What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-10-30 compared with 2020-05-01 · 84 added, 127 removed, 103 unchanged (67% of the section changed)

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together with our wholly-owned subsidiaries.

This management’s discussion and analysis of financial condition as of March 31, 2020 and results of operations for the three and nine months ended March 31, 2020 should be read in conjunction with management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended June 30, 2019 filed with the SEC.

This management’s discussion and analysis of financial condition as of September 30, 2020 and results of operations for the three months ended September 30, 2020 should be read in conjunction with management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2020 filed with the SEC.

Forward-Looking Statements

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Words such as “project,” “believe,” “anticipate,” “plan,” “expect,” “intend,” “may,” “should,” “will,” “would,” and similar words and expressions are intended to identify forward-looking statements.

The expectations, beliefs, and projections reflected in the forward-looking statements may prove to be inaccurate, and actual results may differ materially from those reflected in such forward-looking statements.

Forward-looking statements are not guarantees of future performance and involve uncertainties, risks, assumptions and contingencies, many which are outside our control.

Assumptions upon which our forward-looking statements are based could prove to be inaccurate, and actual results may differ materially from those expressed in or implied by such forward-looking statements.

Important factors that could cause our actual results to differ materially from those expectations are disclosed in this report, our Annual Report on Form 10-K for the fiscal year ended June 30, 2020 (including Part I, Item 1, “Business,” Part I, Item 1A, “Risk Factors” and Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”), and other documents filed by us from time to time with the SEC.

Such factors, of course, do not include all factors that might affect our business and financial condition.

Although we believe that the assumptions upon which our forward-looking statements are based are reasonable, such assumptions could prove to be inaccurate and actual results could differ materially from those expressed in or implied by the forward-looking statements.

For example, we could be exposed to a variety of negative consequences as a result of delays related to the award of domestic and international contracts;

We could be exposed to a variety of negative consequences as a result of delays related to the award of domestic and international contracts;

failure to secure the renewal of key customer contracts;

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our ability to win new business and convert any orders received to sales within the fiscal year;

enforcement actions in respect of any noncompliance with laws and regulations including export control and environmental regulations and the matters that are the subject of some or all of our investigations and compliance reviews, contract and regulatory compliance matters, and actions, which if brought, could result in judgments, settlements, fines, injunctions, debarment or penalties, and other risks and uncertainties, including, but not limited to, those detailed herein and from time to time in our other SEC filings, which could have a material and adverse impact on our business, financial condition and results of operations.

as well as other risks and uncertainties, including but not limited to those detailed herein and from time to time in our other SEC filings, which could have a material and adverse impact on our business, financial condition and results of operation.

All forward-looking statements contained in this report are qualified in their entirety by this statement.

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It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make.

In light of these risks, uncertainties, and assumptions, the future events and trends discussed in this report may not occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

In light of these risks, uncertainties, and assumptions, the future events and trends discussed in this Quarterly Report on Form 10-Q may not occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

Investors should not place undue reliance on forward-looking statements as a prediction of actual results.

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

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

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

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 internationally, as well as turnkey security screening solutions.

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 63% and 65% of our total consolidated revenues for the nine months ended March 31, 2019 and 2020, respectively.

Revenues from our Security division accounted for 65% and 53% of our total consolidated revenues for the three months ended September 30, 2019 and 2020, respectively.

We were impacted by the COVID-19 pandemic as discussed in the “Trends and Uncertainties-Coronavirus Pandemic” section below.

Healthcare Division .

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

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% and 14% of our total consolidated revenues for the nine months ended March 31, 2019 and 2020, respectively.

Revenues from our Healthcare division accounted for 14% and 20% of our total consolidated revenues for the three months ended September 30, 2019 and 2020, respectively.

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 internationally 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.

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 21% and 21% of our total consolidated revenues for the nine months ended March 31, 2019 and 2020, respectively.

Revenues from external customers in our Optoelectronics and Manufacturing division accounted for 21% and 27% of our total consolidated revenues for the three months ended September 30, 2019 and 2020, respectively.

Trends and Uncertainties

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Coronavirus Pandemic.

The recent novel coronavirus (COVID-19) outbreak has resulted, and is likely to continue to result, in significant economic disruptions and has impacted and is expected to continue to impact our operations and the operations of our suppliers as a result of quarantines, facility closures, and travel and logistics restrictions in connection with the outbreak.

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

Our Healthcare division has experienced increased near-term term demand for products as a result of COVID-19;

however, we expect our other divisions to see adverse changes in the timing of demand for products and services.

In our Security division, we expect order activity to be 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 newly-imposed government regulations, certain of our global manufacturing facilities are not able to operate at optimal utilization.

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 could be materially adversely impacted.

We will continue to actively monitor the situation and may take further 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.

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

Risk Factors in this quarterly report on Form 10-Q.

The coronavirus disease 2019 (“COVID-19”) pandemic has dramatically impacted the global health and economic environment, with millions of confirmed cases, business slowdowns and shutdowns, and market volatility.

The COVID-19 pandemic 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 substantial uncertainty regarding the duration and ultimate impact of the COVID-19 pandemic.

Our Healthcare division has experienced increased demand for certain products as a result of COVID-19.

In our Security division, toward the end of fiscal 2020 and early fiscal 2021, receipt of certain orders was delayed, most notably with respect to our aviation and cargo products.

Our service revenues were also adversely impacted as a result of the pandemic.

However, during the second half of our first fiscal 2021 quarter, bookings began to accelerate.

As many of our customers in both our Security and Optoelectronics and Manufacturing divisions are being impacted by the pandemic, we have received and could receive further requests to delay deliveries of equipment and modify service arrangements or the scheduling of factory or site acceptance tests, which could impact timing of revenue recognition.

In addition, as a result of COVID-19 related government regulations, certain of our global manufacturing facilities have had to limit operations and could have to limit operations 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.

Global Economic Considerations.

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

The current status and potential outcomes of Brexit has contributed to economic uncertainty and could have an adverse impact on our UK business, including our orders and sales operations and personnel in the UK.

We do not know how long this uncertainty will continue.

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.

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 U.S.

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

Global Trade.

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Healthcare Considerations.

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

However, in prior periods, our results of operations were adversely impacted in by difficulties associated with product launches.

These issues may in future periods continue to adversely impact our results of operations.

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.

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 made in fiscal 2020 may result in fewer capital purchases in fiscal 2021 and subsequent years.

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

European Union 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.

It is unclear whether this deadline will hold or be delayed.

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.

The deadline for compliance with this mandate was set for September 2020.

Given the uncertainty surrounding the COVID-19 situation, the EU 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 that need 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.

Our business, financial condition and results of operations could be affected by changes in U.S.

or foreign government policies.

For example, the LIBOR index is expected to be discontinued by the end of calendar year 2021.

If 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 is scheduled to expire in May 2020.

While we are actively in discussions with the Mexican government for a renewal 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 discontinued or continued upon modified terms, our results of operations could be materially affected.

Results of Operations for the Three Months Ended March 31, 2019 (Q3 2019) Compared to the Three Months Ended March 31, 2020 (Q3 2020) (amounts in millions)

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.

Results of Operations for the Three Months Ended September 30, 2019 (Q1 2020) Compared to the Three Months Ended September 30, 2020 (Q1 2021) (amounts in millions)

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

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Total net revenues

Revenues for the Security division during the three months ended March 31, 2020 decreased on a year-over-year basis as a result of decreased revenue from cargo and vehicle inspection systems and explosive detection systems, partially offset by an increase in sales of checkpoint equipment.

Overall service revenue for the division was comparable to the prior year.

Revenues for the Healthcare division during the three months ended March 31, 2020 decreased year-over-year due to lower sales of patient monitoring systems and the exit of a product line.

Revenues for the Optoelectronics and Manufacturing division during the three months ended March 31, 2020 decreased year-over-year as a result of reduced revenue in our contract manufacturing business partially offset by the inclusion of revenues from a small business acquired in February 2020.

Toward the end of the third quarter of fiscal year 2020, revenues in our Security and Optoelectronics and Manufacturing divisions were adversely impacted as a result of the COVID-19 pandemic.

Gross profit as a percentage of net revenues during the three months ended March 31, 2020 was higher compared to the prior year due to improved margins in our Security division driven primarily by increased service gross margins as well as increased gross margins in our Healthcare division.

Revenues for the Security division during the three months ended September 30, 2020 were impacted by the COVID-19 pandemic primarily in our aviation and cargo businesses, as we experienced delays in the timing of delivery and installation of equipment and related services, as well as the timing of receipt of new orders.

We also experienced a decrease in revenues associated with the expiration of a contract in Mexico in June 2020.

Revenues for the Healthcare division during the three months ended September 30, 2020 increased year-over-year due to higher sales of patient monitoring systems in the North America, Europe and Latin America, as well as higher sales of related supplies and accessories.

Revenues for the Optoelectronics and Manufacturing division during the three months ended September 30, 2020 increased year-over-year as a result of higher revenue from our contract manufacturing business and the inclusion of revenues from a small business acquired in February 2020.

These increases were partially offset by a decrease in revenues from our optoelectronics business.

Gross profit as a percentage of net revenues during the three months ended September 30, 2020 increased due to (i) an improved gross margin in our Healthcare division (which has the highest gross margin among our divisions) as a result of the benefit of economies of scale associated with increased sales, combined with operating efficiencies, and (ii) an increase in service gross margin in our Security division .

Operating Expenses

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

SG&A expense for the three months ended March 31, 2020 was lower than the comparable prior-year period primarily due to reduced sales commission expenses on lower net revenues, as well as lower marketing and travel expenses, partially offset by higher employee compensation expense.

SG&A expense for the three months ended September 30, 2020 was lower than the comparable prior-year period primarily due to reduced compensation expense resulting from implementation of cost containment measures, lower travel expenses due to the COVID-19 pandemic and lower third-party sales commissions, partially offset by an increase in bad debt expense.

Research and development .

Research and development (R&D) expenses include research related to new product development and product enhancements.

The increase in R&D expenses during the three months ended March 31, 2020 from the same prior-year period reflected increased investment in our Security division primarily to support new product development.

Impairment, restructuring and other charges (benefit).

Impairment, restructuring and other charges generally consist of charges related to reductions in our workforce, facility consolidation, impairment of assets, costs related to acquisition activity, legal charges and other non-recurring charges.

The net expense in the third fiscal quarter of 2020 included $3.3 million from impairment of assets in our Healthcare division for the exit of a product line, $1.1 million of employee termination and facility closure costs and $0.1 million of other net costs.

The net benefit in the third fiscal quarter of 2019 was primarily due to a recovery of certain legal costs through insurance reimbursement.

The decrease in R&D expenses during the three months ended September 30, 2020 from the same prior-year period reflected lower compensation expenses.

Impairment, restructuring and other charges.

Impairment, restructuring and other charges generally consist of charges relating to reductions in our workforce, facility consolidation, impairment of assets, costs related to acquisition activity, legal charges and other non-recurring charges.

During the three months ended September 30, 2020, we commenced exit activities associated with a turnkey contract in Mexico whereby we incurred non-recurring charges totaling $6.9 million comprised of exit costs of $2.5 million for employee terminations, facility closure and other exit costs of $1.1 million, direct transaction costs of $2.7 million and impairment of a right-of-use asset of $0.6 million.

We also conducted other operational efficiency activites which resulted in employee termination and other costs of $1.5 million.

During the quarter ended September 30, 2019, we recognized a net benefit of $2.1 million primarily related to reimbursements from our insurance carriers for covered legal charges.

Other Income and Expenses

Interest and other expense, net .

For the three months ended March 31, 2020, interest and other expense, net was $4.7 million as compared to $5.6 million in the comparable prior-year period.

This decrease was driven primarily by lower average levels of borrowing under our revolving credit facility as well as lower average interest rates during the three months ended March 31, 2020 compared to the same period in the prior year.

Interest expense in the current-year period included $2.2 million of non-cash interest expense primarily related to the Notes (see Note 6 to the condensed consolidated financial statements for further discussion) compared to $2.0 million during the comparable prior-year period.

For the three months ended September 30, 2020, interest and other expense, net was $4.2 million as compared to $4.7 million in the comparable prior-year period.

This decrease was driven primarily by lower average levels of borrowing under our revolving credit facility as well as lower average interest rates during the three months ended September 30, 2020 compared to the same period in the prior year.

Interest expense included $2.2 million of non-cash interest expense in each of the three months ended September 30, 2019 and 2020, primarily related to the Notes (see Note 8 to the condensed consolidated financial statements for further discussion).

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 expenses, (iv) certain tax elections (v) tax holidays granted to certain of our international subsidiaries and (vi) discrete tax items.

For the three months ended March 31, 2020, we recognized a benefit for income taxes of $(0.6) million compared to a provision for income taxes of $6.9 million for the comparable prior-year period.

The effective tax rate for the three months ended March 31, 2019 and 2020 was 26.0% and (3.4)%, respectively.

During the three months ended March 31, 2019, we recognized a discrete tax benefit of $0.7 million primarily for equity-based compensation under ASU 2016-09.

During the three months ended March 31, 2020, we recognized a discrete tax benefit of $5.1 million for a return

to provision true-up adjustment.

Excluding the impact of these discrete tax benefits, our effective tax rate for the three months ended March 31, 2019 and 2020 was 28.6% and 23.7%, respectively.

Results of Operations for the Nine Months Ended March 31, 2019 (YTD Q3 2019) Compared to the Nine Months Ended March 31, 2020 (YTD Q3 2020) (amounts in millions)

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

See Note 11 to the condensed consolidated financial statements for additional information about our business segments.

Optoelectronics and Manufacturing

Total net revenues

Revenues for the Security division during the nine months ended March 31, 2020 increased on a year-over-year basis as a result of increased product revenue from cargo and vehicle inspection systems, explosive detection systems and checkpoint equipment, partially offset by decreases in sales of explosive trace detection products.

Service revenue for the Security division was comparable to the prior year period.

Revenues for the Healthcare division during the nine months ended March 31, 2020 decreased year-over-year due to lower sales of patient monitoring systems.

Revenues for the Optoelectronics and Manufacturing division during the nine months ended March 31, 2020 were consistent with the prior comparable period.

Toward the end of the third quarter of fiscal year 2020, revenues in our Security and Optoelectronics and Manufacturing divisions were adversely impacted as a result of the COVID-19 pandemic.

Gross profit as a percentage of net revenues during the nine months ended March 31, 2020 decreased on a year-over-year basis as a result of a reduction in gross margin in the Security division, due largely to an unfavorable mix of revenues driven by higher equipment sales growth relative to service revenue growth.

Service revenues in the Security division generally carry higher gross margins than equipment sales.

The decrease in net revenues from the Healthcare division also adversely impacted the gross margin since sales from our Healthcare division generally have higher gross margins than our other divisions.

These impacts on gross margin were partially offset by an increase in the gross margin within the Optoelectronics and Manufacturing division due to a favorable sales mix and operational efficiencies.

Operating Expenses

Selling, general and administrative

Research and development

Impairment, restructuring and other charges (benefit), net

Total operating expenses

Selling, general and administrative .

SG&A expense for the nine months ended March 31, 2020 was lower than the prior comparable period due to lower sales commissions and marketing expenses, partially offset by higher employee compensation expense.

Research and development .

The increase in R&D expense during the nine months ended March 31, 2020 from the same prior-year period reflected increased expenses in our Security division primarily to support new product development.

Impairment, restructuring and other charges (benefit).

In the first nine months of fiscal year 2020, we incurred impairment, restructuring and other charges, net of $3.3 million related to the exit of a product line in our Healthcare division, $1.6 million of employee termination and facility closure costs and $0.3 million of acquisition costs, which were offset by a net recovery of $3.7 million for certain legal costs through insurance reimbursements.

In the first nine months of fiscal 2019, we incurred restructuring and other charges of $3.7 million related to employee termination and business exit costs and $0.3 million in acquisition costs, which were partially offset by a $2.8 million net recovery of certain legal costs as a result of insurance reimbursements.

Other Income and Expenses

Interest and other expense, net .

For the nine months ended March 31, 2020, interest and other expense, net was $14.3 million as compared to $16.5 million in the comparable prior-year period.

This decrease was driven primarily by lower average levels of borrowing under our revolving credit facility as well as a lower average interest rates during the nine months ended March 31, 2020 compared to the same period in the prior year.

Interest expense in the current-year period included $6.6 million of non-cash interest expense largely related to the Notes (see Note 6 to the condensed consolidated financial statements for further discussion) compared to $5.8 million during the comparable prior-year period.

Income taxes .

For the nine months ended March 31, 2020, we recognized a provision for income taxes of $5.8 million compared to $15.4 million for the comparable prior-year period.

The effective tax rate for the nine months ended March 31, 2019 and 2020 was 24.2% and 8.7%, respectively.

During the nine months ended March 31, 2019 and 2020, we recognized discrete tax benefits of $2.6 million and $12.0 million, respectively, primarily for equity-based compensation under ASU 2016-09 in each period and a return to provision true-up adjustment in the third quarter of fiscal year 2020.

Excluding the net impact of these discrete tax benefits, our effective tax rate for the nine months ended March 31, 2019 and 2020 was 28.4% and 26.7%, respectively.

For the three months ended September 30, 2020, we recognized a provision for income taxes of $3.2 million compared to a benefit for income taxes of $0.6 million for the comparable prior-year period.

The effective tax rate for the three months ended September 30, 2019 and 2020 was -2.9% and 25.3%, respectively.

During the three months ended September 30, 2019 and 2020, we recognized discrete tax benefits of $6.2 million and $0.3 million, respectively, primarily for equity-based compensation under ASU 2016-09.

Excluding the impact of these discrete tax benefits, our effective tax rate for the three months ended September 30, 2019 and 2020 was 27.9% and 27.5%, respectively.

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 $101.0 million as of March 31, 2020, a increase of $4.7 million, or 4.9%, from $96.3 million as of June 30, 2019.

During the nine months ended March 31, 2020, we generated $105.6 million of cash flow from operations.

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

Our current revolving credit facility allows us to borrow up to $535 million and matures in April 2024.

As of March 31, 2020, there was $95.0 million outstanding under the revolving credit facility and $48.1 million outstanding under the letters-of-credit sub-facility.

Cash and cash equivalents totaled $76.9 million at September 30, 2020, an increase of $0.8 million, or 1%, from $76.1 million at June 30, 2020.

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.

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

As of September 30, 2020, there was $51.0 million outstanding under the revolving credit facility and letters - of - credit outstanding totaled $75.4 million.

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 the nine months ended March 31, 2020, we generated $105.6 million of cash from operations compared to $87.7 million in the same prior-year period.

The increase in operating cash flow was driven by higher net income and an improvement in working capital

During the three months ended September 30, 2020, we generated cash from operations of $53.8 million compared to $24.8 million in the same prior-year period.

This increase was driven by favorable changes in net working capital, partially offset by a decrease in profits.

Cash Used in Investing Activities .

Net cash used in investing activities was $28.3 million for the nine months ended March 31, 2020 compared to $40.8 million used for the nine months ended March 31, 2019.

During the nine months ended March 31, 2020, we used cash of $16.1 million for capital expenditures, $3.5 million primarily for the acquisition of an optoelectronics business and $8.8 million for the acquisition of intangible and other assets.

During the nine months ended March 31, 2019, we used cash of $20.9 million for capital expenditures, $17.5 million for the acquisition of an optoelectronics business and $0.8 million for the acquisition of a Security services business.

Net cash used in investing activities was $12.3 million for the three months ended September 30, 2020 as compared to $8.1 million in the same prior-year period.

During the three months ended September 30 2020, we used cash of $3.0 million for the acquisition of a business.

Capital expenditures in the three month period ended September 30, 2020 were $3.8 million compared to $6.0 million in the same prior-year period.

Expenditures for intangible and other assets in the first quarter of fiscal 2021 were $4.4 million compared to $2.1 million in the same prior-year period.

Cash Used in Financing Activities .

Net cash used in financing activities was $68.5 million for the nine months ended March 31, 2020 compared to $23.3 million for the nine months ended March 31, 2019.

During the nine months ended March 31, 2020, our primary uses in financing were $78.5 million for repurchases of our common stock and tax payments related to net share settlements of equity awards, partially offset by $7.0 million of net borrowings on our revolving credit facility and $8.4 million of proceeds from exercise of stock options and the employee stock purchase plan.

During the nine months ended March 31, 2019, our primary uses of financing

were $34.8 million used for share repurchases and taxes paid related to the net share settlement of equity awards , partially offset by $11.0 million borrowed under our revolving credit facility.

Net cash used in financing activities was $41.8 million during the three months ended September 30, 2020, compared to $27.5 million during the same prior-year period.

The changes in cash flows used in financing activities primarily relate to (i) net repayments of borrowings on bank lines of credit and debt totaling $8.0 million in the three month period ended September 30, 2020 compared to net borrowings of $7.0 million in the same prior-year period;

and (ii) $35.7 million used for share repurchases and taxes paid related to the net share settlement of equity awards as of September 30, 2020 compared to $39.2 million for the same prior-year period.

See Note 8 to the condensed consolidated financial statements for a detailed discussion regarding our revolving credit facility and our Notes.

Cash Held by Foreign Subsidiaries

Our cash and cash equivalents totaled $101.0 million at March 31, 2020.

Our cash and cash equivalents totaled $76.9 million at September 30, 2020.

Of this amount, approximately 76% was held by our foreign subsidiaries and subject to repatriation tax considerations.

These foreign funds were held primarily by our subsidiaries in Singapore, the United Kingdom, Malaysia, Mexico, Canada and Australia and to a lesser extent in Germany, India, and Albania among other countries.

These foreign funds were held primarily by our subsidiaries in the United Kingdom, Malaysia, Canada, Singapore, India and Australia and to a lesser extent in Mexico, Germany and Albania among other countries.

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 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.

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.

Issuer Purchases of Equity Securities

The following table contains information about the shares of common stock we purchased during the quarter ended March 31, 2020:

The following table contains information about the shares of common stock we purchased during the quarter ended September 30, 2020:

Maximum number (or

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under the plans or

January 1 to January 31, 2020

February 1 to February 29, 2020

March 1 to March 31, 2020

In March 2018, the Board of Directors authorized a stock repurchase program of up to 1,000,000 shares which was fully utilized as of March 31, 2020.

In April 2020, the Board of Directors authorized a new share repurchase program of up to 1,000,000 shares.

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

July 1 to July 31, 2020

August 1 to August 31, 2020

September 1 to September 30, 2020

In April 2020, the Board of Directors authorized a share repurchase program of up to 1,000,000 shares of common stock.

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

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.

Contractual Obligations

During the nine months ended March 31, 2020, there were no material changes outside the ordinary course of business in the information regarding specified contractual obligations contained in our Annual Report on Form 10-K for the fiscal year ended June 30, 2019.

During the three months ended September 30, 2020, there were no material changes outside the ordinary course of business to the information regarding specified contractual obligations contained in our Annual Report on Form 10-K for the fiscal year ended June 30, 2020.

See Notes 1, 6, 8 and 10 to the condensed consolidated financial statements for additional information regarding our contractual obligations.

Off-Balance Sheet Arrangements

As of March 31, 2020, we did not have any significant off-balance sheet arrangements, as defined in Item 303(a)(4) of Regulation S-K.

As of September 30, 2020, we did not have any significant off-balance sheet arrangements, as defined in Item 303(a)(4) of Regulation S-K.

Recent Accounting Pronouncements

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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-Q

Item 2. Management’s Discussion and Analysis