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Item 7. Management’s Discussion and Analysis

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

This MD&A contains forward-looking statements and the matters discussed in these forward-looking statements are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from those projected or implied in the forward-looking statements.

Please see “Risk Factors” and “Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with these statements.

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

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

We have three operating divisions:

We have three operating divisions, each of which is a reportable segment:

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

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

(b) Healthcare, providing patient monitoring, cardiology and remote monitoring, and connected care systems and associated accessories;

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

Security Division.

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Healthcare Division.

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.

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

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Fiscal 2022 Compared with Fiscal 2021.

We reported consolidated sales of $1,146.9 million in fiscal 2021, a 1.6% decrease compared to the prior year, which drove a year-over-year decrease in gross profit of $0.7 million.

Our income from operations increased by 10% from the prior year to $115.4 million in fiscal 2021.

This increase in profitability was driven primarily by a decrease in operating expenses due to strong cost controls.

We reported consolidated sales of $1,183.2 million in fiscal 2022, a 3.2% increase compared to the prior year, which drove a year-over-year increase in gross profit of $4.5 million.

Our income from operations increased to $121.7 million in 2022 or 5.5% growth from the prior year driven by the increased sales and a reduction in operating expenses of $1.9 million.

Acquisitions.

We acquired several businesses during fiscal years 2021 and 2020 as described in Note 2 to the consolidated financial statements, none of which were considered material.

We acquired two small businesses during fiscal 2022 and one small business during fiscal 2021 as described in Note 2 to the consolidated financial statements, none of which were considered material.

Trends and Uncertainties

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Coronavirus Pandemic.

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, logistics providers and customers as a result of quarantines, facility closures and travel and logistics restrictions.

The coronavirus disease 2019 (“COVID-19”) pandemic, including the emergence of new variants, 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, logistics providers and customers as a result of supply chain disruptions and delays, as well as labor challenges associated with employee absences, travel restrictions, site access, quarantine restrictions, remote work, and adjusted work schedules.

Our ability to continue to operate without significant negative impacts will in part depend on our ability to protect our employees and our supply chain and to keep our manufacturing facilities open and operating effectively.

We have endeavored to implement government and health authority recommendations to protect our employees worldwide.

While we do not expect these pandemic-related 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, during the latter part of fiscal 2020 and in fiscal 2021, receipt of certain orders was delayed, most notably with respect to our aviation and cargo products, and our revenues were adversely impacted as a result of the pandemic.

During fiscal 2021, bookings accelerated, but as many customers of our Security division continue to be 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 has impacted, and could further impact, timing of revenue recognition.

We have endeavored to implement government and health authority recommendations to protect our employees worldwide including with respect to vaccine administration.

There is substantial uncertainty regarding the duration, scope, and ultimate impact of the COVID-19 pandemic.

During the early stages of the pandemic and continuing to a lesser extent throughout the duration of the pandemic, our Healthcare division experienced increased demand for certain products as a result of COVID-19.

In our Security division, throughout the pandemic, receipt of certain orders has been delayed, most notably with respect to our aviation and cargo products, and our revenues have been adversely impacted as a result of the pandemic.

As many customers of our Security division continue to be 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 has impacted, and could further 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 might have to limit operations in the future.

While we have been able to broadly maintain our operations, we experienced some disruption in our supply chain in certain markets due primarily to materials shortages, longer lead times on deliveries and transportation constraints.

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 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 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.

The ultimate impact of COVID-19 on our operations and financial performance in future periods, including our ability to execute our programs in the expected timeframe, remains uncertain and will depend on future pandemic-related developments, including the duration of the pandemic, potential subsequent waves of COVID-19 infection or potential new variants, the effectiveness and adoption of COVID-19 vaccines and therapeutics, supplier impacts and related government actions to prevent and manage disease spread, including the implementation of any federal, state, local or foreign vaccine mandates, all of which are uncertain and difficult to predict.

The long-term impacts of COVID-19 on government budgets and other funding priorities, including international priorities, that impact demand for our products and services are also difficult to predict, but could negatively affect our future results and performance.

Global Economic Considerations.

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and foreign government policies and foreign exchange fluctuations.

There is uncertainty surrounding macroeconomic factors in the U.S.

and globally characterized by the supply chain environment, inflationary pressure, rising interest rates, and labor shortages.

Further, global economic conditions continue to be highly volatile due to the COVID-19 pandemic, resulting in market size contractions in certain countries due to economic slowdowns and government restrictions on movement.

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

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

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

Also, the invasion of Ukraine by Russia and the sanctions imposed in response to this conflict have increased global economic and political uncertainty.

While the impact of these factors remains uncertain, we will continue to evaluate the extent to which these factors will impact our business, financial condition or results of operations.

We do not know how long this uncertainty will continue.

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Healthcare Considerations.

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

As described above, our Healthcare division experienced some increased demand for its patient monitoring products as a result of the COVID-19 pandemic during the earlier stages of the pandemic that has continued to a lesser extent throughout the duration of the pandemic.

Increased healthcare capital purchases made in prior periods may result in fewer capital purchases in subsequent periods.

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

Given the uncertainty surrounding the COVID-19 situation, the EU revised the regulations, and the date by which airports using explosive detection systems for hold baggage screening must meet Standard 3 has been changed to March 2024, with certain larger airports required to meet earlier installation dates.

Given the uncertainty surrounding the COVID-19 pandemic, the EU revised the regulations, and the date by which airports using explosive detection systems for hold baggage screening must meet Standard 3 has been changed to March 2024, with certain larger airports required to meet earlier installation dates.

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

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and foreign government policies to manage the COVID-19 pandemic, such as travel restrictions or site closures.

Changes in Costs.

Changes in Costs and Supply Chain Disruptions.

Our costs are subject to fluctuations, particularly due to changes in raw material, component, and logistics costs.

Our manufacturing and supply chain operations, including freight and shipping activities, have been and may continue to be impacted by increased vendor costs.

Our manufacturing and supply chain operations, including freight and shipping activities, have been and may continue to be impacted by increased vendor costs as well as the current global supply chain bottleneck.

Specifically, we are impacted by the global shortage of electronic components and other materials needed for production and freight availability.

We expect continued disruptions in obtaining material and freight availability as the world economies react to and recover from supply chain shortages.

This increased cost environment has been exacerbated by the COVID-19 pandemic.

Although we strive to implement, achieve, and sustain cost containment measures, including supply chain optimization and general overhead and workforce optimization, if we are unable to mitigate the impact of increased costs through pricing or other actions, there could be a negative impact on our business, results of operations, and financial condition.

If we are unable to mitigate the impact of increased costs through pricing or other actions, there could be a negative impact on our business, results of operations, and financial condition.

Russia’s Invasion of Ukraine.

The invasion of Ukraine by Russia and the sanctions imposed in response to this conflict have increased global economic and political uncertainty.

This has the potential to indirectly disrupt our supply chain and access to certain resources.

While we have not experienced significant adverse impacts to date and will continue to monitor for any impacts and seek to mitigate disruption that may arise, we have certain research and development activities within Ukraine for our Healthcare division which have been somewhat impacted.

The conflict also has increased the threat of malicious cyber activity from nation states and other actors.

Critical Accounting Policies and Estimates

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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 Directors.

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

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

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

Revenue Recognition.

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 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.

Service Revenue.

We recognize revenue when performance obligations under the terms of the contracts with our customers are satisfied.

Our performance obligations are broadly categorized as product sales, service revenue, and project-spcific contract revenue.

Revenue from sales of products is recognized 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.

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.

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

Contract Revenue.

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.

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 contracts, 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 timing of revenue recognition.

Multiple Performance Obligations.

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.

Contracts with customers may include the sale of products and services.

In certain instances, contracts with customers can contain multiple performance obligations such as civil works to prepare a site for equipment installation, training of customer personnel to operate equipment, and after-market service of equipments.

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 performance obligation 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 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).

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

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.

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.

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.

Inventories are stated at the lower of cost or net realizable value.

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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.

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 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.

Income Taxes.

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Fiscal 2022 Compared with Fiscal 2021.

Revenues for the Security division during the fiscal year ended June 30, 2021 continued to be impacted by the COVID-19 pandemic most notably 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.

Our product revenues decreased by approximately $66 million.

We also experienced a decrease in revenues of $60 million associated with the expiration of a contract in Mexico in June 2020.

Excluding revenues attributable to the Mexico contract, our service revenues increased approximately $18 million.

Revenues for the Healthcare division during the year ended June 30, 2021 increased year-over-year due to an increase in sales of $26 million attributable to patient monitoring systems, cardiology equipment, supplies and accessories and related service revenue.

Some of this increase was due to increased demand for our patient monitoring products as a result of the COVID-19 pandemic.

Revenues for the Optoelectronics and Manufacturing division during the year ended June 30, 2021 increased year-over year as a result of an increase in revenue in our contract manufacturing business of approximately $51 million and an increase in sales of approximately $11 million in our optoelectronics business, which includes a $7 million increase in revenues from a small business acquired in February 2020.

Revenues for the Security division during the fiscal year ended June 30, 2022 increased on a year-over-year basis.

Our product revenues increased by approximately $20 million, and our service revenues increased by approximately $10 million as compared to the prior year comparable period.

Revenues for the Healthcare division during the fiscal year ended June 30, 2022 decreased 3% year-over-year.

While cardiology sales increased by approximately $4.4 million and service, supplies and accessories sales increased by approximately $5.1 million, patient monitoring sales decreased by approximately $16.1 million as a result of the increased demand related to the COVID-19 pandemic in fiscal year 2021.

Revenues for the Optoelectronics and Manufacturing division during the fiscal year ended June 30, 2022 increased year-over year as a result of an increase in revenue in our optoelectronics business of approximately $10 million and an increase in sales of approximately $3 million in our contract manufacturing business.

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Gross profit is impacted by sales volume, productivity, and changes in overall manufacturing-related costs, such as raw materials and component costs, warranty expense, provision for inventory, freight, and logistics.

Our cost of goods sold decreased year-over-year primarily as a result of the change in revenues.

While certain raw material and component costs increased, these increases were mitigated by operational efficiencies.

Gross profit as a percentage of net revenues during the year ended June 30, 2021 increased on a year-over-year basis 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, (ii) increase in Healthcare revenue as a percentage of total net revenues, and (iii) an increase in gross margin in our Security division.

Our gross margin decreased within the Optoelectronics and Manufacturing division due to a less favorable sales mix.

Gross profit increased approximately $5 million as compared to the prior year on a 3% increase in sales.

The gross margin declined from 36.6% to 35.9% driven by the mix of sales and increased costs.

Our cost of goods sold increased year-over-year primarily as a result of the increase in revenues and higher raw material and freight costs.

Gross profit as a percentage of net revenues during the fiscal year ended June 30, 2022 decreased on a year-over-year basis due to (i) strong sales growth within our Optoelectronics and Manufacturing division (which has the lowest gross margin among our divisions), (ii) a reduction in revenues in our Healthcare division (which has the highest gross margin among our divisions), and (iii) a reduction in the Security division gross margin due to increased component and freight costs, a less favorable sales mix and a reduced service gross margin.

Operating Expenses

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Fiscal 2022 Compared with Fiscal 2021.

SG&A expense for the year ended June 30, 2021 decreased as compared to the same prior-year period due to reduced travel and entertainment and marketing expenses of $6 million and $3 million, respectively, due to the COVID-19 pandemic, and decreased third-party sales commissions of $8 million.

These decreases were offset by an increase in the provision for losses on accounts receivable of $5 million.

SG&A expense for the fiscal year ended June 30, 2022 was lower than such expense in the same prior-year period due to reduced provision for losses on accounts receivable and certain bad debt recoveries totaling $16 million as well as a decrease of approximately $3 million for professional fees and other miscellaneous reductions of approximately $4 million.

These decreases were partially offset by an increase in employee compensation expense of $11 million, increased travel and entertainment of $4 million, and increased marketing expenses of $3 million.

Research and Development

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Fiscal 2022 Compared with Fiscal 2021.

The decrease in R&D expense during the year ended June 30, 2021 from the same prior-year period reflected a decrease in materials and supplies consumed in research activities of $2 million and reduced travel expenses of $1 million due to the COVID-19 pandemic.

The increase in R&D expense during the fiscal year ended June 30, 2022 from the same prior-year period was primarily due to higher employee compensation expense of $7 million to support new product development initiatives and approximately $1 million in other expenses primarily in our Security and Healthcare divisions.

This increase was partially offset by reductions in supplies of approximately $2 million.

Impairment, Restructuring and Other Charges

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Fiscal 2022 Compared with Fiscal 2021.

During the fiscal year ended June 30, 2022, impairment, restructuring and other charges were $7.5 million and consisted of $5.1 million for legal charges, net of insurance reimbursements, $1.1 million in charges for employee terminations, $0.3 million in acquisition related costs, and $1.0 million in impairment charges.

During the year ended June 30, 2021, we incurred $7.2 million for exit activities associated with an expired turnkey contract in Mexico.

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We also incurred costs of $2.1 million for other employee terminations and facility closure costs for operational efficiency activities, $0.3 million for acquisition-related activities, and $0.5 million for certain legal charges, net of insurance reimbursements.

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.

Fiscal 2022 Compared with Fiscal 2021.

For the fiscal year ended June 30, 2022, other income was $27.4 million, driven by the gain on sale of property and equipment primarily from the sale of corporate owned real estate in a sale leaseback transaction of the Hawthorne Property in March 2022.

There was no corresponding amount during the fiscal year ended June 30, 2021.

Interest and Other Expense, Net

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Fiscal 2022 Compared with Fiscal 2021.

For the year ended June 30, 2021, interest and other expense, net was $16.7 million as compared to $18.8 million in the comparable prior-year period.

This decrease was driven by lower average levels of borrowing under our revolving credit facility as well as lower average interest rates during the fiscal year ended June 30, 2021 compared to the same period in the prior year.

Interest expense included $9.0 million and $8.8 million of non-cash interest expense during the years ended June 30, 2021 and 2020, respectively, mainly related to the Notes (see Note 8 to the condensed consolidated financial statements for further discussion).

For the fiscal year ended June 30, 2022, interest and other expense, net was $9.0 million as compared to $16.7 million in the comparable prior-year period.

This decrease was driven by our adoption of ASU 2020-06 (see Note 1 to the consolidated financial statements for further discussion) which was partially offset by rising interest rates and higher average levels of borrowing under our revolving credit facility during the fiscal year ended June 30, 2022 in comparison with interest rates and levels of borrowing during the same period in the prior fiscal year.

Interest expense during the fiscal years ended June 30, 2022 and 2021 included $0.5 million and $9.0 million, respectively, of non-cash interest expense, which was primarily related to the Notes.

Provision for Income Taxes

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Fiscal 2022 Compared with Fiscal 2021.

For the years ended June 30, 2021 and 2020, we recognized a provision for income taxes of $24.6 million and $10.9 million, respectively.

The effective tax rate for the years ended June 30, 2021 and 2020 was 24.9% and 12.6%, respectively.

During the year ended June 30, 2021, we recognized a net discrete tax benefit of $1.2 million for equity-based compensation under ASU 2016-09.

During the year ended June 30, 2020, we recognized a discrete tax benefit of $12.6 million, comprised of $6.8 million for equity-based compensation under ASU 2016-09 and $5.8 million for a return to provision true-up adjustment.

For the fiscal years ended June 30, 2022 and 2021, we recognized a provision for income taxes of $24.8 million and $24.6 million, respectively.

The effective tax rate for the fiscal years ended June 30, 2022 and 2021 was 17.7% and 24.9%, respectively.

During the fiscal years ended June 30, 2022 and 2021, we recognized a net discrete tax benefit of $7.0 million and $1.2 million, respectively, mainly related to equity-based compensation under ASU 2016-09 and changes in uncertain tax positions.

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 $80.6 million at June 30, 2021, an increase of $4.5 million, or 5.9%, from $76.1 million at June 30, 2020.

Cash and cash equivalents totaled $64.2 million at June 30, 2022, compared to $80.6 million at June 30, 2021.

During fiscal 2022, we generated $63.8 million of cash flow from operations.

These proceeds were used for the following:

$15.8 million invested in capital expenditures, $3.0 million for the acquisition of a business, $59.3 million for net repayment of bank borrowings and long-term debt and $49.0 million for share repurchases and taxes paid related to the net share settlement of equity awards.

These proceeds and $64.8 million of net bank borrowings and long-term debt were used for the following:

$14.9 million invested in capital expenditures, $14.1 million for the acquisition of two businesses and $131.0 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.

subsidiaries, we anticipate that cash generated from operations will be able to satisfy our obligations in the United States.

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

As of June 30, 2021, there were no outstanding borrowings under our revolving credit facility and letters-of-credit outstanding totaled $63.2 million.

In addition, we anticipate that cash generated from operations, without repatriating earnings from our non-U.S.

subsidiaries, and our credit facilities will be sufficient to satisfy our obligations in the U.S.

We have a $750 million credit facility that is comprised of a $600 million revolving credit facility, which includes a $300 million subfacility for letters of credit, and a $150 million delayed draw term loan of which a portion was drawn.

The term loan is available for us to draw until September 1, 2022.

As of June 30, 2022, there was $60.0 million outstanding under our revolving credit facility, $50.0 million outstanding under the term loan, and $78.5 million of outstanding letters of credit.

As of June 30, 2022, the total amount available under these credit facilities was $561.5 million.

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

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During fiscal 2022, we generated cash from operations of $63.8 million compared to $139.1 million in the prior fiscal year.

This increase was driven by change in net working capital.

This decrease was driven by increases in inventory, decreases in accounts payable and a reduction in customer advances, net and other changes in net working capital.

Cash Used in Investing Activities.

Net cash used in investing activities was $12.7 million during fiscal 2022 as compared to $34.7 million used during the prior year.

The decrease in cash used in investing activities was driven primarily by $32 million of proceeds for the sale of corporate owned real estate in a sale leaseback transaction of the Hawthorne Property.

During fiscal 2022, we used cash of $14.1 million for the acquisition of businesses as compared to $3.0 million in the prior fiscal year.

Net capital expenditures in fiscal 2022 were $14.9 million compared to $16.9 million in the prior year.

Expenditures for intangible and other assets in fiscal 2022 were $15.6 million compared to $13.8 million in the prior fiscal year.

In addition, purchases of certificates of deposit in fiscal 2022 were $2.2 million compared to $4.9 million in the same prior-year period.

Cash Used in Financing Activities.

Net cash used in financing activities was $64.0 million during fiscal 2022, compared to $103.9 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 $59.3 million in fiscal 2021 compared to $29.2 million in fiscal 2020;

The changes in cash flows from financing activities primarily relate to (i) net proceeds from bank borrowings and other debt totaling $64.3 million in fiscal 2022 compared to net repayments of $59.3 million on bank lines of credit and debt in fiscal 2021;

and (ii) $131.0 million used for share repurchases and taxes paid related to the net share settlement of equity awards in fiscal 2022 compared to $49.1 million in the prior year.

Outstanding lines of credit and current and long-term debt totaled $277.3 million at June 30, 2021, a decrease of $49.7 million from $327.0 million at June 30, 2020.

Material Cash Requirements

Our material cash requirements include the following contractual and other obligations.

Outstanding lines of credit and current and long-term debt totaled $353.4 million at June 30, 2022, an increase of $76.1 million from $277.3 million at June 30, 2021.

As of June 30, 2022, we were in compliance with all financial covenants under our various borrowing agreements.

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

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, including the principal payment of the convertible notes of $242.3 million maturing on September 1, 2022.

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.

We have lease arrangements for certain facilities and equipment under various operating lease agreements.

As of June 30, 2022, we had lease payment obligations of $40.0 million, with $10.9 million payable within the next 12 months.

Cash Held by Foreign Subsidiaries

1 unchanged sentence

Of this amount, approximately 78% was held by our foreign subsidiaries and subject to repatriation tax considerations.

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

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

8 unchanged sentences

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, 2021, we had no significant off-balance sheet arrangements, as defined in Item 303 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.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis