What changed in this filing

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Item 1. Financial Statements

2023-02-07 compared with 2022-11-08 · 155 added, 105 removed, 465 unchanged (36% of the section changed)

4 unchanged sentences

(In thousands, except share information)

September 30, 2022 June 30, 2022

December 31, 2022 June 30, 2022

Current assets:

Cash and cash equivalents $ 66,445 $ 37,987

Accounts receivable, less allowance of $ 13,942 at September 30, 2022

Accounts receivable, less allowance of $ 13,353 at December 31, 2022

and $ 16,806 at June 30, 2022

26 unchanged sentences

Common stock, no par value;

45,000,000 shares authorized, 25,225,902 and 25,187,351 shares issued and outstanding at September 30, 2022 and June 30, 2022, respectively

45,000,000 shares authorized, 25,343,014 and 25,187,351 shares issued and outstanding at December 31, 2022 and June 30, 2022, respectively

68,313 64,297

9 unchanged sentences

(In thousands, except per share data)

Quarter ended

September 30,

Quarter ended Six months ended

December 31, December 31,

2022 2021 2022 2021

Net sales $ 1,011,241 $ 864,079 $ 1,955,054 $ 1,721,662

10 unchanged sentences

Provision for income taxes 10,458 7,257 18,699 14,614

Net income from continuing operations 25,734 23,152 49,776 45,225

Net income from discontinued operations — 100 — 100

Net income $ 25,734 $ 23,252 $ 49,776 $ 45,325

Per share data:

Net income from continuing operations per common share, basic $ 1.02 $ 0.91 $ 1.97 $ 1.77

Net income from discontinued operations per common share, basic — — — —

Net income per common share, basic $ 1.02 $ 0.91 $ 1.97 $ 1.77

Weighted-average shares outstanding, basic 25,287 25,585 25,244 25,549

Net income from continuing operations per common share, diluted $ 1.01 $ 0.89 $ 1.96 $ 1.75

Net income from discontinued operations per common share, diluted — — — —

Net income per common share, diluted $ 1.01 $ 0.90 $ 1.96 $ 1.76

5 unchanged sentences

(In thousands)

Quarter ended

September 30,

Quarter ended Six months ended

December 31, December 31,

2022 2021 2022 2021

Net income $ 25,734 $ 23,252 $ 49,776 $ 45,325

18 unchanged sentences

Balance at September 30, 2022 25,225,902 $ 66,069 $ 870,911 $ ( 109,976 ) $ 827,004

Net income — — 25,734 — 25,734

Unrealized gain on hedged transaction, net of tax — — — 3 3

Foreign currency translation adjustment — — — 7,401 7,401

Exercise of stock options and shares issued under share-based compensation plans, net of shares withheld for employee taxes 117,112 ( 1,112 ) — — ( 1,112 )

Share-based compensation — 3,356 — — 3,356

Balance at December 31, 2022 25,343,014 $ 68,313 $ 896,645 $ ( 102,572 ) $ 862,386

See accompanying notes to these condensed consolidated financial statements.

14 unchanged sentences

Balance at September 30, 2021 25,528,551 $ 74,817 $ 780,144 $ ( 108,867 ) $ 746,094

Net income — — 23,252 — 23,252

Unrealized gain on hedged transaction, net of tax — — — 1,172 1,172

Foreign currency translation adjustment — — — ( 2,759 ) ( 2,759 )

Exercise of stock options and shares issued under share-based compensation plans, net of shares withheld for employee taxes 134,897 ( 2,513 ) — — ( 2,513 )

Common stock repurchased ( 5,903 ) ( 183 ) — — ( 183 )

Share-based compensation — 3,462 — — 3,462

Balance at December 31, 2021 25,657,545 $ 75,583 $ 803,396 $ ( 110,454 ) $ 768,525

See accompanying notes to these condensed consolidated financial statements.

3 unchanged sentences

(In thousands)

Three months ended

September 30,

Six months ended

Cash flows from operating activities:

Net income $ 49,776 $ 45,325

Net income from discontinued operations — 100

Net income from continuing operations 49,776 45,225

Adjustments to reconcile net income to net cash used in operating activities:

5 unchanged sentences

Finance lease interest 24 26

Changes in operating assets and liabilities, net of acquisitions:

Changes in operating assets and liabilities:

Accounts receivable ( 49,541 ) ( 54,370 )

8 unchanged sentences

Capital expenditures ( 4,262 ) ( 2,645 )

Net cash used in investing activities ( 1,758 ) ( 1,090 )

Proceeds from the sale of discontinued operations — 3,125

Net cash (used in) provided by investing activities ( 4,262 ) 480

Cash flows from financing activities:

2 unchanged sentences

Borrowings (repayments) on long-term debt, net 17,465 ( 4,093 )

Finance lease obligations 771 ( 316 )

Repayments on finance lease obligation ( 492 ) ( 624 )

Debt issuance costs ( 1,407 ) —

1 unchanged sentence

Taxes paid on settlement of equity awards ( 2,332 ) ( 2,634 )

Common stock repurchased — ( 183 )

Net cash provided by financing activities 108,029 51,365

19 unchanged sentences

GAAP for annual financial statements.

The unaudited condensed consolidated financial statements included herein contain all adjustments (consisting of normal recurring and non-recurring adjustments) that are, in the opinion of management, necessary to present fairly the financial position at September 30, 2022 and June 30, 2022, the results of operations for the quarters ended September 30, 2022 and 2021, the statements of comprehensive income for the quarters ended September 30, 2022 and 2021, the statements of shareholders' equity for the quarters ended September 30, 2022 and 2021 and the statements of cash flows for the three months ended September 30, 2022 and 2021.

The results of operations for the quarters ended September 30, 2022 are not necessarily indicative of the results to be expected for a full year.

The unaudited condensed consolidated financial statements included herein contain all adjustments (consisting of normal recurring and non-recurring adjustments) that are, in the opinion of management, necessary to present fairly the financial position at December 31, 2022 and June 30, 2022, the results of operations for the quarters and six months ended December 31, 2022 and 2021, the statements of comprehensive income for the quarters and six months ended December 31, 2022 and 2021, the statements of shareholders' equity for the quarters and six months ended December 31, 2022 and 2021 and the statements of cash flows for the six months ended December 31, 2022 and 2021.

The results of operations for the quarters and six months ended December 31, 2022 are not necessarily indicative of the results to be expected for a full year.

These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2022.

3 unchanged sentences

Summary of Significant Accounting Policies

There have been no material changes to the Company’s significant accounting policies for the three months ended September 30, 2022 from the policies described in the notes to the Company’s consolidated financial statements included in the Annual Report on Form 10-K for the fiscal year ended June 30, 2022.

There have been no material changes to the Company’s significant accounting policies for the six months ended December 31, 2022 from the policies described in the notes to the Company’s consolidated financial statements included in the Annual Report on Form 10-K for the fiscal year ended June 30, 2022.

For a discussion of the Company’s significant accounting policies, please see the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2022.

3 unchanged sentences

Due to the terms of the agreements governing these accounts, the Company generally does not have the right to offset outstanding checks written from these accounts against cash on hand, and the respective institutions are not legally obligated to honor the checks until sufficient funds are transferred to fund the checks.

As a result, checks released but not yet cleared from these accounts in the amounts of $ 11.5 million and $ 18.0 million are included in accounts payable on the condensed consolidated balance sheets at September 30, 2022 and June 30, 2022, respectively.

As a result, checks released but not yet cleared from these accounts in the amounts of $ 8.9 million and $ 18.0 million are included in accounts payable on the condensed consolidated balance sheets at December 31, 2022 and June 30, 2022, respectively.

Long-lived Assets

The Company presents depreciation expense and intangible amortization expense on the Condensed Consolidated Income Statements.

The Company's depreciation expense related to selling, general and administrative costs totaled $ 2.8 million for the quarter ended September 30, 2022 and $ 2.9 million for the quarter ended September 30, 2021.

Depreciation expense reported as part of cost of goods sold on the Condensed Consolidated Income Statements totaled $ 0.2 million for the quarter ended September 30, 2022 and $ 0.3 million for the quarter ended September 30, 2021.

The Company's depreciation expense related to selling, general and administrative costs totaled $ 2.7 million and $ 5.4 million for the quarter and six months ended December 31, 2022 and $ 2.5 million and $ 5.4 million for the quarter and six months ended December 31, 2021.

Depreciation expense reported as part of cost of goods sold on the Condensed Consolidated Income Statements totaled $ 0.2 million and $ 0.5 million for the quarter and six months ended December 31, 2022 and 2021.

The Company's intangible amortization expense reported on the Condensed Consolidated Income Statements relates to selling, general and administrative costs, not the cost of selling goods.

Intangible amortization expense totaled $ 4.2 million for the quarter ended September 30, 2022 and $ 4.5 million for the quarter ended September 30, 2021.

Intangible amortization expense totaled $ 4.2 million and $ 8.4 million for the quarter and six months ended December 31, 2022 and $ 4.4 million and $ 9.0 million for the quarter and six months ended December 31, 2021.

Recent Accounting Pronouncements

8 unchanged sentences

Estimates of expected credit losses on trade receivables over the contractual life are recorded at inception and adjusted over the contractual life.

The changes in the allowance for doubtful accounts for the three months ended September 30, 2022 are set forth in the table below.

The changes in the allowance for doubtful accounts for the six months ended December 31, 2022 are set forth in the table below.

June 30, 2022 Amounts Charged to Expense Write-offs Other (1)

September 30, 2022

December 31, 2022

(in thousands)

Trade accounts and current notes receivable allowance $ 16,806 $ 33 $ ( 2,842 ) $ ( 644 ) $ 13,353

(1) "Other" amounts include recoveries and the effect of foreign currency fluctuations for the three months ended September 30, 2022.

(1) "Other" amounts include recoveries and the effect of foreign currency fluctuations for the six months ended December 31, 2022.

(3) Revenue Recognition

21 unchanged sentences

For certain transactions, products are sold with a right of return and may also provide other rebates or incentives, which are accounted for as variable consideration.

The Company estimates returns allowance based on historical experience and reduces revenue accordingly.

The Company estimates a returns allowance based on historical experience and reduces revenue accordingly.

The Company estimates the amount of variable consideration for rebates and incentives by using the expected value to be given to the customer and reduces the revenue by those estimated amounts.

6 unchanged sentences

The following tables represent the Company's disaggregation of revenue:

Quarter ended September 30, 2022

Quarter ended December 31, 2022

Specialty Technology Solutions Modern Communications & Cloud Total

4 unchanged sentences

$ 627,548 $ 383,693 $ 1,011,241

Quarter ended September 30, 2021

Six months ended December 31, 2022

Specialty Technology Solutions Modern Communications & Cloud Total

4 unchanged sentences

$ 1,203,878 $ 751,176 $ 1,955,054

Quarter ended December 31, 2021

Specialty Technology Solutions Modern Communications & Cloud Total

(in thousands)

Revenue by product/service

Hardware, software and cloud (excluding Intelisys) $ 496,920 $ 348,893 $ 845,813

Intelisys connectivity and cloud — 18,266 18,266

$ 496,920 $ 367,159 $ 864,079

Six months ended December 31, 2021

Specialty Technology Solutions Modern Communications & Cloud Total

(in thousands)

Revenue by product/service:

Hardware, software and cloud (excluding Intelisys) $ 998,630 $ 687,142 $ 1,685,772

Intelisys connectivity and cloud — 35,890 35,890

$ 998,630 $ 723,032 $ 1,721,662

(4) Earnings Per Share

1 unchanged sentence

Diluted earnings per share are computed by dividing net income by the weighted-average number of common and potential common shares outstanding.

Quarter ended

September 30,

Quarter ended Six months ended

December 31, December 31,

2022 2021 2022 2021

(in thousands, except per share data)

Net income from continuing operations $ 25,734 $ 23,152 $ 49,776 $ 45,225

Net income from discontinued operations — 100 — 100

Net income $ 25,734 $ 23,252 $ 49,776 $ 45,325

2 unchanged sentences

Weighted-average shares, diluted 25,502 25,895 25,454 25,806

Net income from continuing operations per common share, basic $ 1.02 $ 0.91 $ 1.97 $ 1.77

Net loss from discontinued operations per common share, basic — — — —

Net income per common share, basic $ 1.02 $ 0.91 $ 1.97 $ 1.77

Net income from continuing operations per common share, diluted $ 1.01 $ 0.89 $ 1.96 $ 1.75

Net loss from discontinued operations per common share, diluted — — — —

Net income per common share, diluted $ 1.01 $ 0.90 $ 1.96 $ 1.76

For the quarters ended September 30, 2022 and 2021, weighted-average shares outstanding excluded from the computation of diluted earnings per share because their effect would be anti-dilutive were 1,128,445 and 1,213,398 , respectively.

For the quarters and six months ended December 31, 2022, weighted-average shares outstanding excluded from the computation of diluted earnings per share because their effect would be anti-dilutive were 847,651 and 1,268,455 , respectively.

For the quarters and six months ended December 31, 2021, weighted-average shares outstanding excluded from the computation of diluted earnings per share because their effect would be anti-dilutive were 847,484 and 1,149,352 , respectively.

(5) Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss consists of the following:

September 30, 2022 June 30, 2022

December 31, 2022 June 30, 2022

(in thousands)

2 unchanged sentences

Accumulated other comprehensive loss $ ( 102,572 ) $ ( 104,638 )

The tax effect of amounts in comprehensive loss (income) reflect a tax expense or (benefit) as follows:

Quarter ended September 30,

The tax effect of amounts in comprehensive loss reflect a tax expense or as follows:

Quarter ended December 31, Six months ended December 31,

2022 2021 2022 2021

(in thousands)

1 unchanged sentence

(6) Goodwill and Other Identifiable Intangible Assets

The changes in the carrying amount of goodwill for the three months ended September 30, 2022, by reporting segment, are set forth in the table below.

The changes in the carrying amount of goodwill for the six months ended December 31, 2022, by reporting segment, are set forth in the table below.

Specialty Technology Solutions Modern Communications & Cloud Total

2 unchanged sentences

Foreign currency translation adjustment — ( 68 ) ( 68 )

Balance at September 30, 2022 $ 16,370 $ 195,366 $ 211,736

The following table shows changes in the amount recognized for net identifiable intangible assets for the three months ended September 30, 2022.

Balance at December 31, 2022 $ 16,370 $ 197,997 $ 214,367

The following table shows changes in the amount recognized for net identifiable intangible assets for the six months ended December 31, 2022.

Net Identifiable Intangible Assets

3 unchanged sentences

Foreign currency translation adjustment ( 86 )

Balance at September 30, 2022 $ 78,724

Balance at December 31, 2022 $ 75,950

(7) Short-Term Borrowings and Long-Term Debt

The following table presents the Company’s debt at September 30, 2022 and June 30, 2022.

September 30, 2022 June 30, 2022

The following table presents the Company’s debt at December 31, 2022 and June 30, 2022.

December 31, 2022 June 30, 2022

(in thousands)

8 unchanged sentences

amended and restated the Amended Credit Agreement, which includes (i) a five-year , $ 350 million multicurrency senior secured revolving credit facility and (ii) a five-year $ 150 million senior secured term loan facility.

The Amended Credit Agreement extends the credit facility maturity date to September 28, 2027.

The Amended Credit Agreement extended the credit facility maturity date to September 28, 2027.

In addition, pursuant to an “accordion feature,” the Company may increase its borrowings up to an additional $ 250 million, subject to obtaining additional credit commitments from the lenders participating in the increase.

5 unchanged sentences

Loans denominated in U.S.

dollars, other than swingline loans, shall bear interest at a rate per annum equal to, at the Company’s option, (i) the adjusted Term SOFR or daily simple SOFR rate plus a fixed credit spread adjustment of 0.10 %, plus an additional margin ranging from 1.00 % to 1.75 %, depending upon the Company’s ratio of (A) total consolidated debt less up to $ 30 million of unrestricted domestic cash to (B) trailing four-quarter consolidated EBITDA measured as of the end of the most recent year or quarter, as applicable, for which financial statements have been delivered to the Lenders (the “leverage ratio”);

dollars, other than swingline loans, shall bear interest at a rate per annum equal to, at the Company’s option, (i) the adjusted Term SOFR or adjusted daily simple SOFR plus an additional margin ranging from 1.00 % to 1.75 %, depending upon the Company’s ratio of (A) total consolidated debt less up to $ 30 million of unrestricted domestic cash to (B) trailing four-quarter consolidated EBITDA measured as of the end of the most recent year or quarter, as applicable, for which financial statements have been delivered to the Lenders (the “leverage ratio”);

or (ii) the alternate base rate plus an additional margin ranging from 0 % to 0.75 %, depending upon the Company’s leverage ratio, plus, if applicable, certain mandatory costs.

Loans denominated in foreign currencies shall bear interest at a rate per annum equal to the applicable benchmark rate set forth in the New Credit Agreement plus an additional margin ranging from 1.00 % to 1.75 %, depending upon the Company’s leverage ratio, plus, if applicable, certain mandatory costs.

All swingline loans denominated in U.S.

dollars shall bear interest based upon the adjusted daily simple SOFR, floating daily, plus an additional margin ranging from 1.00 % to 1.75 %, depending upon the Company's leverage ratio, or such other rate as the Company and the applicable swingline lender may agree.

During the quarter ended September 30, 2022, the Company's borrowings under the credit facility were U.S.

The adjusted term SOFR and adjusted daily simple SOFR include a fixed credit adjustment of 0.10 % over the applicable SOFR reference rate.

During the quarter and six months ended December 31, 2022, the Company's borrowings under the credit facility were U.S.

dollar loans.

The spread in effect as of September 30, 2022 was 1.50 % for LIBOR and SOFR-based loans and 0.50 % for alternate base rate loans.

The commitment fee rate in effect at September 30, 2022 was 0.25 %.

The spread in effect as of December 31, 2022 was 1.50 %, plus a 0.10 % credit spread adjustment for SOFR-based loans and 0.50 % for alternate base rate loans.

The commitment fee rate in effect at December 31, 2022 was 0.25 %.

The Amended Credit Agreement includes customary representations, warranties and affirmative and negative covenants, including financial covenants.

2 unchanged sentences

In the event of a default, customary remedies are available to the lenders, including acceleration and increased interest rates.

The Company was in compliance with all covenants under the credit facility at September 30, 2022.

The average daily outstanding balance on the revolving credit facility, excluding the term loan facility, during the three month periods ended September 30, 2022 and 2021 was $ 200.5 million and $ 54.4 million, respectively.

There was $ 177.3 million and $ 214.2 million available for additional borrowings as of September 30, 2022 and June 30, 2022, respectively.

There were no letters of credit issued under the multi-currency revolving credit facility at September 30, 2022 or June 30, 2022.

The Company was in compliance with all covenants under the credit facility at December 31, 2022.

The average daily outstanding balance on the revolving credit facility, excluding the term loan facility, during the six month periods ended December 31, 2022 and 2021 was $ 219.5 million and $ 57.1 million, respectively.

There was $ 120.0 million and $ 214.2 million available for additional borrowings as of December 31, 2022 and June 30, 2022, respectively.

There were no letters of credit issued under the multi-currency revolving credit facility at December 31, 2022 or June 30, 2022.

Mississippi Revenue Bond

3 unchanged sentences

The agreement also provides the bondholder with a put option, exercisable only within 180 days of each fifth anniversary of the agreement, requiring the Company to pay back the bonds at 100 % of the principal amount outstanding.

At September 30, 2022, the Company was in compliance with all covenants under this bond.

The interest rates at September 30, 2022 and June 30, 2022 were 3.21 % and 1.97 %, respectively.

At December 31, 2022, the Company was in compliance with all covenants under this bond.

The interest rates at December 31, 2022 and June 30, 2022 were 4.97 % and 1.97 %, respectively.

Debt Issuance Costs

At September 30, 2022, net debt issuance costs associated with the credit facility and bond totaled $ 2.0 million and are being amortized on a straight-line basis through the maturity date of each respective debt instrument.

At December 31, 2022, net debt issuance costs associated with the credit facility and bond totaled $ 1.8 million and are being amortized on a straight-line basis through the maturity date of each respective debt instrument.

(8) Derivatives and Hedging Activities

2 unchanged sentences

The Company's accounting policies for these instruments are based on whether the instruments are designated as hedge or non-hedge instruments in accordance with U.S.

The Company records all derivatives on the consolidated balance sheet at fair value.

The Company records all derivatives on the Condensed Consolidated Balance Sheet at fair value.

Derivatives that are not designated as hedging instruments or the ineffective portions of cash flow hedges are adjusted to fair value through earnings in other income and expense.

3 unchanged sentences

dollar, Brazilian real, euro, British pound and Canadian dollar.

The Company had contracts outstanding for purposes of managing cash flows with notional amounts of $ 35.9 million and $ 34.5 million for the exchange of foreign currencies at September 30, 2022 and June 30, 2022, respectively.

The Company had contracts outstanding for purposes of managing cash flows with notional amounts of $ 47.4 million and $ 34.5 million for the exchange of foreign currencies at December 31, 2022 and June 30, 2022, respectively.

To date, the Company has chosen not to designate these derivatives as hedging instruments, and accordingly, these instruments are adjusted to fair value through earnings in other income and expense.

Summarized financial information related to these derivative contracts and changes in the underlying value of the foreign currency exposures included in the Condensed Consolidated Income Statements for the quarters ended September 30, 2022 and 2021 are as follows:

Quarter ended

September 30,

Quarter ended Six months ended

December 31, December 31,

2022 2021 2022 2021

(in thousands)

Net foreign exchange derivative contract losses (gains) $ 871 $ ( 523 ) $ 1,309 $ ( 2,175 )

Net foreign currency transactional and re-measurement losses 484 2,136

Net foreign currency transactional and re-measurement (gains) losses ( 524 ) 1,003 ( 39 ) 3,141

Net foreign currency exchange losses $ 347 $ 480 $ 1,270 $ 966

Net foreign currency exchange gains and losses consist of foreign currency transactional and functional currency re-measurements, offset by net foreign currency exchange contract gains and losses and are included in other income and expense.

Foreign currency exchange gains and losses are generated as the result of fluctuations in the value of the U.S.

Foreign exchange gains and losses are generated as the result of fluctuations in the value of the U.S.

dollar versus the Brazilian real, the U.S.

dollar versus the euro, British pound versus the euro and other currencies versus the U.S.

dollar versus the euro, the British pound versus the euro, and the Canadian dollar versus the U.S.

Interest Rates - The Company’s earnings are also affected by changes in interest rates due to the impact those changes have on interest expense from floating rate debt instruments.

2 unchanged sentences

The swap agreement has a notional amount of $ 100.0 million, with a $ 50.0 million tranche scheduled to mature on April 30, 2024 and a $ 50.0 million tranche scheduled to mature April 30, 2026.

This swap agreement is designated as a cash flow hedge to hedge the variable rate interest payments on the revolving credit facility.

agreement is designated as a cash flow hedge to hedge the variable rate interest payments on the revolving credit facility.

Interest rate differentials paid or received under the swap agreement are recognized as adjustments to interest expense.

To the extent the swap is effective in offsetting the variability of the hedged cash flows, changes in the fair value of the swap are not included in current earnings but are reported as other comprehensive income (loss).

There was no ineffective portion to be recorded as an adjustment to earnings for the quarters ended September 30, 2022 and 2021.

The components of the cash flow hedge included in the Condensed Consolidated Statement of Comprehensive Income for the quarters ended September 30, 2022 and 2021, are as follows:

Quarter ended

September 30,

There was no ineffective portion to be recorded as an adjustment to earnings for the quarters and six months ended December 31, 2022 and 2021.

The components of the cash flow hedge included in the Condensed Consolidated Statement of Comprehensive Income for the quarters and six months ended December 31, 2022 and 2021, are as follows:

Quarter ended Six months ended

December 31, December 31,

2022 2021 2022 2021

(in thousands)

Net interest expense recognized as a result of interest rate swap $ 32 $ 580

Unrealized gain (loss) in fair value of interest rate swap 2,500 ( 15 )

Net interest (income) expense recognized as a result of interest rate swap $ ( 345 ) $ 579 $ ( 313 ) $ 1,157

Unrealized gain in fair value of interest rate swap 349 999 2,849 983

Net increase in accumulated other comprehensive income 4 1,578 2,536 2,140

1 unchanged sentence

Net increase in accumulated other comprehensive income, net of tax $ 3 $ 1,172 $ 1,884 $ 1,585

The Company used the following derivative instruments at September 30, 2022 and June 30, 2022, reflected in its Condensed Consolidated Balance Sheets, for the risk management purposes detailed above:

September 30, 2022 June 30, 2022

The Company used the following derivative instruments at December 31, 2022 and June 30, 2022, reflected in its Condensed Consolidated Balance Sheets, for the risk management purposes detailed above:

December 31, 2022 June 30, 2022

Balance Sheet Location Fair Value of

5 unchanged sentences

Derivative assets:

Foreign exchange contracts Prepaid expenses and other current assets $ — $ 4 $ — $ —

Foreign currency hedge Prepaid expenses and other current assets $ 8 $ — $ — $ —

Interest rate swap agreement Other non-current assets $ 4,223 — $ 1,686 —

10 unchanged sentences

The carrying value of debt is considered to approximate fair value, as the Company’s debt instruments are indexed to a variable rate using the market approach (Level 2).

The following table summarizes the valuation of the Company’s remaining assets and liabilities measured at fair value on a recurring basis at September 30, 2022:

The following table summarizes the valuation of the Company’s remaining assets and liabilities measured at fair value on a recurring basis at December 31, 2022:

(Level 1) Significant

1 unchanged sentence

Deferred compensation plan investments, current and non-current portion $ 27,387 $ 27,387 $ —

Forward foreign currency exchange contracts 4 — 4

Interest rate swap agreement 4,223 — 4,223

Foreign currency hedge 8 — 8

Total assets at fair value $ 31,610 $ 27,387 $ 4,223

Deferred compensation plan investments, current and non-current portion $ 27,387 $ 27,387 $ —

Forward foreign currency exchange contracts 9 — 9

Foreign currency hedge 281 — 281

Total liabilities at fair value $ 27,677 $ 27,387 $ 290

32 unchanged sentences

Selected financial information for each business segment is presented below:

Quarter ended

September 30,

Quarter ended Six months ended

December 31, December 31,

2022 2021 2022 2021

(in thousands)

21 unchanged sentences

$ 1,011,241 $ 864,079 $ 1,955,054 $ 1,721,662

September 30, 2022 June 30, 2022

December 31, 2022 June 30, 2022

(in thousands)

7 unchanged sentences

$ 36,593 $ 37,477

In accordance with ASC 842, at contract inception the Company determines if a contract contains a lease by assessing whether the contract contains an identified asset and whether the Company has the ability to control the asset.

In accordance with Accounting Standards Codification ("ASC") 842, at contract inception the Company determines if a contract contains a lease by assessing whether the contract contains an identified asset and whether the Company has the ability to control the asset.

The Company also determines if the lease meets the classification criteria for an operating lease versus a finance lease under ASC 842.

Substantially all of the Company's leases are operating leases for real estate, warehouse and office equipment ranging in duration from 1 year to 10 years.

The Company has elected not to record short-term operating leases with an initial term of 12

months or less on the Condensed Consolidated Balance Sheets.

The Company has elected not to record short-term operating

leases with an initial term of 12 months or less on the Condensed Consolidated Balance Sheets.

Operating leases are recorded as other non-current assets, accrued expenses and other current liabilities and other long-term liabilities on the Condensed Consolidated Balance Sheets.

1 unchanged sentence

Finance leases are recorded as property and equipment, net , accrued expenses and other current liabilities and other long-term liabilities on the Condensed Consolidated Balance Sheets.

The gross amount of the balances recorded related to finance leases is immaterial to the financial statements at September 30, 2022 and June 30, 2022.

The gross amount of the balances recorded related to finance leases is immaterial to the condensed consolidated financial statements at December 31, 2022 and the consolidated financial statements at June 30, 2022.

Operating lease right-of-use assets and lease liabilities are recognized at the commencement date based on the net present value of future minimum lease payments over the lease term.

5 unchanged sentences

Further, the Company has elected the practical expedient to recognize all lease and non-lease components as a single lease component, where applicable.

The following table presents amounts recorded on the Condensed Consolidated Balance Sheet related to operating leases at September 30, 2022 and June 30, 2022:

September 30, 2022 June 30, 2022

The following table presents amounts recorded on the Condensed Consolidated Balance Sheets related to operating leases at December 31, 2022 and June 30, 2022:

December 31, 2022 June 30, 2022

Operating leases Balance Sheet location (in thousands)

2 unchanged sentences

Long-term operating lease liabilities Other long-term liabilities $ 10,880 $ 13,085

The following table presents amounts recorded in operating lease expense as part of selling general and administrative expenses on the Condensed Consolidated Income Statements during the quarters ended September 30, 2022 and 2021.

Operating lease costs contain immaterial amounts of short-term lease costs for leases with an initial term of 12 months or less.

Quarter ended September 30,

Quarter ended December 31, Six months ended December 31,

2022 2021 2022 2021

(in thousands)

2 unchanged sentences

$ 1,710 $ 1,596 $ 3,340 $ 3,162

Supplemental cash flow information related to the Company's operating leases for the quarters ended September 30, 2022 and 2021 are presented in the table below:

Quarter ended

September 30,

Supplemental cash flow information related to the Company's operating leases for the six months ended December 31, 2022 and 2021 are presented in the table below:

Six months ended

(in thousands)

1 unchanged sentence

Right-of-use assets obtained in exchange for lease obligations 286 1,782

The weighted-average remaining lease term and discount rate at September 30, 2022 are presented in the table below:

September 30, 2022

The weighted-average remaining lease term and discount rate at December 31, 2022 are presented in the table below:

December 31, 2022

Weighted-average remaining lease term 3.96 years

Weighted-average discount rate 3.98 %

The following table presents the maturities of the Company's operating lease liabilities at September 30, 2022:

The following table presents the maturities of the Company's operating lease liabilities at December 31, 2022:

Operating leases

9 unchanged sentences

The Company recorded indemnification receivables that are reported gross of the pre-acquisition contingency liabilities as the funds were escrowed as part of the acquisition.

The amount available after the impact of foreign currency translation for future pre-acquisition contingency settlements or to be released to the sellers was $ 4.1 million at September 30, 2022 and June 30, 2022.

The table below summarizes the balances and line item presentation of Network1's pre-acquisition contingencies and corresponding indemnification receivables in the Company's Condensed Consolidated Balance Sheets at September 30, 2022 and June 30, 2022:

September 30, 2022 June 30, 2022

The amount available after the impact of foreign currency translation for future pre-acquisition contingency settlements or to be released to the sellers was $ 3.0 million and $ 4.1 million at December 31, 2022 and June 30, 2022, respectively.

December 31, 2022 June 30, 2022

(in thousands)

4 unchanged sentences

(13) Income Taxes

Income taxes for the quarters ended September 30, 2022 and 2021 have been included in the accompanying condensed consolidated financial statements using an estimated annual effective tax rate.

Income taxes for the quarters and six months ended December 31, 2022 and 2021 have been included in the accompanying condensed consolidated financial statements using an estimated annual effective tax rate.

In addition to applying the estimated annual effective tax rate to pre-tax income, the Company includes certain items treated as discrete events to arrive at an estimated overall tax provision.

During the quarter ended September 30, 2022, a discrete net tax benefit of $ 0.5 million was recorded, which is primarily attributable to a notional interest deduction on the net equity of the Company's Brazilian subsidiary.

There were no material discrete items during the quarter ended September 30, 2021.

The Company’s effective tax rate of 25.5 % for the quarter ended September 30, 2022, differs from the current federal statutory rate of 21% primarily as a result of income derived from tax jurisdictions with varying income tax rates, nondeductible expenses and state income taxes.

The Company's effective tax rate was 25.0 % for the quarter ended September 30, 2021.

As of September 30, 2022, the Company is not permanently reinvested with respect to all earnings generated by foreign operations.

During the quarter ended December 31, 2022, there were no material discrete items.

For the six months ended December 31, 2022, a discrete net tax benefit of $ 0.7 million was recorded, which is primarily attributable to a notional interest deduction on the net equity of the Company's Brazilian subsidiary.

The Company’s effective tax rate of 28.9 % and 27.3 % for the quarter and six months ended December 31, 2022, differs from the current federal statutory rate of 21% primarily as a result of income derived from tax jurisdictions with varying income tax rates, nondeductible expenses and state income taxes.

The Company's effective tax rate was 23.9 % and 24.4 % for the quarter and six months ended December 31, 2021.

As of December 31, 2022, the Company is not permanently reinvested with respect to all earnings generated by foreign operations.

The Company has determined that there is no material deferred tax liability for federal, state and withholding tax related to undistributed earnings.

During the quarter ended September 30, 2022, foreign subsidiaries repatriated cash of $ 2.9 million to the United States.

During the quarter ended December 31, 2022, foreign subsidiaries repatriated cash of $ 9.1 million to the United States.

There is no certainty to the timing of any future distributions of such earnings to the U.S.

in whole or in part.

The Company had approximately $ 1.1 million of total gross unrecognized tax benefits at September 30, 2022 and June 30, 2022.

Of this total at September 30, 2022, approximately $ 0.9 million represents the amount of unrecognized tax benefits that are permanent in nature and, if recognized, would affect the annual effective tax rate.

The Company had approximately $ 1.1 million of total gross unrecognized tax benefits at December 31, 2022 and June 30, 2022.

Of this total at December 31, 2022, approximately $ 0.9 million represents the amount of unrecognized tax benefits that are permanent in nature and, if recognized, would affect the annual effective tax rate.

The Company does not believe that the total amount of unrecognized tax benefits will significantly increase or decrease within twelve months of the reporting date.

The Company’s policy is to recognize interest and penalties related to income tax matters in income tax expense.

At September 30, 2022 and June 30, 2022, the Company had approximately $ 1.2 million accrued for interest and penalties.

At December 31, 2022 and June 30, 2022, the Company had approximately $ 1.2 million accrued for interest and penalties.

The Company conducts business globally and one or more of its subsidiaries files income tax returns in the U.S.

12 unchanged sentences

Total cash received for the sale of divestitures was $ 37.5 million.

There were no components of net income or loss from discontinued operations for the quarters ended September 30, 2022 and 2021.

There were no assets or liabilities classified as held-for-sale in the accompanying consolidated balance sheets at September 30, 2022 and June 30, 2022.

There were no cash flows from discontinued operations for the three months ended September 30, 2022 and 2021.

There were no components of net income or loss from discontinued operations for the quarter and six months ended December 31, 2022.

During the quarter and six months ended December 31, 2021, the Company recognized a gain from the sale of discontinued operations of $ 0.1 million.

There were no assets or liabilities classified as held-for-sale in the accompanying consolidated balance sheets at December 31, 2022 and June 30, 2022.

There were no cash flows from discontinued operations for the six months ended December 31, 2022 and 2021.

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 1. Financial Statements