of a turnkey screening operation, such assets are assessed for impairment on a periodic basis and when an indication that impairment may exist.

Income Taxes.

Our annual tax rate is based on our income, statutory tax rates and tax planning opportunities available to us in

jurisdictions in which we operate.

Our annual tax rate is based on our income, statutory tax rates and tax planning opportunities available to us in the various jurisdictions in which we operate.

Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities.

Significant judgment is required in

determining our tax expense and in evaluating our tax positions including evaluating uncertainties.

Significant judgment is required in determining our tax expense and in evaluating our tax positions including evaluating uncertainties.

We review our tax positions quarterly and adjust the balances as new information becomes available.

income tax assets represent amounts available to reduce income taxes payable on taxable income in future years.

Such assets arise because of temporary differences between the

financial reporting and tax bases of assets and liabilities, as well as from net operating loss and tax credit carryforwards.

We evaluate the

recoverability of these future tax deductions by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating

earnings and available tax planning strategies.

Deferred income tax assets represent amounts available to reduce income taxes payable on taxable income in future years.

Such assets arise because of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as from net operating loss and tax credit carryforwards.

We evaluate the recoverability of these future tax deductions by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies.

These sources of income inherently rely on estimates.

To provide insight, we use our historical experience and our short and long-range business

To provide insight, we use our historical experience and our short and long-range business forecasts.

We believe it is more likely than not that a portion of the deferred income tax assets may expire unused and therefore have established a valuation allowance against them.

realization is not assured for the remaining deferred income tax assets, we believe it is more likely

not that the deferred tax assets will be fully recoverable within the applicable statutory expiration periods.

However, deferred tax assets could be reduced in the near term if our estimates of

taxable income are significantly reduced or available tax planning strategies are no longer viable.

Although realization is not assured for the remaining deferred income tax assets, we believe it is more likely than not that the deferred tax assets will be fully recoverable within the applicable statutory expiration periods.

However, deferred tax assets could be reduced in the near term if our estimates of taxable income are significantly reduced or available tax planning strategies are no longer viable.

Business Combinations.

In connection with the acquisition of a business, we allocate the fair value of purchase consideration to

the tangible and

intangible assets acquired, and liabilities assumed based on their estimated fair values.

The excess of the fair value of purchase consideration over the fair values of these identifiable assets and

liabilities is recorded as goodwill.

In connection with the acquisition of a business, we allocate the fair value of purchase consideration to the tangible and intangible assets acquired, and liabilities assumed based on their estimated fair values.

The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill.

Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets.

Significant estimates in valuing

certain intangible assets include, but are not limited to, future expected cash flows from acquired customers, acquired technology, and trade names, useful lives and discount rates.

Our estimates of

fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.

During the measurement

period, which is up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill.

Upon the conclusion of

the measurement period, any subsequent adjustments are recorded to earnings.

Impairment of Long-Lived Assets.

Goodwill represents the excess purchase price over the estimated fair value of the assets

acquired and liabilities

assumed in a business combination.

Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired customers, acquired technology, and trade names, useful lives and discount rates.

Our estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.

During the measurement period, which is up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill.

Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.

Impairment of Goodwill, Other Intangible Assets and Long-Lived Assets.

Goodwill represents the excess purchase price over the estimated fair value of the assets acquired and liabilities assumed in a business combination.

Goodwill is allocated to our segments based on the nature of the product line of the acquired business.

The carrying value of goodwill is not amortized, but is

annually tested for impairment as of the end of the second quarter and more frequently if there is an indicator of impairment.

We assess qualitative factors of each of our three reporting units to

determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill.

The assessments conducted as of December 31, 2018

indicated that it is not more likely than not that the fair values of two of our three reporting units are less than their carrying amounts, including goodwill.

Thus, we have determined that there is

no goodwill impairment for these two reporting units.

the third reporting unit, the results of our assessment of qualitative factors were not conclusive so we proceeded with a quantitative assessment to determine if the carrying amount

of this reporting unit exceeds its fair value.

The fair value of the reporting unit was calculated using the income approach.

Under the income approach, the fair value of the reporting unit was

calculated by estimating the present value of associated future cash flows.

The analysis indicated that the estimated fair value of the third reporting unit substantially exceeded the carry amount,

plus goodwill, of the reporting unit.

We applied a hypothetical 10 percent decrease to the fair value of the reporting unit, which at December 31, 2018, would not have indicated

Therefore, we have determined that there is no goodwill impairment for this reporting unit.

evaluate long-lived assets with finite lives for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.

The carrying value of goodwill is not amortized, but is annually tested for impairment as of the end of the second quarter and more frequently if there is an indicator of impairment.

We assess qualitative factors of each of our three reporting units to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill.

The assessments conducted as of December 31, 2019 indicated that it is not more likely than not that the fair values of our three reporting units are less than their carrying amounts, including goodwill.

Despite the COVID-19 pandemic, there were no qualitative factors which would trigger impairment testing between measurement dates.

Thus, we have determined that there is no goodwill impairment for any of our three reporting units.

We evaluate long-lived assets with finite lives for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.

Impairment is considered to exist if the total estimated future cash flows on an undiscounted basis are less than the carrying amount of the assets.

If impairment does exist, we measure the impairment

loss and record it based on the discounted estimate of future cash flows.

In estimating future cash flows, we group assets at the lowest level for which there are identifiable cash flows that are

largely independent of the cash flows from other asset groups.

Our estimate of future cash flows is based upon, among other things, certain assumptions about expected future operating performance,

growth rates and other factors.

we believe the assumptions and estimates we have made in the past have been reasonable and appropriate, different assumptions and estimates could materially impact our reported

financial results.

More conservative estimates of the anticipated future benefits from these businesses could result in impairment charges, which would decrease net income and result in lower asset

values on our balance sheet.

If impairment does exist, we measure the impairment loss and record it based on the discounted estimate of future cash flows.

In estimating future cash flows, we group assets at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows from other asset groups.

Our estimate of future cash flows is based upon, among other things, certain assumptions about expected future operating performance, growth rates and other factors.

Although we believe the assumptions and estimates we have made in the past have been reasonable and appropriate, different assumptions and estimates could materially impact our reported financial results.

More conservative estimates of the anticipated future benefits from these businesses could result in impairment charges, which would decrease net income and result in lower asset values on our balance sheet.

Stock-Based Compensation Expense.

We account for stock-based compensation using fair value recognition provisions.

record stock-based

compensation as a charge to earnings net of the estimated

of forfeited awards.

As such, we recognize stock-based compensation cost only for those stock-based awards that are estimated to ultimately vest over their requisite vesting period, based on

the vesting provisions of the individual grants.

process of estimating the fair value of stock-based compensation awards and recognizing stock-based compensation cost over their requisite vesting period involves significant

assumptions and judgments.

We estimate the fair value of stock option awards on the date of grant using the Black-Scholes option-valuation model which requires that we make certain assumptions

Thus, we record stock-based compensation as a charge to earnings net of the estimated impact of forfeited awards.

As such, we recognize stock-based compensation cost only for those stock-based awards that are estimated to ultimately vest over their requisite vesting period, based on the vesting provisions of the individual grants.

The process of estimating the fair value of stock-based compensation awards and recognizing stock-based compensation cost over their requisite vesting period involves significant assumptions and judgments.

We estimate the fair value of stock option awards on the date of grant using the Black-Scholes option-valuation model which requires that we make certain assumptions regarding:

(i) the expected volatility in the market price of our Common Stock;

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(iii) risk-free interest rates;

and (iv) the period of time

employees are expected to hold the award prior to exercise.

and (iv) the period of time employees are expected to hold the award prior to exercise.

We estimate the fair value of restricted stock unit awards on the date of the grant using the market price of our Common Stock on that date.

In addition, we estimate the expected impact of forfeited awards and recognize stock-based compensation cost only for those awards expected to vest.

If actual forfeiture rates differ materially from

our estimates, stock-based compensation expense could differ significantly from the amounts we have recorded in the current period.

We periodically review actual forfeiture experience and revise our

estimates, as necessary.

If actual forfeiture rates differ materially from our estimates, stock-based compensation expense could differ significantly from the amounts we have recorded in the current period.

We periodically review actual forfeiture experience and revise our estimates, as necessary.

We recognize the cumulative effect of changes in the estimated forfeiture rate as compensation cost in earnings in the period of the revision.

As a result, if we revise our

assumptions and estimates, our stock-based compensation expense could change materially in the future.

Certain restricted stock units vest based upon the achievement of pre-established performance

We estimate the fair value of performance-based awards at the date of grant based upon the probability that the specified performance criteria will be met, adjusted for estimated

Each quarter we update our assessment of the probability that the specified performance criteria will be achieved and adjust our estimate of the fair value of the performance-based awards

if necessary.

As a result, if we revise our assumptions and estimates, our stock-based compensation expense could change materially in the future.

Certain restricted stock units vest based upon the achievement of pre-established performance criteria.

We estimate the fair value of performance-based awards at the date of grant based upon the probability that the specified performance criteria will be met, adjusted for estimated forfeitures.

Each quarter we update our assessment of the probability that the specified performance criteria will be achieved and adjust our estimate of the fair value of the performance-based awards if necessary.

We amortize the fair values of performance-based awards over the requisite service period adjusted for estimated forfeitures for each separately vesting tranche of the award.

Note 8 to the consolidated financial statements for a further discussion of stock-based compensation.

See Note 9 to the consolidated financial statements for a further discussion of stock-based compensation.

Legal and Other Contingencies.

We are subject to various claims and legal proceedings.

We review the status of each significant

legal dispute to

which we are a party and assess our potential financial exposure, if any.

If the potential financial exposure from any claim or legal proceeding is considered probable and the amount can be reasonably

estimated, we record a liability and an expense for the estimated loss.

Significant judgment is required in both the determination of probability and the determination as to whether an exposure is

reasonably estimable.

We review the status of each significant legal dispute to which we are a party and assess our potential financial exposure, if any.

If the potential financial exposure from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, we record a liability and an expense for the estimated loss.

Significant judgment is required in both the determination of probability and the determination as to whether an exposure is reasonably estimable.

Because of uncertainties related to these matters, accruals are based only on the best information available at the time.

As additional information becomes available, we reassess

the potential liability related to our pending claims and litigation and revise our estimates accordingly.

Such revisions in the estimates of the potential liabilities could have a material impact on

our results of operations and financial position.

As additional information becomes available, we reassess the potential liability related to our pending claims and litigation and revise our estimates accordingly.

Such revisions in the estimates of the potential liabilities could have a material impact on our results of operations and financial position.

The table below and the discussion that follows are based upon the way we analyze our business.

See Note 14 to the consolidated financial

statements for additional information about business segments.

See Note 15 to the consolidated financial statements for additional information about business segments.

(Dollars in millions)

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Fiscal 2020 Compared with Fiscal 2019.

Revenues for the Security division increased on a year-over-year basis primarily as a

result of significant

growth in sales of cargo and vehicle inspection systems and explosive detection systems.

These increases were partially offset by lower checkpoint and trace detection equipment revenues.

service revenues decreased primarily due to a reduction in revenue from the contract with the Servicio de Administración Tributaria (SAT) in Mexico entered into in January 2018 in

comparison with revenues from the previous Mexico contract.

for the Healthcare division were essentially flat with the prior year.

Increased sales in patient monitoring and cardiology products were offset by our de-emphasis of the

anesthesia product line and the exit of an underperforming sales channel in the second quarter of fiscal 2019.

for the Optoelectronics and Manufacturing division increased primarily due to strong general sales in our commercial optoelectronics business as well as the contribution of

$24.5 million in fiscal 2019 revenues from two businesses acquired during calendar year 2018.

Revenues for the Security division decreased on a year-over-year basis primarily as a result of reduced service revenues partially offset by an increase in product sales driven primarily by strength in the sale of cargo and vehicle inspection systems.

We began to experience certain delays of equipment deliveries and installations and new orders near the end of the third quarter through the end of the fiscal year, most notably from our aviation and cargo customers as a result of the global COVID-19 pandemic.

Service revenues decreased primarily due to a reduction in revenue from the contract with the Servicio de Administración Tributaria (SAT) in Mexico, which expired in June 2020.

Revenues for the Healthcare division decreased on a year-over-year basis primarily as a result of lower sales of patient monitoring equipment and the exit of a product line during the year.

Revenues for the Optoelectronics and Manufacturing division decreased primarily due to lower sales in our contract manufacturing and commercial optoelectronics businesses which have been impacted by the global COVID-19 pandemic beginning towards the end of the third quarter through the end of the fiscal year, partially offset by the inclusion of revenues from a small business acquired in February 2020.

(Dollars in millions)

Fiscal 2020 Compared with Fiscal 2019.

Gross profit increased as a result of the growth in net revenues.

The gross margin

increased associated with

economies of scale on higher revenues and a favorable product mix.

Gross profit decreased as a result of the decline in net revenues.

Gross margin decreased on a year-over-year basis due primarily to an unfavorable mix of revenues driven by a decrease in service revenue.

Service revenues generally carry higher gross margins than equipment sales.

Operating Expenses

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Selling, General and Administrative

Selling, general and administrative ("SG&A") expenses consisted primarily of compensation paid to sales, marketing and administrative personnel,

professional service fees and marketing expenses.

Selling, general and administrative (“SG&A”) expenses consisted primarily of compensation paid to sales, marketing and administrative personnel, professional service fees and marketing expenses.

Fiscal 2020 Compared with Fiscal 2019.

SG&A expenses increased year-over-year in support of our growth in revenues, including

greater selling

commissions expense and incentive based compensation programs.

SG&A expenses decreased year-over-year due to cost containment measures and lower travel expenses due to restrictions arising from COVID-19 as well as lower selling commissions associated with the decrease in revenues.

Research and Development

Our Security and Healthcare divisions have historically invested substantial amounts in research and development (“R&D”).

We intend to continue

this trend in future years, although specific programs may or may

continue to be funded and funding levels may fluctuate.

We intend to continue this trend in future years, although specific programs may or may not continue to be funded and funding levels may fluctuate.

R&D expenses included research related to new product development and product enhancement expenditures.

Fiscal 2020 Compared with Fiscal 2019.

R&D expenses decreased year-over-year due to reduced costs in our Security division

from consolidation

following an acquisition completed in the prior year where certain projects were deemed duplicative and reduced costs for ongoing engineering projects.

Further, R&D expenses decreased in our

Healthcare division due to reduced compensation and professional fees primarily associated with an overall reduction in headcount expenses, including the de-emphasis and exiting of the anesthesia

product line and related development programs.

R&D expenses increased year-over-year due to increased investment for new product development and product enhancements.

Impairment, Restructuring and Other Charges

We have undertaken certain restructuring activities in an effort to align our global capacity and infrastructure with demand by our customers

and fully integrate acquisitions, thereby improving our operational efficiency.

Our efforts have helped enhance our ability to improve operating margins, retain and expand existing relationships with

customers and attract new business.

We have undertaken certain restructuring activities in an effort to align our global capacity and infrastructure with demand by our customers and fully integrate acquisitions, thereby improving our operational efficiency.

Our efforts have helped enhance our ability to improve operating margins, retain and expand existing relationships with customers and attract new business.

We may utilize similar measures in the future to realign our operations to further increase our operating efficiencies.

The effect of these efforts may materially

affect our future operating results.

The effect of these efforts may materially affect our future operating results.

Fiscal 2020 Compared with Fiscal 2019.

During fiscal 2019, we incurred restructuring and other charges of $4.4 million

related to employee

termination and facility closure costs and $1.3 million in acquisition costs, which were partially offset by a net $1.9 million recovery of certain legal costs as a result of insurance

reimbursements.

Impairment, restructuring and other charges incurred in fiscal 2018 included:

(i) $9.7 million of costs associated with the abandonment of a product line in our

Healthcare division;

(ii) $3.1 million of impairment of intangibles, primarily trademarks, related to two acquired brands that were merged into existing product lines as well as assets

associated with abandoned product lines;

(iii) $8.1 million of accrued charges related to estimated legal settlements;

(iv) $1.3 million of acquisition costs;

(v) $1.2 million of employee termination and facility closure costs for restructuring activities.

Impairment, restructuring and other charges in fiscal 2020 included (i) $5.5 million for impairment of assets associated with the write-off of intangible and fixed assets due to abandonment of a non-core product line in our Healthcare division and a strategic shift in the intended use of an intangible asset in the Security division, (ii) $4.2 million for employee termination and facility closure costs and (iii) $0.4 million in acquisition-related costs.

These charges in fiscal 2020 were partially offset by a net $3.6 million recovery of certain legal costs as a result of insurance reimbursements.

During fiscal 2019, we incurred restructuring and other charges of $4.4 million related to employee termination and facility closure costs and $1.3 million in acquisition-related costs, which were partially offset by a net $1.9 million recovery of certain legal costs as a result of insurance reimbursements.

Interest and Other

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Fiscal 2020 Compared with Fiscal 2019.

In fiscal 2019, interest expense, net, was $21.6 million as compared to

$19.3 million for the

same prior-year period.

This increase was driven by higher fiscal 2019 average debt balances and the impact of increased interest rates under our revolving credit facility.

Interest expense included

$7.8 million and $7.5 million in fiscal 2019 and 2018, respectively, of non-cash interest expense related to the Notes (see Note 7 to the condensed consolidated financial

statements for further discussion).

In fiscal 2020, interest expense, net, was $18.8 million as compared to $21.6 million for the same prior-year period.

This decrease was driven by lower fiscal 2020 average debt balances and the impact of decreased interest rates under our revolving credit facility.

Interest expense included $8.8 million and $7.8 million in fiscal 2020 and 2019, respectively, of non-cash interest expense primarily related to the Notes (see Note 8 to the condensed consolidated financial statements for further discussion).

Provision for Income Taxes

The effective tax rate for a particular period varies depending on a number of factors including (i) the mix of income earned in various

tax jurisdictions, each of which applies a unique range of income tax rates and income tax credits, (ii) changes in previously established valuation allowances for deferred tax assets (changes

are based upon our current analysis of the likelihood that these deferred tax assets will be realized), (iii) the level of non-deductible

(iv) certain tax elections, (v) tax holidays granted to certain of our international subsidiaries, and (vi) changes in tax legislation.

The effective tax rate for a particular period varies depending on a number of factors including (i) the mix of income earned in various tax jurisdictions, each of which applies a unique range of income tax rates and income tax credits, (ii) changes in previously established valuation allowances for deferred tax assets (changes are based upon our current analysis of the likelihood that these deferred tax assets will be realized), (iii) the level of non-deductible expenses, (iv) certain tax elections, (v) tax holidays granted to certain of our international subsidiaries, (vi) return to provision adjustments and (vii) changes in tax legislation.

Fiscal 2020 Compared with Fiscal 2019.

In fiscal 2019, our income tax provision was $21.4 million, compared to

$66.0 million for the

The prior year tax provision included $55.3 million of discrete tax expense resulting from the enactment of the Tax Act and $0.8 million related to other discrete tax items.

The effective tax rate for fiscal 2019 was 24.8% compared to 179.0% for fiscal 2018 which includes the effect of the discreet tax item related to the enactment of the Tax Act.

Excluding the net impact

of discrete tax items, our effective tax rate for fiscal 2019 was 28.9%, compared to 26.9% in the prior year.

In fiscal 2020, our income tax provision was $10.9 million, compared to $21.4 million for the prior year.

The effective tax rate for fiscal 2020 was 12.6% compared to 24.8% for fiscal 2019.

We recognized discrete tax benefits of $12.6 million and $3.5 million in fiscal 2020 and 2019, respectively.

The discrete tax benefits in fiscal 2020 and 2019 include the effect of equity-based compensation under ASU 2016-09.

We also recognized a discrete tax benefit in fiscal 2020 for changes in prior year estimates and valuation allowances.

Excluding the impact of these discrete tax items, our effective tax rate for fiscal 2020 was 27.3%, compared to 28.9% in the prior year.

Liquidity and Capital Resources

Our principal sources of liquidity are our cash and cash equivalents, cash generated from operations and our credit facility.

Cash and cash

equivalents totaled $96.3 million at June 30, 2019, an increase of $11.5 million, or 14%, from $84.8 million at June 30, 2018.

During fiscal 2019, we generated

$119.1 million of cash flow from operations.

Cash and cash equivalents totaled $76.1 million at June 30, 2020, a decrease of $20.2 million, or 21%, from $96.3 million at June 30, 2019.

During fiscal 2020, we generated $129.2 million of cash flow from operations.

These proceeds were used for the following:

$27.4 million invested in capital expenditures, $18.3 million for the acquisition of

businesses, $26.7 million for net repayment of bank borrowings and long-term debt and $35.0 million for share repurchases and taxes paid related to the net share settlement of equity

$20.4 million invested in capital expenditures, $8.9 million for the acquisition of businesses, $29.2 million for net repayment of bank borrowings and long-term debt and $76.3 million for share repurchases and taxes paid related to the net share settlement of equity awards.

If we continue to net settle equity awards, we will use additional cash to pay our tax withholding obligations in connection with such settlements.

We currently anticipate that our available

funds, credit facilities and cash flow from operations will be sufficient to meet our operational cash needs for the next 12 months and foreseeable future.

In addition, without repatriating

earnings from non-U.S.

We currently anticipate that our available funds, credit facilities and cash flow from operations will be sufficient to meet our operational cash needs for the next 12 months and foreseeable future.

In addition, without repatriating earnings from non-U.S.

subsidiaries, we anticipate that cash generated from operations will be able to satisfy our obligations in the U.S., including our outstanding lines of credit.

have a five-year revolving credit facility that allows us to borrow up to $535 million.

As of June 30, 2019, there was $88.0 million outstanding under the

revolving credit facility and letters-of-credit outstanding totaled $55.9 million.

We have a five-year revolving credit facility that allows us to borrow up to $535 million.

As of June 30, 2020, there was $59 million outstanding under the revolving credit facility and letters-of-credit outstanding totaled $ 46.5 million.

See Note 8 to the consolidated financial statements for further discussion.

Cash Provided by Operating Activities.

Cash flows from operating activities can fluctuate significantly from period to period,

as net income,

adjusted for non-cash items, and working capital fluctuations impact cash flows.

During fiscal 2019, we generated cash from operations of $119.1 million compared to $133.1 million in

the prior fiscal year.

This decrease was driven by investments in net working capital partially offset by increase in profits.

Cash flows from operating activities can fluctuate significantly from period to period, as net income, adjusted for non-cash items, and working capital fluctuations impact cash flows.

During fiscal 2020, we generated cash from operations of $129.2 million compared to $119.1 million in the prior fiscal year.

This increase was driven by an increase in profits partially offset by investments in net working capital.

Cash Used in Investing Activities.

Net cash used in investing activities was $48.5 million during fiscal 2019 as compared

$149.4 million used during the prior year.

During fiscal 2019, we used cash of $18.3 million for the acquisitions of businesses as compared to $103.8 million in the prior fiscal

Capital expenditures in fiscal 2019 were $27.4 million, lower than the $43.2 million in the prior year, primarily because in fiscal 2018 we purchased the American Science and

Engineering, Inc.

("AS&E") facility in Billerica, Massachusetts.

Net cash used in investing activities was $42.7 million during fiscal 2020 as compared to $48.5 million used during the prior year.

During fiscal 2020, we used cash of $8.9 million for the acquisitions of businesses as compared to $18.3 million in the prior fiscal year.

Capital expenditures in fiscal 2020 were $20.4 million compared to $27.4 million in the prior year.

Expenditures for intangible and other assets in fiscal 2020 were $13.4 million compared to $2.8 million in the prior fiscal year primarily for development of software for internal use.

Cash Used in Financing Activities.

Net cash used in financing activities was $58.3 million during fiscal 2019, compared to

$68.4 million during the prior year.

The changes in cash flows from financing activities primarily relate to (i) net repayments of borrowings on bank lines of credit and debt totaling

$26.7 million in fiscal 2019 compared to net proceeds of $8.5 million in fiscal 2018;

and (ii) $35.0 million used for share repurchases and taxes paid related to the net

share settlement of equity awards in fiscal 2019 compared to $83.8 million in the prior year.

Outstanding lines of credit and current and long-term debt totaled $346.6 million at June 30, 2019, a decrease of

$17.6 million from $364.2 million at June 30, 2018.

As of June 30, 2019, we are in compliance with all covenants under our various borrowing agreements.

to the consolidated financial statements for further discussion.

following is a summary of our contractual obligations and commitments at June 30, 2019 (in thousands):

Net cash used in financing activities was $104.7 million during fiscal 2020, compared to $58.3 million during the prior year.

The changes in cash flows from financing activities primarily relate to (i) net repayments of borrowings on bank lines of credit and debt totaling $29.2 million in fiscal 2020 compared to net payments of $26.7 million in fiscal 2019;

and (ii) $76.3 million used for share repurchases and taxes paid related to the net share settlement of equity awards in fiscal 2020 compared to $35.0 million in the prior year.

Outstanding lines of credit and current and long-term debt totaled $327.0 million at June 30, 2020, a decrease of $19.6 million from $346.6 million at June 30, 2019.

As of June 30, 2020, we were in compliance with all covenants under our various borrowing agreements.

See Note 8 to the consolidated financial statements for further discussion.

The following is a summary of our contractual obligations and commitments at June 30, 2020 (in thousands):

Payments Due by Period

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Other commercial commitments—letters of credit

(1) Represents

future cash payments for operating leases which are presented on an undiscounted basis.

anticipate that cash generated from our operations, in addition to existing cash borrowing arrangements and future access to capital markets should be sufficient to meet our cash

requirements for at least the next 12 months.

However, our future capital requirements will depend on many factors, including future business acquisitions, capital expenditures, litigation,

stock repurchases and levels of research and development spending, among other factors.

The adequacy of available funds will depend on many factors, including the success of our businesses in

generating cash, continued compliance with financial covenants contained in our credit facility and the health of capital markets in general, among other factors.

(1) Represents future cash payments for operating leases which are presented on an undiscounted basis.

We anticipate that cash generated from our operations, in addition to existing cash borrowing arrangements and future access to capital markets should be sufficient to meet our cash requirements for at least the next 12 months.

However, our future capital requirements will depend on many factors, including future business acquisitions, capital expenditures, litigation, stock repurchases and levels of research and development spending, among other factors.

The adequacy of available funds will depend on many factors, including the success of our businesses in generating cash, continued compliance with financial covenants contained in our credit facility and the health of capital markets in general, among other factors.

Cash Held by Foreign Subsidiaries

Our cash, cash equivalents, and investments totaled $96.3 million at June 30, 2019.

Of this amount, approximately 87% was held by

our foreign subsidiaries and subject to repatriation tax considerations.

These foreign funds were held primarily in Singapore, Mexico, the United Kingdom, Malaysia, and India and to a lesser extent in

Canada, Albania, and Germany among others.

We intend to permanently reinvest certain earnings from foreign operations, and we currently do not anticipate that we will need this cash in foreign

countries to fund our U.S.

In the event we repatriate cash from certain foreign operations and if taxes have not previously been withheld on the related earnings, we would provide for

withholding taxes at the time we change our intention with regard to the reinvestment of those earnings.

Our cash and cash equivalents totaled $76.1 million at June 30, 2020.

Of this amount, approximately 63% was held by our foreign subsidiaries and subject to repatriation tax considerations.

These foreign funds were held primarily in Singapore, Mexico, the United Kingdom, Malaysia, Australia and Canada and to a lesser extent in India and Germany among others.

We intend to permanently reinvest certain earnings from foreign operations, and we currently do not anticipate that we will need this cash in foreign countries to fund our U.S.

In the event we repatriate cash from certain foreign operations and if taxes have not previously been withheld on the related earnings, we would provide for withholding taxes at the time we change our intention with regard to the reinvestment of those earnings.

Stock Repurchase Program

In March 2018, the Board of Directors authorized a stock repurchase program of up to 1,000,000 shares.

During fiscal 2019, we repurchased

288,316 shares.

As of June 30, 2019, 562,707 shares were available for additional repurchase under the current program.

Repurchases may be made from time to time through open-market purchases

or privately-negotiated transactions at our discretion.

Upon repurchase, the shares are restored to the status of authorized but unissued shares and we record them as a reduction in the number of

shares of Common Stock issued and outstanding in our consolidated financial statements.

During fiscal 2020, we repurchased the remaining 562,707 shares authorized for repurchase under our prior share repurchase program.

In April 2020, the Board of Directors authorized a new share repurchase program of up to 1,000,000 shares, all of which remained available for repurchase as of June 30, 2020.

In August 2020, the Board of Directors increased the maximum number of shares to 3,000,000 shares authorized under the stock repurchase program.

This program does not expire unless our Board of Directors acts to terminate the program.

The timing and actual numbers of shares purchased depends on a variety of factors, including stock price, general business and market conditions and other investment opportunities.

Repurchases may be made from time to time under the program through open-market purchases or privately-negotiated transactions at our discretion.

Upon repurchase, the shares are restored to the status of authorized but unissued shares and we record them as a reduction in the number of shares of Common Stock issued and outstanding in our consolidated financial statements.

We have not paid any cash dividends since the consummation of our initial public offering in 1997.

Off Balance Sheet Arrangements

As of June 30, 2019, we had no significant off balance sheet arrangements, as defined in Item 303(a)(4) of Regulation S-K,

other than those previously disclosed.

As of June 30, 2020, we had no significant off balance sheet arrangements, as defined in Item 303(a)(4) of Regulation S-K, other than those previously disclosed.

New Accounting Pronouncements

For information with respect to new accounting pronouncements and the impact of these pronouncements on our consolidated financial statements,

see Note 1 to the consolidated financial statements.

For information with respect to new accounting pronouncements and the impact of these pronouncements on our consolidated financial statements, see Note 1 to the consolidated financial statements.

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What changed 10-K

Item 7. Management’s Discussion and Analysis