What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-05-09 compared with 2023-02-07 · 133 added, 115 removed, 505 unchanged (33% of the section changed)

4 unchanged sentences

(In thousands, except share information)

December 31, 2022 June 30, 2022

March 31, 2023 June 30, 2022

Current assets:

Cash and cash equivalents $ 37,374 $ 37,987

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

Accounts receivable, less allowance of $ 14,236 at March 31, 2023

and $ 16,806 at June 30, 2022

26 unchanged sentences

Common stock, no par value;

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

45,000,000 shares authorized, 25,007,396 and 25,187,351 shares issued and outstanding at March 31, 2023 and June 30, 2022, respectively

60,475 64,297

9 unchanged sentences

(In thousands, except per share data)

Quarter ended Six months ended

December 31, December 31,

Quarter ended Nine months ended

March 31, March 31,

2023 2022 2023 2022

28 unchanged sentences

(In thousands)

Quarter ended Six months ended

December 31, December 31,

Quarter ended Nine months ended

March 31, March 31,

2023 2022 2023 2022

Net income $ 21,221 $ 23,526 $ 70,997 $ 68,851

Unrealized gain on hedged transaction, net of tax 3 1,172 1,882 1,585

Unrealized (loss) gain on hedged transaction, net of tax ( 1,165 ) 3,144 718 4,730

Foreign currency translation adjustment 4,291 17,186 4,474 3,279

22 unchanged sentences

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

Net income — — 21,221 — 21,221

Unrealized loss on hedged transaction, net of tax — — — ( 1,165 ) ( 1,165 )

Foreign currency translation adjustment — — — 4,291 4,291

Exercise of stock options and shares issued under share-based compensation plans, net of shares withheld for employee taxes 20,851 118 — — 118

Common stock repurchased ( 356,469 ) ( 10,906 ) — — ( 10,906 )

Share-based compensation — 2,950 — — 2,950

Balance at March 31, 2023 25,007,396 $ 60,475 $ 917,866 $ ( 99,446 ) $ 878,895

See accompanying notes to these condensed consolidated financial statements.

21 unchanged sentences

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

Net income — — 23,526 — 23,526

Unrealized gain on hedged transaction, net of tax — — — 3,144 3,144

Foreign currency translation adjustment — — — 17,186 17,186

Exercise of stock options and shares issued under share-based compensation plans, net of shares withheld for employee taxes 46,549 383 — — 383

Common stock repurchased ( 274,852 ) ( 8,886 ) — — ( 8,886 )

Share-based compensation — 2,776 — — 2,776

Balance at March 31, 2022 25,429,242 $ 69,856 $ 826,922 $ ( 90,124 ) $ 806,654

See accompanying notes to these condensed consolidated financial statements.

3 unchanged sentences

(In thousands)

Six months ended

Nine months ended

Cash flows from operating activities:

21 unchanged sentences

Proceeds from the sale of discontinued operations — 3,125

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

Net cash used in investing activities ( 6,549 ) ( 201 )

Cash flows from financing activities:

9 unchanged sentences

Effect of exchange rate changes on cash and cash equivalents 879 ( 1,037 )

Increase (decrease) in cash and cash equivalents 28,458 ( 28,595 )

Decrease in cash and cash equivalents ( 613 ) ( 19,179 )

Cash and cash equivalents at beginning of period 37,987 62,718

10 unchanged sentences

The Company operates in the United States, Canada, Brazil and the UK.

The Company's two operating segments, Specialty Technology Solutions and Modern Communications & Cloud, are based on technology.

The Company's two operating segments, Specialty Technology Solutions and Modern Communications & Cloud, are based on technology type and are generally related to technology devices and communication, connectivity and cloud services, respectively.

Basis of Presentation

3 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 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.

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 March 31, 2023 and June 30, 2022, the results of operations for the quarters and nine months ended March 31, 2023 and 2022, the statements of comprehensive income for the quarters and nine months ended March 31, 2023 and 2022, the statements of shareholders' equity for the quarters and nine months ended March 31, 2023 and 2022 and the statements of cash flows for the nine months ended March 31, 2023 and 2022.

The results of operations for the quarters and nine months ended March 31, 2023 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 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.

There have been no material changes to the Company’s significant accounting policies for the nine months ended March 31, 2023 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 $ 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.

As a result, checks released but not yet cleared from these accounts in the amounts of $ 7.4 million and $ 18.0 million are included in accounts payable on the condensed consolidated balance sheets at March 31, 2023 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 $ 2.7 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 depreciation expense related to selling, general and administrative costs totaled $ 2.6 million and $ 8.1 million for the quarter and nine months ended March 31, 2023 and $ 2.6 million and $ 8.0 million for the quarter and nine months ended March 31, 2022.

Depreciation expense reported as part of cost of goods sold on the Condensed Consolidated Income Statements totaled $ 0.3 million and $ 0.7 million for the quarter and nine months ended March 31, 2023 and $ 0.2 million and $ 0.7 million for the quarter and nine months ended March 31, 2022.

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 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.

Intangible amortization expense totaled $ 4.2 million and $ 12.6 million for the quarter and nine months ended March 31, 2023 and $ 4.5 million and $ 13.4 million for the quarter and nine months ended March 31, 2022.

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 six months ended December 31, 2022 are set forth in the table below.

The changes in the allowance for doubtful accounts for the nine months ended March 31, 2023 are set forth in the table below.

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

December 31, 2022

March 31, 2023

(in thousands)

Trade accounts and current notes receivable allowance $ 16,806 $ 1,852 $ ( 3,595 ) $ ( 827 ) $ 14,236

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

(1) "Other" amounts include recoveries and the effect of foreign currency fluctuations for the nine months ended March 31, 2023.

(3) Revenue Recognition

30 unchanged sentences

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

Quarter ended December 31, 2022

Quarter ended March 31, 2023

Specialty Technology Solutions Modern Communications & Cloud Total

4 unchanged sentences

$ 565,652 $ 319,867 $ 885,519

Six months ended December 31, 2022

Nine months ended March 31, 2023

Specialty Technology Solutions Modern Communications & Cloud Total

4 unchanged sentences

$ 1,769,530 $ 1,071,043 $ 2,840,573

Quarter ended December 31, 2021

Quarter ended March 31, 2022

Specialty Technology Solutions Modern Communications & Cloud Total

4 unchanged sentences

$ 503,072 $ 342,918 $ 845,990

Six months ended December 31, 2021

Nine months ended March 31, 2022

Specialty Technology Solutions Modern Communications & Cloud Total

7 unchanged sentences

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

Quarter ended Six months ended

December 31, December 31,

Quarter ended Nine months ended

March 31, March 31,

2023 2022 2023 2022

7 unchanged sentences

Net income from continuing operations per common share, basic $ 0.84 $ 0.92 $ 2.81 $ 2.69

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

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

Net income per common share, basic $ 0.84 $ 0.92 $ 2.81 $ 2.69

Net income from continuing operations per common share, diluted $ 0.83 $ 0.91 $ 2.79 $ 2.66

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

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

Net income per common share, diluted $ 0.83 $ 0.91 $ 2.79 $ 2.67

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.

For the quarter and nine months ended March 31, 2023, weighted-average shares outstanding excluded from the computation of diluted earnings per share because their effect would be anti-dilutive were 779,688 and 1,152,714 , respectively.

For the quarter and nine months ended March 31, 2022, weighted-average shares outstanding excluded from the computation of diluted earnings per share because their effect would be anti-dilutive were 1,004,992 and 969,871 , respectively.

(5) Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss consists of the following:

December 31, 2022 June 30, 2022

March 31, 2023 June 30, 2022

(in thousands)

2 unchanged sentences

Accumulated other comprehensive loss $ ( 99,446 ) $ ( 104,638 )

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

Quarter ended December 31, Six months ended December 31,

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

Quarter ended March 31, Nine months ended March 31,

2023 2022 2023 2022

(in thousands)

Tax expense $ 166 $ 517 $ 580 $ 800

Tax (benefit) expense $ ( 354 ) $ 590 $ 225 $ 1,390

(6) Goodwill and Other Identifiable Intangible Assets

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.

The changes in the carrying amount of goodwill for the nine months ended March 31, 2023, by reporting segment, are set forth in the table below.

Specialty Technology Solutions Modern Communications & Cloud Total

2 unchanged sentences

Foreign currency translation adjustment — 891 891

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.

Balance at March 31, 2023 $ 16,370 $ 198,956 $ 215,326

The following table shows changes in the amount recognized for net identifiable intangible assets for the nine months ended March 31, 2023.

Net Identifiable Intangible Assets

3 unchanged sentences

Foreign currency translation adjustment 326

Balance at December 31, 2022 $ 75,950

Balance at March 31, 2023 $ 72,192

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

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

December 31, 2022 June 30, 2022

The following table presents the Company’s debt at March 31, 2023 and June 30, 2022.

March 31, 2023 June 30, 2022

(in thousands)

5 unchanged sentences

Credit Facility

The Company has a multi-currency senior secured credit facility with JPMorgan Chase Bank N.A., as administrative agent, and a syndicate of banks (as amended, the “Amended Credit Agreement”).

On September 28, 2022, ScanSource, Inc.

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 Company has a multi-currency senior secured credit facility (as amended, the "Amended Credit Agreement") with JPMorgan Chase Bank N.A., as administrative agent, and a syndicate of banks (collectively the "Lenders").

On September 28, 2022, the Company 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 extended the credit facility maturity date to September 28, 2027.

6 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 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”);

dollars, other than swingline loans, bear interest at a rate per annum equal to, at the Company’s option, (i) the adjusted term Secured Overnight Financing Rate ("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.

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.

dollars bear interest based upon the adjusted daily simple SOFR 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.

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

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.

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

Loans denominated in foreign currencies bear interest at a rate per annum equal to the applicable benchmark rate set forth in the Amended 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.

During the quarter and nine months ended March 31, 2023, the Company's borrowings under the credit facility were U.S.

dollar loans.

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 spread in effect as of March 31, 2023 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 March 31, 2023 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 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.

The Company was in compliance with all covenants under the credit facility at March 31, 2023.

The average daily outstanding balance on the revolving credit facility, excluding the term loan facility, during the nine month periods ended March 31, 2023 and 2022 was $ 227.2 million and $ 60.0 million, respectively.

There was $ 190.8 million and $ 214.2 million available for additional borrowings as of March 31, 2023 and June 30, 2022, respectively.

There were no letters of credit issued under the multi-currency revolving credit facility at March 31, 2023 or June 30, 2022.

Mississippi Revenue Bond

On August 1, 2007, the Company entered into an agreement with the State of Mississippi to provide financing for the acquisition and installation of certain equipment to be utilized at the Company’s Southaven, Mississippi warehouse, through the issuance of an industrial development revenue bond.

The bond matures on September 1, 2032 and accrues interest at the 30-day LIBOR rate plus a spread of 0.85 %.

The terms of the bond allow for payment of interest only for the first 10 years of the agreement, and then, starting on September 1, 2018 through 2032, principal and interest payments are due until the maturity date or the redemption of the bond.

The bond matures on September 1, 2032.

The bond accrued interest at the 30-day LIBOR rate plus a spread of 0.85 %, until March 31, 2023.

An April 1, 2023 amendment changed the benchmark interest rate from LIBOR to SOFR.

Effective April 1, 2023, the bond accrues interest at the one-month term SOFR plus an adjustment of 0.10 % plus a spread of 0.85 %.

The terms of the bond allow for payment of interest only for the first 10 years of the agreement.

Starting on September 1, 2018 through 2032, principal and interest payments are due until the maturity date or the redemption of the bond.

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 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.

At March 31, 2023, the Company was in compliance with all covenants under this bond.

The interest rates at March 31, 2023 and June 30, 2022 were 5.52 % and 1.97 %, respectively.

Debt Issuance Costs

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.

At March 31, 2023, net debt issuance costs associated with the credit facility and bond totaled $ 1.7 million and are being amortized on a straight-line basis through the maturity date of each respective debt instrument.

(8) Derivatives and Hedging Activities

8 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 $ 47.4 million and $ 34.5 million for the exchange of foreign currencies at December 31, 2022 and June 30, 2022, respectively.

The Company had contracts outstanding for purposes of managing cash flows with notional amounts of $ 37.9 million and $ 34.5 million for the exchange of foreign currencies at March 31, 2023 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 and six months ended December 31, 2022 and 2021 are as follows:

Quarter ended Six months ended

December 31, December 31,

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 and nine months ended March 31, 2023 and 2022 are as follows:

Quarter ended Nine months ended

March 31, March 31,

2023 2022 2023 2022

(in thousands)

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

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

Net foreign exchange derivative contract losses $ 564 $ 3,464 $ 1,873 $ 1,289

Net foreign currency transactional and re-measurement gains ( 59 ) ( 3,206 ) ( 98 ) ( 66 )

Net foreign currency exchange losses $ 505 $ 258 $ 1,775 $ 1,223

5 unchanged sentences

The Company manages its exposure to changes in interest rates by using interest rate swaps to hedge this exposure and to achieve a desired proportion of fixed versus floating rate debt.

On April 30, 2019, the Company entered into an interest rate swap agreement, which was amended on September 28, 2022 to change the reference rate from LIBOR to SOFR.

On April 30, 2019, the Company entered into an interest rate swap agreement to lock into a fixed LIBOR interest rate, which was amended on September 28, 2022, to change the reference rate from LIBOR to SOFR.

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.

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 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,

On March 31, 2023, the Company entered into an interest rate swap agreement to lock into a fixed SOFR interest rate with a notional amount of $ 25 million and a maturity date of March 31, 2028.

These interest rate swap agreements are designated as cash flow hedges to hedge the variable rate interest payments on the revolving credit facility.

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

To the extent the swaps are effective in offsetting the variability of the hedged cash flows, changes in the fair value of the swaps 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 and nine months ended March 31, 2023 and 2022.

The components of the cash flow hedge included in the Condensed Consolidated Statement of Comprehensive Income for the quarters and nine months ended March 31, 2023 and 2022, are as follows:

Quarter ended Nine months ended

March 31, March 31,

2023 2022 2023 2022

1 unchanged sentence

Net interest (income) expense recognized as a result of interest rate swap $ ( 556 ) $ 532 $ ( 869 ) $ 1,689

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

Unrealized (loss) gain in fair value of interest rate swap ( 1,013 ) 3,675 1,837 4,658

Net (decrease) increase in accumulated other comprehensive income ( 1,569 ) 4,207 968 6,347

Income tax effect ( 404 ) 1,063 250 1,617

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 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

Net (decrease) increase in accumulated other comprehensive income, net of tax $ ( 1,165 ) $ 3,144 $ 718 $ 4,730

The Company used the following derivative instruments at March 31, 2023 and June 30, 2022, reflected in its Condensed Consolidated Balance Sheets, for the risk management purposes detailed above:

March 31, 2023 June 30, 2022

Balance Sheet Location Fair Value of

17 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 December 31, 2022:

The following table summarizes the valuation of the Company’s remaining assets and liabilities measured at fair value on a recurring basis at March 31, 2023:

(Level 1) Significant

20 unchanged sentences

Derivative instruments, such as foreign currency forward contracts, are measured using the market approach on a recurring basis considering foreign currency spot rates and forward rates quoted by banks or foreign currency dealers and interest rates quoted by banks (Level 2).

Fair values of interest rate swaps are measured using standard valuation models with inputs that can be derived from observable market transactions, including LIBOR spot and forward rates (Level 2).

Fair values of interest rate swaps are measured using standard valuation models with inputs that can be derived from observable market transactions, including SOFR spot and forward rates (Level 2).

Foreign currency contracts and interest rate swap agreements are classified in the Condensed Consolidated Balance Sheets as prepaid expenses and other non-current assets or accrued expenses and other long-term liabilities, depending on the respective instruments' favorable or unfavorable positions.

2 unchanged sentences

The Company is a leading provider of technology solutions and services to customers in specialty technology markets.

The Company has two reportable segments, based on technology.

The Company has two reportable segments, based on technology type.

Specialty Technology Solutions Segment

The Specialty Technology Solutions segment includes the Company’s business in mobility and barcode, POS, payments, security and networking technologies.

Mobility and barcode solutions include mobile computing, barcode scanners and imagers, radio frequency identification devices, barcode printing and services.

Mobility and barcode solutions include mobile computing, barcode scanners and imagers, radio frequency identification devices, barcode printing and related services.

POS and payments solutions include POS systems, integrated POS software platforms, self-service kiosks including self-checkout, payment terminals and mobile payment devices.

9 unchanged sentences

Selected financial information for each business segment is presented below:

Quarter ended Six months ended

December 31, December 31,

Quarter ended Nine months ended

March 31, March 31,

2023 2022 2023 2022

22 unchanged sentences

$ 885,519 $ 845,990 $ 2,840,573 $ 2,567,652

December 31, 2022 June 30, 2022

March 31, 2023 June 30, 2022

(in thousands)

15 unchanged sentences

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 condensed consolidated financial statements at December 31, 2022 and the consolidated financial statements at June 30, 2022.

The gross amount of the balances recorded related to finance leases is immaterial to the condensed consolidated financial statements at March 31, 2023 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 Sheets related to operating leases at December 31, 2022 and June 30, 2022:

December 31, 2022 June 30, 2022

The following table presents amounts recorded on the Condensed Consolidated Balance Sheets related to operating leases at March 31, 2023 and June 30, 2022:

March 31, 2023 June 30, 2022

Operating leases Balance Sheet location (in thousands)

2 unchanged sentences

Long-term operating lease liabilities Other long-term liabilities $ 10,284 $ 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 and six months ended December 31, 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 December 31, Six months ended December 31,

Quarter ended March 31, Nine months ended March 31,

2023 2022 2023 2022

3 unchanged sentences

$ 1,715 $ 1,683 $ 5,054 $ 4,843

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

Supplemental cash flow information related to the Company's operating leases for the nine months ended March 31, 2023 and 2022 are presented in the table below:

Nine months ended

(in thousands)

1 unchanged sentence

Right-of-use assets obtained in exchange for lease obligations 746 2,313

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

December 31, 2022

The weighted-average remaining lease term and discount rate at March 31, 2023 are presented in the table below:

March 31, 2023

Weighted-average remaining lease term 3.80 years

Weighted-average discount rate 4.30 %

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

The following table presents the maturities of the Company's operating lease liabilities at March 31, 2023:

Operating leases

5 unchanged sentences

(12) Commitments and Contingencies

The Company and its subsidiaries are, from time to time, parties to lawsuits arising out of operations.

The Company is, from time to time, party to lawsuits arising out of operations.

Although there can be no assurance, based upon information known to the Company, the Company believes that any liability resulting from an adverse determination of such lawsuits would not have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

1 unchanged sentence

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 $ 3.0 million and $ 4.1 million at December 31, 2022 and June 30, 2022, respectively.

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 December 31, 2022 and June 30, 2022:

December 31, 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 $ 3.2 million and $ 4.1 million at March 31, 2023 and June 30, 2022, respectively.

March 31, 2023 June 30, 2022

(in thousands)

4 unchanged sentences

(13) Income Taxes

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.

Income taxes for the quarters and nine months ended March 31, 2023 and 2022 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 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.

During the quarter ended March 31, 2023, there were no material discrete items.

For the nine months ended March 31, 2023, 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 29.1 % and 27.8 % for the quarter and nine months ended March 31, 2023 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 27.8 % and 25.6 % for the quarter and nine months ended March 31, 2022.

As of March 31, 2023, 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 December 31, 2022, foreign subsidiaries repatriated cash of $ 9.1 million to the United States.

During the quarter ended March 31, 2023, foreign subsidiaries did not repatriate any cash 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 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 had approximately $ 1.2 million and $ 1.1 million of total gross unrecognized tax benefits at March 31, 2023 and June 30, 2022.

Of this total at March 31, 2023, 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 December 31, 2022 and June 30, 2022, the Company had approximately $ 1.2 million accrued for interest and penalties.

At March 31, 2023 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.

10 unchanged sentences

The Company finalized the sale of the Latin America businesses on October 30, 2020.

Th e Company also finalized the sale of the Europe and UK business on November 12, 2020.

Th e Company also finalized the sale of the Europe and UK businesses on November 12, 2020.

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 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.

There were no components of net income or loss from discontinued operations for the quarter and nine months ended March 31, 2023 or the quarter ended March 31, 2022.

During the nine months ended March 31, 2022, 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 March 31, 2023 and June 30, 2022.

There were no cash flows from discontinued operations for the nine months ended March 31, 2023 and 2022.

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