What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-08-29 compared with 2022-08-19 · 66 added, 115 removed, 200 unchanged (48% of the section changed)

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Security Division.

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

Through our Security division, we provide security screening products, software, 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.

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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.

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

We believe that our wide-ranging product portfolio together with our ability to provide turnkey screening solutions position us to 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 efforts.

Government is discussing various options to address the U.S.

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.

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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 budgetary reductions may be implemented and how the U.S.

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.

However, future budgetary reductions may be implemented as both the U.S.

Government and other international government customers manage fiscal challenges including those stemming from government spending that occurred during the COVID-19 pandemic;

such reductions could have a material, adverse effect on our business, financial condition and results of operations.

Healthcare Division.

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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.

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

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Fiscal 2023 Compared with Fiscal 2022.

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.

We reported consolidated sales of $1,278.4 million in fiscal 2023, an 8.0% increase compared to the prior year.

Our income from operations increased to $135.3 million in fiscal 2023 or 11.1% growth from the prior year driven primarily by increased sales and a reduction in operating expenses of $7.4 million.

Acquisitions.

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.

We acquired four businesses during fiscal 2023 and two businesses during fiscal 2022, as described in Note 2 to the Consolidated Financial Statements.

None of such acquisitions was considered material.

Trends and Uncertainties

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.

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 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.

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 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.

These global macroeconomic factors, coupled with the U.S.

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.

Also, the continued conflict between Russia and Ukraine 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.

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Global Trade.

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.

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.

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Healthcare Considerations.

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.

As described below, 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.

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

The pandemic may also impact our ability to manufacture product needed to timely fill orders if we experience supply chain disruptions or need to close any manufacturing facility due to employee COVID-19 cases or local government regulations.

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.

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

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.

Government Policies.

Our results of operations and cash flows could be materially affected by changes in U.S.

or foreign government legislative, regulatory or enforcement policies, including U.S.

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

or foreign government legislative, regulatory or enforcement policies.

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 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.

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.

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

Currency Exchange Rates.

On a year-over-year basis, currency exchange rates negatively impacted reported sales by approximately 1.0% for the year ended June 30, 2023 compared to the year ended June 30, 2022, primarily due to the strengthening of the U.S.

dollar against other foreign currencies in fiscal 2023.

Any further strengthening of the U.S.

dollar against foreign currencies would adversely impact our sales for the remainder of the year, and any weakening of the U.S.

dollar against foreign currencies would positively impact our sales for the remainder of the year.

Coronavirus Pandemic.

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

The COVID-19 pandemic caused, and may continue to cause, significant economic disruptions and impacted, and may 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.

During the early stages 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 was delayed, most notably with respect to our aviation and cargo products, and our revenues were adversely impacted as a result of the pandemic.

Significant International Security Contracts.

During fiscal year 2023, our Security division was awarded two significant international contracts valued in aggregate greater than $700 million with expected revenues to be recognized over multiple years.

Critical Accounting Policies and Estimates

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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.

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

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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.

We generally assign 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.

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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.

During the measurement period, which is until we have all the necessary information about the facts and circumstances that existed as of the acquisition date up to one year from the acquisition date, we may record adjustments to the provisional amounts initially recorded for 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 consideration 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, 2021 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.

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.

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;

(ii) dividend yield;

(iii) risk-free interest rates;

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.

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 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.

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

Legal and Other Contingencies.

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Fiscal 2023 Compared with Fiscal 2022.

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.

Revenues for the Security division during the fiscal year ended June 30, 2023 increased on a year-over-year basis due to an increase in product and service revenues of approximately $66.1 million and $31.0 million, respectively.

The increase in both product and service revenue was primarily driven by increased sales of cargo and vehicle inspection systems.

Revenues for the Healthcare division during the fiscal year ended June 30, 2023 decreased year-over-year due to a reduction in patient monitoring and cardiology sales of $12.2 million and $2.9 million, respectively.

Revenues for the Optoelectronics and Manufacturing division during the fiscal year ended June 30, 2023 increased year-over-year as a result of increases in revenue in our optoelectronics and contract manufacturing businesses of approximately $9.2 million and $4.1 million, respectively.

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Fiscal 2023 Compared with Fiscal 2022.

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.

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

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

Gross profit increased approximately $6.1 million in fiscal 2023 as compared to the prior year on an 8% increase in sales.

The gross margin declined from 35.9% to 33.7% 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.

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

Gross profit as a percentage of net revenues during the fiscal year ended June 30, 2023 decreased on a year-over-year basis due to (i) a reduction in the Security division gross margin due to a decrease in margin from product sales driven by a less favorable product mix and increased component costs, (ii) a reduction in sales in the Healthcare division, which carries the highest gross margin of our three divisions, and (iii) an increase in sales in the Optoelectronics and Manufacturing division, which carries the lowest gross margin of our three divisions.

Operating Expenses

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Fiscal 2023 Compared with Fiscal 2022.

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.

SG&A expense for the fiscal year ended June 30, 2023 was $7.3 million lower than such expenses in the same prior-year period primarily due to a $5 million reduction in compensation and external commission expenses and a $1 million reduction in marketing expense, a reduction in the fair value of certain contingent liabilities, partially offset by $2 million lower bad debt recoveries and increased travel and meeting expenses compared to the same prior-year period.

Research and Development

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Fiscal 2023 Compared with Fiscal 2022.

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.

R&D expense during the fiscal year ended June 30, 2023 was comparable to the prior fiscal year.

Impairment, Restructuring and Other Charges

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Fiscal 2023 Compared with Fiscal 2022.

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.

Such exit costs include $2.8 million for employee terminations, $1.1 million for facility closure and other exit costs, direct transaction costs of $2.7 million, and $0.6 million for right-of-use asset impairment for a leased facility.

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.

During the fiscal year ended June 30, 2023, impairment, restructuring and other charges were $7.6 million and consisted of $3.9 million for legal charges, net of insurance reimbursements, $1.7 million for employee terminations, $1.5 million for other facility closure costs for operational efficiency activities, and $0.4 million in acquisition related costs.

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 primarily related to class action litigation and government investigations, 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.

Fiscal 2023 Compared with Fiscal 2022.

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.

During the fiscal year ended June 30, 2023, there was no other income.

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.

Interest and Other Expense, Net

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For the fiscal year ended June 30, 2023, interest and other expense, net was $20.0 million as compared to $9.0 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.

This increase was driven by higher average interest rates and higher average levels of borrowing under our credit facility during the year ended June 30, 2023 in comparison with the interest rates and levels of borrowing during the same period in the prior year.

The 1.25% convertible notes that were previously outstanding during the year ended June 30, 2022 were retired in September 2022 using borrowings from our credit facility which carries a higher interest rate than the convertible notes.

Provision for Income Taxes

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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 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.

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The effective tax rate for the fiscal years ended June 30, 2023 and 2022 was 20.4% and 17.7%, 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.

During the fiscal years ended June 30, 2023 and 2022, we recognized a net discrete tax benefit of $2.8 million and $7.0 million, respectively, primarily related to equity-based compensation under ASU 2016-09, adjustments to prior year estimates, and changes in uncertain tax positions.

Liquidity and Capital Resources

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These proceeds and $5.9 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.

$15.8 million invested in capital expenditures, $7.1 million for the acquisition of four businesses and $46.7 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.

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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.

We have a $750 million credit facility that is comprised of a $600 million revolving credit facility, which includes a $300 million sub-facility for letters of credit, and a $150 million term loan.

As of June 30, 2023, there was $215.0 million outstanding under our revolving credit facility, $143.1 million outstanding under the term loan, and $48.5 million of outstanding letters of credit.

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During fiscal 2023, we generated cash from operations of $94.8 million compared to $63.8 million in the prior fiscal year.

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.

This increase was driven by lower increases in inventory, increased accounts payable and other changes in net working capital.

Cash Used in Investing Activities.

Net cash used in investing activities was $40.5 million during fiscal 2023 as compared to $12.7 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 received proceeds of $32 million from the sale of corporate owned real estate thereby reducing the amount of net cash used in investing activities in such year.

During fiscal 2023, we used cash of $7.1 million for the acquisition of businesses as compared to $14.1 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.

Net capital expenditures in fiscal 2023 were $15.8 million compared to $14.9 million in the prior fiscal year.

Expenditures for intangible and other assets in fiscal 2023 were $16.4 million compared to $15.6 million in the prior fiscal year.

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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 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.

Net cash used in financing activities was $37.2 million during fiscal 2023, compared to $64.0 million during the prior fiscal year.

The changes in cash flows from financing activities primarily relate to (i) net repayments on bank lines of credit and the term loan of $5.9 million in fiscal 2023 compared to $64.3 million in the prior fiscal year;

and (ii) $46.7 million used for share repurchases and taxes paid related to the net share settlement of equity awards in fiscal 2023 compared to $131.0 million in the prior fiscal year.

Material Cash Requirements

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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.

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Of this amount, approximately 97% 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, Singapore, Malaysia, Canada, India, 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, Qatar, Singapore, India, Malaysia and Canada, and to a lesser extent in Indonesia, Australia, Germany and Mexico 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.

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Stock Repurchase Program

In April 2020, the Board of Directors authorized a new share repurchase program of up to 1,000,000 shares, and in August 2020, the Board of Directors increased the maximum number of shares to 3,000,000 shares authorized under the stock repurchase program.

In September 2022, our Board of Directors increased to 2,000,000 shares the maximum number of shares authorized under the stock repurchase program.

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

5 unchanged sentences

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